Daily Market Newsletter
May 16, 2017Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
View Doc's New Book
May Expiration
Day(s)
:
Hour(s)
:
Minute(s)
:
Second(s)
Market Commentary
The angst that I hear on a daily basis from traders trying to make a living from this market…..is getting louder as we close in on Bubble territory. The big difference between this rally and the one in 1999/2000 is that most of the gains are concentrated on just a few stocks, so while the beginning of the rally was broad-based, it has been really concentrated on the “usual suspects” as of late. The end of these moves is usually characterized by complete disbelief as the target stocks get bid up in a runaway manner, leaving the others languishing and creating a bubble out of the targets. We are slowly transitioning over to more short-delta positions to hopefully take advantage of any shocks to the system.
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:
- Watch for the SPY levels on the EM fade listed below.
- I have a Whale setup on BIDU detailed in the “Whale Trade” section below.
- Please note my actions on my X short put position below; I was assigned the stock today and immediately sold calls against it.
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.
- Please note the GTC limit orders added for the new trades entered on Monday.
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 below average today. Breadth was mediocre with -103 advancers minus decliners.
SPX Market Timer : The Intermediate line turned up into the Upper Reversal Zone, now showing a bullish bias. The Near Term line joined it to form a strong 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 sideways trend, and a short-term downtrend. The Dow is in an intermediate uptrend and short-term sideways trend.
VIX: The VIX rose 2.21% to 10.65, back inside the bollinger bands. The RVX fell to 15.37 and is back inside the bollinger bands.
Fibonacci Retracements: The SPX has come down to the 23.6% Fib Retracement of the entire November-March rally.
Support/Resistance: For the SPX, support is at 2320 … with overhead resistance at about 2400. The RUT has support at RUT 1335 with overhead resistance at about 1426. 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 pulling out of exhaustion with a reading of 38. The Weekly chart is now recharging quickly with an energy reading of 62, due to the recent chop. The Daily chart is showing a level of 61 which is fully-charged again. Charts are doing precisely what they need to do to work off the enormous move off of the election bottom. We will start to see movement very soon.
Other Technicals: The SPX Stochastics indicator flattened to 79, below overbought. The RUT Stochastics indicator fell to 35, mid-scale. The SPX MACD histogram dropped above the signal line, showing a loss of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2351 and resistance at the upper band at 2420 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1371 to 1420 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. Markets are still showing perfect “Quiet & Trending” behavior regardless of what we “think” that they should do.
Position Management – NonDirectional Trades
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.
- CTRP 26MAY/2JUN 53.5/55.5 Short Call Diagonal (5.15) was entered for a $.97 credit. I will try to secure a $.63 debit closing level.
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 sold 19MAY $18 calls (3/27) against this position for a $.22 credit.
- X – I added the 19MAY $25 puts (3/13) for $.37 credit and was assigned at the $25 price level (5/16). I sold 21JUL X $25 calls against this position for a $.40 credit. I will bail out of this position if the price closes below $16/share.
- AMD – I sold 19MAY $10 puts (3/27) for a $.25 credit, and 16JUN $9 puts (5/8) for $.25 credit. Bounced nicely at $10/share.
- NVDA – I sold the 19MAY $80 puts (3/13) for $.90 credit.
- XLF – I sold the 16JUN $22 puts (4/10) for $.25 credit and will accept assignment if the price pulls back.
If the summer pullback finally comes, I’ll have to be careful not to enter too early, and look for values/levels that correspond with “value” entries.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – I entered the IWM 2JUN 140/142 (4/26) for a $1.01 debit, and will look for a 50% return from this position.
- RSI(2) CounterTrend – . I will continue to look for additional setups.
- 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.
This is a new section that I’m going to start laying out trades for weekly “expected moves.” The S&P500 has done a nice job of moving pretty much to one end of the overall expected move every week. We can either speculate on that direction ahead of time using OTM spreads, or we can “fade” the price when it hits one of the EM levels.
Viewing the SPY from Friday’s close.at 238.98, there is a +/- 2.439 EM into Friday.
The EM for this Friday’s close is 241.42 to the upside, and 236.54 to the downside.
We can also look to fade either level when touched with an ATM debit spread. At this point if the price rallies up to the 241.4 level then I will set up a 19MAY in/out put spread against it, otherwise if we see a move down to the 236.54 level we will set up a 19MAY in-out call spread
I have the following positions:
- QQQ 19MAY 116 Puts (2/16) were bought for $.70 debit. Still need more downside movement to light this position up.
- SPY 21JUL 229/230 Debit Put Spread (5/15) was entered for a $.14 debit.
Today I set up a speculative SPY vertical spread that targets the SPY 230 level by mid-July. by adding a 21JUL 229/230 debit vertical put spread for $.14 debit and will have greater than a 4-1 reward-to-risk on the trade should we see a quick downdraft.
I have the following positions:
- TWTR 16JUN 21/22 Debit Call Spread (2/6) was entered for a $.20 debit.
- C 23JUN 63.5/64.5 debit call spread (5/15) was entered for $.27 debit. Let’s look for a 100% return from this trade.
I would like to add a speculative “whale” call spread on BIDU with the 23JUN BIDU 202.5/205 call debit spreads, currently going for about $.41/contract.
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
I will likely clear all put options if the price drops 5% from the recent highs at SPX 2400. Not sure that I can expect much more than that given the current climate.
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 AUG17 214 long puts (5/2) – I entered this position for a $1.22 debit.