Daily Market Newsletter

Dip buyers could not resist a massive 12-point sell-off in the S&P’s and gobbled them up in the late morning. I think that this might be the “choppy” period before the quick dip in late January. I would anticipate that big banks might create good results on Friday morning, so in today’s video I’ll show how to play earnings in those. I also have a ratio butterfly that I’ll discuss in tonight’s video to capture the S&P coiling in the near term.

The scan for the “Cheap Stocks with Weeklys” is available here.

The RSI(2) FE scan is available here.

The current MAIN “high liquidity” watchlist that I’m scanning against in thinkorswim is available here.

The latest crypto video (Bitcoin Trillion) is available here

Please sign up for our free daily crypto report here.

If you cannot view today’s video, please click here to view an embedded flash video.

Offensive Actions

Offensive Actions for the next trading day:

SPY Expected Move levels have been derived; see the “Weekly EM” section below for actions, however I will not fade the upper target EM level since it was violently blown through.
Looking for the next NUGT put entry for the 19JAN series; please see “stocks” section below.
I’ll enter the SPY Ratio Butterfly tomorrow; see “ratio butterfly” section below for details.

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.

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

Technical Analysis Section

Market Internals: Volume was average today and breadth was weak with -112 advancers minus decliners.

SPX Market Timer : The Intermediate line flattened in the Upper Reversal Zone, still showing a bullish bias. After seeing a strong bearish cluster for the fifth day in a row, this chart faded lower today.

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 to 9.82, inside the bollinger bands. The RVX flattened to 13.80 and is inside the bollinger bands.

Fibonacci Retracements: If we see an actual pullback then I’ll start to determine fib levels that might act as potential support.

Support/Resistance: For the SPX, support is at 2672 … with no overhead resistance. The RUT has support at RUT 1505 with no overhead resistance. 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 now down into exhaustion again with a reading of 24. The Weekly chart is now in exhaustion with an energy reading of 28, due to the recent trend. The Daily chart is showing a level of 29 which is now in technical exhaustion and almost as low as we normally see it during the finale of a rally.

Other Technicals: The SPX Stochastics indicator rose to 84, overbought. The RUT Stochastics indicator flattened at 85, overbought. The SPX MACD histogram fell above the signal line, showing a loss of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2636 and resistance at the upper band at 2756 and price is at the upper band. The RUT is inside the Bollinger Bands with its boundaries at 1514 to 1572 and price is below the upper band.

We are seeing the market reaching into a full “runaway” condition, where “fear of missing out” means abandoning any former patience and “wait for the dip” strategy. This usually occurs near the top of the intermediate move.

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.I have not put this strategy into play since the 2016 Brexit reaction as the ultra-low risk premium in today’s market has not made this a wise strategy to pursue due to the inherent risk against the backdrop of super-low risk premium.

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.

I would need to see a SIGNIFICANT pullback to make me want to initiate this strategy again. Those selling call spreads are screaming in pain once again.

I have no positions at this time. Not the right type of market for non-directional trades. I might consider a LP Condor if the SPX hits a daily energy level of 25.

I have no remaining positions. This is normally a perfect time to be selling calendar spreads against the RUT or SPX due to the exhaustion levels, however with my most recent experience with them in September, the effort was barely worth the hassle since we’re selling 6% vol and buying 7.5% vol against it. I might target higher IV underlyings to overcome this, at the risk of seeing greater movement.

The calendar spread tracking sheet is available for your download here. Yes, if you follow the math in the sheet, all of the numbers account for commissions in and out of the trade. 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 personally believe that while markets are in “runaway” mode, easy gains may be had however there is always a huge amount of risk to “buying at the top.” To combat this risk, I am targeting stocks using short puts/covered calls that offer a much lower absolute risk point, where in event of crash we can almost define our total risk by the price of the underlying. While this is not how I intend to manage risk in these positions, I view this as fundamentally more solid than trying to actively manage risk on assets that are going for $$$hundreds which have also gone parabolic.

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. I sold the 19JAN $15 puts (12/4) for $.19 credit. I also sold FEB18 $17 calls (1/2) against my stock position for $.17 credit.
NUGT stock – We are once again green light on NUGT. I am currently trying to secure an entry (below) on the 19JAN series..
DUST – We are out of DUST for the time being.

I will look for the next pullback to sell NUGT puts. I’ll look to sell 19JAN 28.5 puts for at least a 1% return, or a $.30 credit minimum.

I would like to pursue the next pullback in BAC to sell puts. Earnings are coming soon. .

OIH looks like a good candidate now, as it pulls back after this breakout.

If we see a pullback in January, I want to be very aggressive to be selling puts against stocks that I would be OK owning.

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover – Looking for the next 8/21 ema entry. The last entry was at the end of August.
RSI(2) CounterTrend – Looking for the next setup.
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.

Perhaps it’s time to go “alt-coins.” The latest video shows “Why NEO will be $1000” and you might also want to view “Bitcoin One Trillion?”

Please refer to the left sidebar section if you’d like to get caught up on “FAQ” -style intro videos.

I will be part of the creation of a new advisory site “readysetcrypto.com” which will actually start creating a daily advisory service in mid-January. Crypto is such a different world that it shares very little with the equities and options world and I cannot give it proper due in this newsletter. You’re welcome to sign up for our free daily report to start getting plugged into this exciting new world.

Investors should currently be looking to find technical entries to warehouse BTC/ETH/LTC assets for eventual trades on Alt-coins. You should also be looking to devices like “trezor” or other cold-storage devices to keep your assets off of the network, or other secure wallet such as Navcoin. Relying on the security of your broker is no longer good enough; no one can log into your ETrade account and “steal” your stock assets, but the whole nature of Cryptocurrencies and their portability means that someone can grab your assets and transfer them elsewhere.

I will continue to discuss the tradingview platform in daily videos as I think that it is currently the best way to chart the “big three.”

Here is a recent video which is “Top Ten Sleeper Crypto picks”

Viewing the SPY from the current Friday closing price at 273.42, there is a +/- 2.2.38 EM into this coming Friday. This is about normal compared to the average EM that we’ve seen this past year.

The EM targets for this Friday’s close is 275.66 to the upside, and 271.18 to the downside.

After seeing the upper EM blown through this past week, I am definitely interested in fading either level this week as all timeframes approach exhaustion. The price got very close to the upper EM level on Tuesday.

I have no current positions.

I will set up a 31JAN SPY 274/276/278 Ratio Butterfly tomorrow; after market I show this trade with a $.26 credit. If there is a big gap in either direction I will move strikes up or down to achieve about the same setup.

Entry criteria are:

Using calls
17 to 50 calendar days
center strike .25 to .40 delta
ratio is 1/3/2 quantity, from the bottom, calls are long/short/long

We will exit the spread at a 60-70% level of credit received. The max risk on the trade is defined on the graph if the price goes much higher. There are no early exits, only exiting the week of expiry to avoid assignment. Also avoid dividend periods.

I am currently trialing some trades and will discuss them in the newsletter; after a few cycles, I will start adding these trades to circulation.

TOS scan code: http://tos.mx/hvWmMl

I have the following positions:

SPY 31JAN 261/262 Debit Put Spread (12/29) entered for a $.12 debit. I will look for a minimum 100% return from this trade after commissions.
KRE 2FEB 59.5/60.5 debit call spread (1/5) entered for a $.50 debit. I will look for a 50% return from this trade. If you want to remove this trade for a profit prior to the Big Bank earnings, do so by tomorrow. I will hold.
WMT 9FEB 100/101 debit call spread (1/8) entered for $.53 debit; I will look for a 50% return.

No setups for tomorrow.

The “Hindenburg Strategy” is meant to capture “value” from successive corrections that lead up to the final “death spiral” with a Bear Market. The basic principle is to buy 3-month out long puts on the SPY, and to finance those puts by the sale of credit spreads.

Frankly, 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 JAN18 229 long puts (10/11) – i entered this position for a $1.19 debit.
SPY MAR18 240 long puts (12/20) – I entered this position for a $.94 debit