Daily Market Newsletter
July 7, 2018Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
July Expiration
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Market Commentary
Friday’s Jobs report did indeed move the market as predicted, with a “beat” causing the Dow to rise .41%, the S&P to gain .85%, and the NASDAQ 100 to rise 1.5%. Markets are still in uptrends, as the 2Q earnings season kicks off this week.
Did the overall market just dodge a bullet, or has the die been cast for a negative summer? If I look at the NASDAQ and the Russell 2000, it would appear that traders just bought the dip. When we look at the Dow Industrials (as well as the Transports) and the S&P500, I would say that the conclusion is much less clear. Both Dow cousins look very weak and are in larger-term bear flags. Most of the larger components of the Dow are in chart patterns that look to be anything but positive.
If anything, the direction of the overall market is much less clear now after the roiling headlines over the past two months which have put pressure on any company that does business directly overseas; most of the Dow components fall under this category, so what we could be doing in the near future is watching a “bifurcated” market continue to split down the middle. Friday’s Jobs report showed that the economy is still doing well despite these recent headwinds, and 2Q earnings are expected to be strong again.
I think that our strategy has to be to play the winners, at least for the time being, and see whether the large-caps drag the rest of the market lower, or whether Tech ends up dragging the rest of the market higher with it.
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 (Cryptocurrency Market Visualized) is available here
Please sign up for our free daily crypto report here.
If you need a video link with an embedded player you can use this link.
Offensive Actions
Offensive Actions for the next trading day:
- I’m going to set up a SPY long condor for the 20JUL series on the SPY; see “Weekly EM” section below.
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.
- Closing orders have been entered for all new spreads.
- I will close my duration SPX Iron Condor on Monday; see HP Condors section below.
- A test of the 200 day SPX moving average would cause an exit from the Hindenburg strategy; see below.
- I’m going to start thinning out the NUGT position; see “stocks” section below.
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 average Friday and breadth ended the day very strong with +371 advancers minus decliners
SPX Market Timer : The Intermediate line rose below the Upper Reversal Zone, now showing a bullish bias. No leading signals at this time but this chart is close to a weak bearish cluster.
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 downtrend and short-term uptrend.
VIX: The VIX fell to 13.37 after peaking at 50.3 four months ago, back inside the bollinger bands. The RVX fell to 15.32 and is inside the bollinger bands.
Fibonacci Retracements: The price has retraced 38.2% of the election rally; so far this has been a garden-variety correction.
Support/Resistance: For the SPX, support is at 2600 … with overhead resistance at 2878. The RUT has support at RUT 1530 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 above exhaustion, with a reading of 49, almost fully-charged. The Weekly chart is just below fully charged with an energy reading of 49. The Daily chart is showing a level of 59 which is fully-charged again due to the non-linear action of the price. Markets are doing PRECISELY what they must in order to restore energy that has been incredibly depleted. Extreme Range Expansion leads to extreme range contraction (big swings).
Other Technicals: The SPX Stochastics indicator rose to 29, below mid-scale. The RUT Stochastics indicator fell to 33, below mid-scale. The SPX MACD histogram rose below the signal line, showing a return of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2695 and resistance at the upper band at 2806 and price is above the lower band. The RUT is back inside the Bollinger Bands with its boundaries at 1638 to 1711 and price is below the upper band. We recently saw 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. Markets are about to release from the sideways/volatile correction.
Position Management – NonDirectional Trades
I have the following positions in play:
- SPX 10AUG 2650/2660*2910/2920 Iron Condor (6/13) entered for $1.85 credit. I have placed a $.90 GTC debit limit order to close the trade down at our target profit.
Friday’s rally was a gift that we need to close positions into; on Monday I will close down the position for the lowest possible debit that I can secure. This is where closing into the early volatility would work against me; implied vol is usually higher in the first few minutes, so I want to let the market settle and the vol to come in first, and then I’ll focus on closing the position. There is also the possibility that we’ll see our GTC order hit as the debit was close to $1.00 even on Friday at times. The primary reason that we’re closing this position is because it’s about at the 30 day level at which we normally close the position.
Our next offensive cycle will commence when either 1) the price continues to rally and hits daily exhaustion, or 2) we see the price sell off from this level and we hit an exhaustion level on the downside move, allowing us to enter put spreads. I don’t see an entry on this strategy for at least a couple of weeks at the soonest; there is more potential for MOVEMENT than there is for consolidation.
I have no positions at the current time.
No setup at this point; we need to be very selective. I would not sell LP Condors if we go back into corrective mode. If the S&P stays in “quiet & trending” mode then we’ll look for the next daily exhaustion reading.
I have no remaining positions. Calendar spreads are good for markets with some volatility but they are long vega so we can’t enter them during IV spikes or periods of elevated volatility. If the price resolves back to quiet/trending then we can place these again.
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 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:
- 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 currently have 17AUG $16.50 SLV calls (6/8) for $24 credit. .
- NUGT stock – I was assigned on NUGT at the $31.5 price level.I currently own the 13JUL $30.5 calls for $.32 on 6/12. While we continue to collect premium against this stock, I will bail out on the next rally higher due to the drag on this leveraged ETF. I will stay in this position as long as we’re printing green H-A candles on the daily chart but will continue to aggressively close out this position if the price rolls over again. Please note that I will have to buy back the short calls to do so as long as we hold the 13JUL calls. On Friday I sold 20% of my position at NUGT $26.11 and Bought to Close those calls at $.05.
- BAC – I sold the 17AUG $27 puts (6/18) for $.34 credit. I will look to close these for $.05. If the price continues lower without me being able to secure an early exit, I will accept assignment.
No entries at this time.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – No current positions; we could be seeing the next crossover this week.
- RSI(2) CounterTrend – Looking for the next setup. I do not want to play these trades during overall weakness in the market.
- 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.
- Swing – I entered a GLD 20JUL 128/129 call spread for $.40 (4/12) and will hold this for the eventual breakout.
The crypto market has seen a little pop to the upside since last weekend; I believe that this is only to relieve oversold pressure and bears will reload once again soon. There has been no capitulation yet. .
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.”
Viewing the SPY from the Friday closing price at 275.42, there is a +/-3.436 EM into this Friday. This is smaller than last week’s 4.236 EM, which shows a marked difference as the trend lately had been towards an increasing EM.
The EM targets for this Friday’s close is 278.86 to the upside, and 271.98 to the downside.
Let’s set up another long condor for the back week, or the 20JUL cycle. I show that the EM targets for 20JUL are at the 270.12 and 280.72 levels. I will want to set up $1-wide debit spreads in the 20JUL cycle that cost about $.18 apiece. I will cover how to find these strikes in today’s video.
I have the following positions in play per last weekend’s advisory:
- 06JUL SPY 268/269*277.5/278.5 Long Iron Condor – filled (6/25) for $.18 on the puts and $.18 on the calls. These positions expired worthless on Friday; I think that we got a poor entry (one day late) and I was not quick enough to close the put spreads for a profit on the downdraft that came after our entry point. We missed it by *this much.* Tops are a process, bottoms are an “event.”
I have no current positions. I will consider setting up another ratio fly as price approaches resistance:
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 had the following positions:
- ABT 6JUL 62/64 debit call spread (6/4) was entered for a $.93 debit. I closed this position (7/6) for a $.32 credit which was not a winner but at least I was able to harvest some credit from the trade on the last day.
- XLV 6JUL 84.5/85.5 debit call spread (6/6) was entered for a $.49 debit. I closed this position (7/6) for my $.79 credit profit target. This took until the very last day to pay out.
- IBB 20JUL 112/114 debit call spread (6/20) was entered for a $1.00 debit. I closed this position at the profit target (7/6) for a $1.60 credit .
Friday was a good example why I don’t close down these positions early to “minimize the loss.” The ABT position was worthless on Thursday, yet yielded some harvest. The XLV position achieved target profits on the last possible day to do so.
No entries at this time. Few stocks have good setups right now.
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
- I entered the 17AUG SPY 245 puts (5/14) for a $1.41 debit. I will hold these through the next test of the 200 dma.