Daily Market Newsletter
March 23, 2019Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
April Expiration
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Market Commentary
This month’s FOMC meeting did not disappoint for its tendency to rattle markets. We are now three days distant from the policy release and press conference, and we’ve had back-to-back 1%+ days. Why is this happening, and what does it mean going forward for us?
First, we now have a better explanation for Thursday’s odd one-way “freight train” move. It’s the old “pop & drop” move, which I’ve seen many times before. There must be some kind of inner agreement among institutions to create the amount of buying power to get markets leaning bullish one day, and the key is to watch how the price closes that day and in the overnight session as the rats leave the ship first.
Certainly one of the most obvious issues was the inversion of the yield curve on Friday; short-term rates are starting to outpace long-term rates, which is the Bond Market’s way of saying that it sees weak growth going forward, which quite frankly should not be a surprise to us as we’ve seen the Fed Funds Futures pricing in rate cuts into the back half of this year. I just think that Powell put all of his cards on the table on Wednesday so this was the market’s way of saying, “Dude, TOO much information!”
The equity market is confused because we’ve seen a really strong recovery from a true bear and these are usually not reversed right away . Investor sentiment has not been crushed just yet, although this tends to be a lagging indicator…however we never fully got into the upper “greed” quadrant to fire a contrarian sell signal.
This is going to make things kind of difficult for us to read over the next few weeks. If markets are truly turning down into a Bear, it will be a difficult, choppy Spring as markets transition back to “Sidways & Volatile” again. If this is just a hiccup due to the weekly chart exhaustion, which is my primary signal right now, then we might have a couple of weeks of chop upcoming. The Russell 2000 has changed polarity on the daily chart, meaning that we’re seeing a weekly pullback. None of these are fatal…yet. If the RUT pulls back beyond 38.2%, then the overall market might be in trouble. Remember “tops are a process” and it might take some time before price really releases in one direction or another.
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Offensive Actions
Offensive Actions for the next trading day:
- Let’s use the volatility spike to sell a LP SPX Condor on Monday; see “LP Iron Condors” 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 the PYPL long call spread on Monday as long as I can realize a positive return on the trade.
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 well above-average Friday and breadth ended the day very weak at -357 advancers minus decliners.
SPX Market Timer : The Intermediate line fell within the Upper Reversal Zone, still 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 downtrend, and a short-term downtrend. The Dow is in an intermediate uptrend and short-term downtrend.
VIX: The VIX rose to 16.48 after peaking at 50.3 a year ago, inside the bollinger bands. The RVX rose to 20.84 and is outside the bollinger bands.
Fibonacci Retracements: The price has moved through several important Fib levels and is not caring about any confluence levels that these present. The recent retracement did not even get to the 23.6% fib retracement. We’ll see if fibs start to matter again.
Support/Resistance: For the SPX, support is at 2700 … with overhead resistance at 2941. The RUT has support at RUT 1500 with overhead resistance at 1600 and 1742. The S&P500, Russell 2000, Dow, and Nasdaq 100 have all printed a Death Cross with the 50ma crossing below the 200ma; this can be a leading signal for a true Bearish move. It can also signal “false” and create a massive swing higher. We might be seeing the latter scenario.
Fractal Energies: The major timeframe (Monthly) is charged again, with a reading of 59. The Weekly chart has an energy reading of 33, in exhaustion from the uptrend. The Daily chart is showing a level of 39 which is just above exhaustion.
Other Technicals: The SPX Stochastics indicator rose to 77, below overbought. The RUT Stochastics indicator rose to 52, mid-scale. SPX MACD histogram fell below the signal line, showing a loss of upside momentum. The SPX is inside the Bollinger Bands with Bollinger Band support at 2746 and resistance at the upper band at 2852 with price is below the upper band. The RUT is outside the Bollinger Bands with its boundaries at 1506 to 1600 and price is below the lower band. The price is starting to release after the recent Bollinger Band squeeze.
Position Management – NonDirectional Trades
I have the following positions in play:
- SPY 27MAR 271/272*287/288 Long Iron Condor (2/25) entered for $.18 debit on the call spreads and $.16 debit on the put spreads. I will look for a 200% return on each side individually and may the best side win.
No additional trades for now.
I have no positions in play.
Let’s use this newfound vol to sell into and anticipate a couple of weeks of difficult chop.
I will set up an SPX 18APR LP Iron Condor on Monday with $5 spreads for a $2.50 credit. I will start the strike selection process by targeting short options at .30 delta strikes, and then tweak one side or another until I can get a $2.50 midpoint. We will look for a 25% return on risk from the position and will risk a max of $250/contract.
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I have no current positions:
Calendar spreads are good for markets in quiet/trending character, but not sideways/volatile which might be coming next. If the market reverts back to quiet/trending, then I’ll look to continue this method.
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:
- SLV Stock – I have 1000 shares of the SLV that was assigned at the $15 level. I currently have the SLV 18APR $15.5 calls (2/11) for a $.17 credit.
- EBAY 26APR $34 puts (3/11) sold for $.73 credit. I will look to remove this trade for a $.10 debit.
- PFE 17MAY $39 puts (3/18) sold for $.39 credit.
No additional trades at this time.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – Looking for the next signal.
- RSI(2) CounterTrend – None at this time.
- Daily S&P Advancers – Looking for the next signal to go long when we have single-digit advancers on the ADSPD.
- Swing – I have no positions at this time.
Crypto has had relative strength over the last few weeks and no one believes this rally.
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.”
From Friday’s close at SPY 279.25, there is a +/-5.268 EM into this coming Friday; this is significantly larger than last week’s 3.382 EM. The EM targets for this Friday’s close are 284.52 to the upside, and 273.98 to the downside.
I discussed the EM fade in Thursday’s newsletter, and once the first “lower high” printed in the first 15 minutes on Friday morning, the rout was on. I took the 22MAR 283 put long for $1.51 and closed it for $3.02 for a profit of $149/contract for nearly a 100% return..
I will start playing directional bear spreads once we see upside exhaustion on more than one timeframe.
The scan that I discussed in the 8/4/2018 video is available to download for thinkorswim here: http://tos.mx/OvdVnz I will also be adding a second Larry Connors scan to this section as well; here is the Connors Crash scan: http://tos.mx/BhHuKL
I have the following positions in play:
- UPS 29MAR 112/113 Debit Call Spread (3/4) entered for $.50 debit. This one got run through by FDX’s outlook.
- SBUX 29MAR 71/72 Debit Call Spread (3/4) entered for $.50 debit. I closed this position for a $.74 credit (3/21) which gave us a $20/contract profit after commissions, or a 40% return on capital.
- CSCO 26APR 52/53 Debit Call Spread (3/13) entered for $.50 debit. I sold this position into strength (3/20) for a $.74 credit. That gave me a $20/contract profit after commissions, or a 40% return on capital.
- PYPL 26APR 101/102 Debit Call Spread (3/18) entered for $.50 debit. I will likely close this position on Monday as long as I can realize a positive return.
I think Friday’s reaction was a warning to step back from longs for a bit.
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.
I have no positions at this time. I cleared out the most recent set of puts on the drop to the 200ma back in October. I will “reload” again soon, if/when the weekly chart goes into upside exhaustion. The three-month puts are coming down in price closer to what I’d prefer to pay. (3 months out/90% of current value)