Daily Market Newsletter

May 17, 2017

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Market Commentary

A big move today, over 40 handles on the S&P’s….we haven’t seen vol like this for a while, and nerves are rattled. But this is very normal for markets that have just been at all-time highs with all-time lows in realized and implied volatility. Is this 2007 all over again? Perhaps, but every move has its own signature and this one will be no different. I have to trade with the trend as long as it’s there, and this appears to be the move that we’ve been waiting a long time for, as the Monthly chart finally reins in the smaller timeframes and expands the consolidation range. .

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:

I will set up a LP SPX Iron Condor tomorrow; please see “LP 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.
Please note the closing order for the EM SPY trade added today.

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 large today. Breadth was very weak with -346 advancers minus decliners.

SPX Market Timer : The Intermediate line turned down below the Upper Reversal Zone, now showing a neutral bias after yesterday’s strong bearish cluster. No other leading signals.

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 sideways trend, and a short-term downtrend. The Dow is in an intermediate uptrend and short-term downtrend.

VIX: The VIX rose 46.38% to 15.59, outside the bollinger bands. The RVX rose to 19.22 and is back outside 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 39. The Weekly chart is now recharging quickly with an energy reading of 65, due to the recent chop. The Daily chart is showing a level of 49 which is reflecting the move to the downside. Charts are doing precisely what they need to do to work off the enormous move off of the election bottom.

Other Technicals: The SPX Stochastics indicator flattened to 76, below overbought. The RUT Stochastics indicator fell to 34, below mid-scale. The SPX MACD histogram dropped below the signal line, showing a loss of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2356 and resistance at the upper band at 2417 and is at the lower band. The RUT is back outside the Bollinger Bands with its boundaries at 1367 to 1422 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. Markets are still showing perfect “Quiet & Trending” behavior regardless of what we “think” that they should do.

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.

No current trades at this time.

Tomorrow I will set up a 2305/2310*2395/2400 LP Iron Condor on the 7JUN series SPX for a minimum $2.50 credit. The strikes might move proportionally up or down depending on the opening gap. If you are using a smaller account then the SPY might be a better choice.

I have the following positions at this time:

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 – . There should be a lot of valid setups firing soon.
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.

Earnings for 1Q2017 are just about done with; the next cycle will start in early July.

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.

I set up a SPY 19MAY 237/238 call debit spread (5/17) for a $.51 debit, and will look for a 50% return on capital.

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.

The SPY debit spread came just in time. The QQQ puts will likely expire before doing any damage. .

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.
BIDU 23JUN 202.5/205 call debit spread (5/17) entered for $.39 debit.

No other trades at this time. Not a great environment for whales 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.

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.