Daily Market Newsletter
January 5, 2017Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
View Doc's New Book
January Expiration
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Market Commentary
Well here we go; we’ve had a three-week vacation from volatility in the Market, and it will not last. In today’s video I outline some causes for the beginning of volatility, starting with tomorrow’s NFP number, accelerating into the 4Q earnings season which starts next week, and thunders into the end of January after inaugurating a new President. Whatever you think will happen will likely NOT happen, if the current wave of unpredictable reactions continues.
Right now it’s hard for me to want to place more capital at risk without knowing what the trend of the market will be going forward. It’s easier to paddle with the current than try to fight upstream.
Making resolutions for the new year? Stop. Create a System instead. Consider joining me in a class on how to build a unique system for yourself in 2017 here.
This weekend’s report delivery will likely be delayed until Sunday morning; apologies in advance for any inconvenience .
If the above video does not work, please try this link.
Offensive Actions
Offensive Actions for the next trading day:
- No trades for tomorrow.
Defensive Actions
Defensive actions for the next trading day:
- Any vertical, butterfly, or diagonal debit spreads that we set up are risk-managed from day one, and no defense is really required.
- The new RUT LP Condors are risk-managed from day one and there is no defense other than early exit
Strategy Summary Graphs
Each graph below represents a summary of the current performance of a strategy category. For an explanation of what the graphs mean, watch this video.
Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
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Technical Analysis Section
Market Internals: Volume was above average today. Breadth was mixed with -81 advancers minus decliners.
SPX Market Timer : The Intermediate line rose into the Upper Reversal Zone, showing a neutral bias. The Near Term Line went into the Upper Reversal Zone, creating a strong bearish cluster with in the upper reversal zone which is a potential leading signal for a pause.
DOW Theory: The SPX is in a long term uptrend, an intermediate uptrend, and a short-term uptrend. The RUT is in a long-term uptrend, an intermediate uptrend, and a short-term uptrend. The Dow is in an intermediate uptrend and short-term uptrend.
VIX: The VIX fell 1.52% to 11.67, inside the bollinger bands. The RVX rose .88% to 18.26 and is inside the bollinger bands.
Fibonacci Retracements: The SPX has retraced about 23.6% of its election rally. The more important 38.2% fib retracement sits at the 2203 level.
Support/Resistance: For the SPX, support is at 2188 … with overhead resistance at 2277. The RUT has support at RUT 1300 with overhead resistance at 1393. All three major index charts that we follow are now showing a Golden Cross with the 50 day moving average crossing above the 200 day average.
Fractal Energies: The major timeframe (Monthly) is still charged with a reading of 43. The Weekly chart is declining with an energy reading of 41, due to the recent breakout. The Daily chart is showing a level of 58 which is completely recharged again; we are seeing the expected short consolidation at this level but it’s not going to last much longer as the daily energy must go somewhere. It appears to be pulling to the downside for now.
Other Technicals: The SPX Stochastics indicator flattened at 51, mid-scale. The RUT Stochastics indicator fell to 46. mid-scale. The SPX MACD histogram rose slightly below the signal line, showing a return of upside momentum. The SPX is inside the Bollinger Bands with Bollinger Band support at 2240 and resistance at the upper band at 2278 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1352 to 1390 and price is below the upper band. The Bollinger Bands are starting to squeeze, especially on the RUT.
We are seeing the market pricing in a shift in character out of the recent lifeless Fed-driven economy, and into an unrestrained one. I think this will bring about a big shift in how the market behaves.
Position Management – NonDirectional Trades
I have no positions in play; I will wait on the first significant pullback to allow me to secure put spreads below support.
Offense: I still do not want to set up OTM credit spreads in this low-vol environment until we see real movement to the downside. If and when we get this movement we’ll need to identify levels that we want our credit spreads to be “below.” This is the same type of price action that was so perilous to HP condors back in 2013, so let’s not fight it.
If I see price drop to the SPX 2200 level, this might be our first opportunity to sell premium against that level.
I have the following position:
- 20JAN SPX 2215/2220*2285/2290 LP Iron Condor (12/29) was entered for a $2.50 credit and closed (1/5) for a $2.00 debit. This gave me a net 16.8% return on risk after commissions . .
- 20JAN RUT 1335/1340*1395/1400 LP Iron Condor (1/3) was entered for a $2.75 credit. Per this weekend’s advisory, I entered this position in the first few minutes of the cash market. My preference would have been to secure the 1400/1405 strike prices for the calls, but the 1405 was not available so I made the compromise of securing a larger credit and will look for an earlier exit of $2.45 to secure the 20% return minus commissions.
Nothing to do at this point but to keep my limit order in play and look for an exit.
I have no current positions. If I see this current move continue to the upside, I’ll start to look for exhaustion signals that line up with resistance, and then sell Weekly Diagonals again.
Please note: If you trade these positions please keep the size small, to the point where you “do not care” about the success or failure of this position.
I have the following positions in play:
- SDS Stock – I still own 100 shares of this stock from 2011 and will continue to write calls against this position with every correction/pullback.
- VXX Stock – I own 12 shares of this stock and will hold until Armageddon occurs.
- SLV Stock – I have 1000 shares of the SLV that was assigned at the $15 level, and will continue to write time against these shares on every rally. I will look to sell more calls in the next bounce higher in SLV. If the price continues pulling back, I will likely sell more puts against the $13 level if I can secure them for at least $.15 credit.
- GE JAN17 30 puts (11/28) – I sold five contracts of $30 puts for $.39 credit. I will look to sell FEB17 $29 puts if the pullback continues.
- TWTR JAN17 $15 puts (11/30) I sold ten contracts of $15 puts for $.22 credit, and added another ten contracts (1/3) of $13 FEB puts for $.20. I don’t care about the recent bad press.
- RIG JAN17 $12 puts (12/8) I sold ten contracts of $12 puts for $.18 credit. I will see if the pullback gets a little stronger.
I will be continuing to “bottom fish” in the subsequent weeks to identify stock candidates that I would want to own long-term. Last week’s dip didn’t give me much of an opportunity to secure new positions.
Position Management – Directional Trades
- 8/21 EMA Crossover -This one is gone. Looking for the next crossover. .
- RSI(2) CounterTrend – Awaiting the next signal.
- Daily S&P Advancers – if I see the number of daily S&P500 advancers drop into single digits near the close of any trading day, I will go long shares of the SSO.
I have the following positions.
- 20JAN SPY 228/230/232 call butterfly (1/5) was entered for a $.34 debit. Now that I no longer need the hedge against the Iron Condor, I will discuss ways to close down this trade in the weekend report.
Quite honestly, selling the “financing” trades has been a huge challenge in this low-vol environment. I will only sell put spreads on decent pullbacks that allow me to secure put spreads 10% OTM
We currently have the following positions in play with this strategy:
- SPY JAN17 193 Long Puts – I entered this position (10/24) for a $1.33 debit.
- SPY FEB17 200 long puts – I entered this position (12/7) for a $.95 debit.
- SPY MAR17 203 long puts – I entered this position (12/28) for a $1.07 debit.