Daily Market Newsletter

March 9, 2017

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Market Commentary

The market is starting to anticipate the first “real” Trump jobs report after November’s election and all that we’ve seen after that point. Wednesday’s ADP report was very strong and raises the odds that we’ll see a strong Fed number on the NFP report tomorrow morning at 0830a ET. We are already starting to see the Ten Year Note break out as well as bonds sell off. This is also having a negative effect on the Russell 2000 stocks as the RUT is leading to the downside right now and has not found support yet. Watch for fireworks tomorrow morning, the market is ready to celebrate and is not prepared for disappointment.

Customer Notice: I will be traveling for a family emergency through Tuesday March 14th. Newsletters might be more brief, will likely come out much later in the day, and there will be no trade entries until next week. I believe that the Weekend newsletter will come out on Sunday morning. Thanks for your patience during this time.

For the next few days, I will not be able to post the video in its own flash player. You must download flash to watch the video above.

Offensive Actions

Offensive Actions for the next trading day:

I’m not going to be entering any trades while traveling over the next week; we might wait until after the FOMC reaction next Wednesday.

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.
I have a SPY Calendar Spread with action points defined below in the “Time Spreads” section.

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 just above average today. Breadth was mixed with -45 advancers minus decliners.

SPX Market Timer : The Intermediate line turned turned down inside the Upper Reversal Zone, still showing a bullish bias. The two weaker timeframes bounced higher after showing a Weak Bullish Cluster for two days in a row.

DOW Theory: The SPX is in a long term uptrend, an intermediate uptrend, and a short-term downtrend. The RUT is in a long-term uptrend, an intermediate uptrend, and a short-term downtrend. The Dow is in an intermediate uptrend and short-term downtrend.

VIX: The VIX rose 3.71% to 12.30, inside the bollinger bands. The RVX rose 1.16% to 17.51 and is inside the bollinger bands.

Fibonacci Retracements: Fibs are not in play right now.

Support/Resistance: For the SPX, support is at 2188 … with no overhead resistance. The RUT has support at RUT 1300 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 into exhaustion with a reading of 29. The Weekly chart is now technically exhausted with an energy reading of 32, due to the recent breakout. The Daily chart is showing a level of 44 which is recovering quickly. It’s rare when we have all three major timeframes in exhaustion as we had for two weeks.

Other Technicals: The SPX Stochastics indicator fell to 71, below overbought. The RUT Stochastics indicator fell to 42. mid-scale. The SPX MACD histogram fell below the signal line, showing a loss of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2315 and resistance at the upper band at 2401 and is below the upper band. The RUT is outside the Bollinger Bands with its boundaries at 1365 to 1420 and price is below the lower band.

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, but a pullback to stoke up the negativity and move into a larger trading range would be a good thing to see first.

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 positions:

AMGN 24MAR 167.5/170*180/182.5 Iron Condor (2/24) was entered for a $1.27 credit. I’m going to shoot for a $1 debit exit GTC. The price is near the top of the range but is showing exhaustion on Daily and Weekly timeframes. This trade is looking good, now we need to see some time decay hit those options.

With all index charts at maximum exhaustion, now is the highest-probability window of opportunity for range-bound trades….however it feels positively suicidal doing so. This is usually the measure of a good setup. .

I have the following positions:

SPY 24MAR/21APR 237 Put Calendar (3/6) was entered for a $1.36 debit..

I describe the management of this trade in Tuesday’s video. The Upper adjustment point is 239.27, and the lower adjustment point is 234.44. I will be traveling this week and unable to email out adjustments if required, so please use alerts on your chart to notify yourself of required actions . The 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 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 had to close out my SLV FEB calls on Friday as they slipped ITM by a few pennies. I will look for the next daily exhaustion signal to sell further OTM calls against this position.
GE Did not give us much of a pullback to sell puts against.
TWTR I will look for the next cycle of puts to sell against TWTR. .
RIG I added the $12 MAR17 puts (1/30) for $.19 credit. .So far the $13 support is holding and I’d like to see if I can secure lower, deeper puts.
X – I added the MAR17 $25 puts (1/30) for $.47 credit. .We’ll look for the next dip in price to sell again.
AMD – I sold the APR $11 puts (2/27) on AMD for $.19 credit. .

If we get more of a pullback then I can be a little more aggressive with this strategy.

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover -This one is gone. Looking for the next crossover, however it will be to the downside, and the first downside crossover is usually a poor signal. .
RSI(2) CounterTrend – I’ll look for more of these in the near future as a new range approaches.
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 no positions at this time.

I have the following positions:

DIA 10MAR 199/201 Debit Put Spread (1/30) was entered for a $.94 debit. Unless we see a crash on the DOW this trade will expire OTM this Friday.
QQQ 19MAY 116 Puts (2/16) were bought for $.70 debit.

I have the following positions:

BIDU APR17 190/195 Debit Call Spread (1/30) entered for a $.98 debit.Understand that I do not have a “stop” in this trade. I closed down half of the contracts (2/17)for a $1.82 credit, or a net profit of $80/contract. I will hold the rest of the contracts longer-term and wait on the breakout.
TWTR 16JUN 21/22 Debit Call Spread (2/6) was entered for a $.20 debit.
VLO 31MAR 67.5/69.5 Debit Call Spread (2/28) was entered for a $1.00 debit. I will look for a 50% gain from this position.

What was threatening to break out, has broken out. We might be on borrowed time with directional upside plays.

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.

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 MAR17 203 long puts – I entered this position (12/28) for a $1.07 debit.
SPY APR17 206 long puts – I entered this position (1/27) for a $.92 debit.