Daily Market Newsletter
March 20, 2017Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
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April Expiration
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Market Commentary
I saw an interesting sign of potential changing character in this morning’s market, which I’ll discuss in today’s video. I believe that the honeymoon is definitely over for this administration, and it seems like a perfect time to take profits and consolidate gains as the Spring hits the tape.The S&P is up about 5% for the year so far but it feels like much more, mostly because of the Nov/Dec rally. The expected move on the SPX into APR expiration is about 6.5 on the SPYders, or right down to the SPY 230 area. That would be a great “reset” on this market and allow some volatility again.
If the video above does not play, please try this version of the video with embedded player.
Offensive Actions
Offensive Actions for the next trading day:
- AT&T might be breaking out; see “whale trades” section below.
- I’m going to set up a bearish trade on CRM; see “bearish/fade” 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.
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 somewhat low today. Breadth was weak with -180 advancers minus decliners.
SPX Market Timer : The Intermediate line turned up into the Upper Reversal Zone, now showing a bullish bias. No leading signals at this time.
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 uptrend. The Dow is in an intermediate uptrend and short-term sideways trend.
VIX: The VIX gained .53% to 11.34, inside the bollinger bands. The RVX rose 5.80% to 14.96 and is back 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 35, due to the recent breakout. The Daily chart is showing a level of 56 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 flattened at 45, mid-scale. The RUT Stochastics indicator rose to 29. above oversold. The SPX MACD histogram fell below the signal line, showing a lack of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2355 and resistance at the upper band at 2391 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1355 to 1418 and price is below the upper 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 2300 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, and closed down the position (3/20) for a $1.14 debit. This gave me a net profit after commissions of $5/contract or not much more than break-even. After all the challenges that I had with this trade, I’m glad to be out of it net positive.
I would like to see a little more vol come into the chains first before adding more positions .
I have the following positions:
- ABBV 31MAR/7APR 64.5/66.5 Call Diagonal (3/20) was entered for a $.97 credit. I will look for a 40-50% return from this trade
I would love to put on a SPY APR/MAY calendar spread but the vol differential is poor.
ORCL is showing a potential short call diagonal setup but my preference would be for the price to try to claw higher first before entry.
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 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 will look for the next daily exhaustion signal to sell further OTM calls against this position.
- TWTR I have somewhat soured on TWTR and apparently so has the rest of the market. .
- RIG I’d like to see if I can secure lower, deeper puts.
- X – I added the 19MAY $25 puts (3/13) for $.37 credit.
- AMD – I sold the APR $11 puts (2/27) on AMD for $.19 credit.
- NVDA – I sold the 19MAY $80 puts (3/13) for $.90 credit.
If we get more of a pullback then I can be a little more aggressive with this strategy. I have a feeling that a lot of things will be on sale before long.
Position Management – Directional Trades
- 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 the following positions:
- QQQ 19MAY 116 Puts (2/16) were bought for $.70 debit.
CRM appears to be stuck in a range and I’d like to set up a trade to take advantage of any pullback in the short term. I will add the CRM 79/80 long put spread tomorrow for about a $.22 debit, and will look for about a 100% return from this trade.
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. Currently this trade is profitable but it needs to move soon.
I like AT&T for a Whale setup right now, there is the risk that the overall market will not support higher prices right now. If I see T break above the $42.70 level I’ll add a 21APR T 42/44 call spread or whatever the appropriate strike pair is that gets me into the debit spread for about a dollar.
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
Per Thursday’s report I added the JUN17 long puts. I can’t think of a better market condition to be adding long puts. I very much doubt that we’ll see a full 10% or larger haircut, however we’ll be in position at the right time.
We currently have the following positions in play with this strategy:
- SPY JUN17 215 long puts – I entered this position (3/17) for a $1.19 debit.
- SPY APR17 206 long puts – I entered this position (1/27) for a $.92 debit.