Daily Market Newsletter
May 28, 2019Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
June Expiration
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Market Commentary
Hello all. It is Alex here covering for Doc who is on vacation for the next couple of weeks.
As has been the theme of late, trade war commentary unsettled the markets yet again with comments that the US was ‘not ready to make a deal’ and that tariffs could ‘go up very, very substantially, very easily’. After last week’s struggle to make gains across any of the indices, the markets quickly retreated today after generally being up pre-market. The S&P’s were the hardest hit today giving up 1% before regaining a little steam at the close, closing down 50% of this week’s expected move, or 24 points. The 2800 support point came firmly into play again today in the S&P’s while in the Russel, price action dangerously approached the 1500 support price point but never quite touched.
On the weekend video we talked about implied interest rates and the 10 year treasury note (TNX). Today saw it drop significantly by 2.4% down for the day from the previous close, down to an implied rate of under 2.3%, it’s lowest value in the last year. It is now down 30% since last October, signaling a continued concern over growth and the recognition of potential interest rate decreases on the horizon. Over the course of the last week, the TNX candles are starting to show a waterfall formation – not a good indication for the equity market in general. In looking at the FedWatch Tool today, we see that the expectations of any further rate hikes are dead and that before the end of the year it is forecasting an 80% chance of a rate drop, anywhere up as high as 1% before year end.
Both the VIX and VVIX were up today further signalling that volatility is on the upswing with all of the markets virtually sitting at their support levels. On the SPX, the fractal energy levels are primed for a large move, with the index sitting right at the bottom of it’s consolidation zone and at it’s support level. The odds are better than average that we could see a large downside move in the near future. Keep position sizes small and understand you risk given the market internals that we are seeing showing up across the board.
Cheers
Alex
If you have any questions, please feel free to reach out to me at alex_docs_trading@outlook.com
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Offensive Actions
Offensive Actions for the next trading day:
- I will set up the next series of short calls on SLV by selling the 19JUL $15 calls; see “stocks” section below. I will keep this as an open order.
- No new orders for Monday.
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.
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 right on the 50 day average. The advancers versus decliners down -366 ending at the low for the day.
SPX Market Timer : The Intermediate, momentum and near-term lines are are now all in a downtrend however in bottom of the range. 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 sideways trend, and a short-term downtrend. The Dow is in an intermediate uptrend and short-term downtrend. All indices are at their short term support levels
VIX: The VIX expanded by over 10%, closing at 17.50, inside the bollinger bands. Likewise, the RVX expanded over 7% as well, closing at 20.81, and is inside the bollinger bands.
Fibonacci Retracements: Price is sitting at the 61.8% retracement of the March/April swing and has retraced all of the early month gains after the initial retracement
Support/Resistance: For the SPX, support is at 2791 with overhead resistance at 2954. The SPX is sitting just above the support level at 2802. The RUT has support at RUT 1500 with overhead resistance at 1617 and 1742. The Russel remains just above the 1500 support level.
Fractal Energies: The major timeframe (Monthly) is charged again with a reading of 53 but slowly dropping as some of the old choppiness works itself off. The Weekly chart has an energy reading of 49, flattening out. The Daily chart is now supercharged to a level of 69. The daily energy has now increased to above previous peak levels. With the energy levels we are now seeing, we should expect to start to see some significant moves. With all indexes sitting at support levels, any significant push downward could trigger a downside run.
Other Technicals: The SPX Stochastics indicator dropped to 17, having triggered a cross-over last Friday. The RUT Stochastics similarly dropped to 17, breaching into the lower boundary but with no crossover. The SPX MACD histogram is below the signal line, showing re-affirmed downside momentum. The SPX is inside the Bollinger Bands with Bollinger Band support at 2794 and resistance at the upper band at 2962 with price is above the lower band. The RUT closed right at the lower Bollinger Bands with its boundaries at 1496 to 1624 and price is above the lower band.
Position Management – NonDirectional Trades
I have no remaining positions in play:
- SPY 17MAY 282.5/283.5*297/298 Long Iron Condor (4/22) entered for $.16 on the put side and $.17 on the calls. The puts were closed (5/13) for a $.48 credit. This gave us a net $140 profit from the puts alone. The calls expired for a net $95 loss so our return on this trade was a net 27.2% after commissions.
With the S&P500 charts nearly at full energy again across the board, it might be time soon for another long condor.
I have no positions in play at this time.
No additional trades at this time; the timing is absolutely crucial on these trades so we have to find absolutely exhausted conditions prior to taking these entries.
I have no current positions:
Calendar spreads are good for markets in quiet/trending character. If the market reverts back to quiet/trending, then I’ll look to continue this method; if we see the daily chart go into exhaustion I’ll set up a back week calendar.
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 will go out to the 19JUL series and sell the $15 calls for at least $.15 credit.
No additional stock plays until I return from travel 2nd week June; I’d like to see if the current pullback plays out a little deeper.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – Looking for the next signal. I don’t like these signals to the short side.
- 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 set up a long swing trade on the Russell 2000 via the IWM (4/24), with a 24MAY IWM 163/164 debit call spread (4/24) for $.20 debit. At this point any kind of positive return on this trade would be welcome as I’m running out of time, a shame as this trade was within a penny of firing at my target.
Crypto had a big rally this week, and Bitcoin had a monstrous dump on Friday, effectively shaking off all of the late-to-the-party longs. So far the price action is positive.
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 Thursday’s close at SPY 285.84, there is a +/-5.309 EM into this coming Friday; this is about the same as last week’s 5.539 EM. The EM targets for this Friday’s close are 291.15 to the upside, and 280.53 to the downside.
The lower EM for this week lines up with the low test of last week, so this might be a good level to fade with an ITM call option should it be tested and offer support.
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 no remaining positions in play at this time:
- TGT 17MAY 80/82.5 debit call spread (4/9) entered for $1.25 debit and expired OTM for a net $254 loss on two contracts.
- SBUX 31MAY 77/78 debit call spread (4/29) entered for $.48 debit and closed (5/16) for $.72 credit. This gave me a net profit of $20/contract or 42% net return on capital after commissions. .
- MCD 7JUN 197.5/200 debit call spread (5/6) entered for $1.14 debit and closed (5/17) for $1.57 credit, giving us a net $39/contract profit or a 34.2% return on capital after commissions.
We are also keeping an eye on the Momentum stocks in this section. Most of those are a little extended at this point and this pullback might do the rest of the market a lot of good. I would like to let the market settle first before going heavily long.
No other entries at this point.
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.