Daily Market Newsletter

November 10, 2016

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Market Commentary

For the past year all we heard about was how a Clinton administration would be market-friendly, and how a Trump administration would cause a market sell-off. So far, we had about 2 hours of a sell-off and it occurred Tuesday night after-hours. Since that point, we’ve seen what I believe are very constructive asset rotations out of tired techs and into a lot more brick-and-mortar groups, like Industrials. If regulation is eased then Energy companies have higher margins. If rates rise, then Financials have better margins. It’s entirely possibly that we could be entering an environment that is very, very friendly to the economy which has been dragging for years.

Some extended moves have occurred over the last couple of days and we’re already seeing exhaustion signals, so I’m not going to jump on something tomorrow yet, but will look across the spectrum over the weekend and we’ll choose our next approach. I’m also moving tomorrow for the first time in twenty years, so I will be surrounded in cardboard and not watching the market. I’m really looking forward to seeing what this market could turn into by the end of this year.

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Offensive Actions

Offensive Actions for the next trading day:

Nothing planned tomorrow at this time, I will look this weekend for new setups.

Defensive Actions

Defensive actions for the next trading day:

Any vertical 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

Technical Analysis Section

Market Internals: Volume was above average today. Breadth was mediocre with +100 advancers minus decliners.

SPX Market Timer : The Intermediate line turned up above the Lower Reversal Zone, 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 uptrend. 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 uptrend.

VIX: The VIX rose 2.60% to 14.74, back inside the bollinger bands. The RVX rose 1.88% to 19.48 and is back inside the bollinger bands.

Fibonacci Retracements: The SPX had retraced more than 50% of the Brexit rally, but not quite 61.8% at SPX 2061. It had also retraced more than 38.2% of the full Feb-August rally. Back up to the highs now and we might start looking at extensions.

Support/Resistance: For the SPX, support is at 2080 … with overhead resistance near 2200. The RUT has support at RUT 1090 with overhead resistance at about 1300. 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 still highly-charged with a reading of 54. The Weekly chart is now fully-charged showing an energy reading of 62, due to the recent chop. The Daily chart is showing a level of 44 which is starting to reflect the move to the upside.

Other Technicals: The SPX Stochastics indicator rose to 36, below mid-scale. The RUT Stochastics indicator rose to 26, oversold. The SPX MACD histogram rose above the signal line, showing a return of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2089 and resistance at the upper band at 2174 and is at the upper band. The RUT is outside the Bollinger Bands with its boundaries at 1154 to 1251 and price is above the upper band.

If Central Banks go “all-in” to save each sovereign economy, this will not be sustainable in the long run. We will continue to monitor price action that will show us if the character of the market is moving towards a change in character to a Quiet/Trending Bull again. For now, we’re seeing necessary corrective action come in to “shock-start” markets and volatility again. Markets have become complacent to all of the central bank monetary policy and that’s not a good thing..

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 am VERY glad that we did not get too aggressive with the put spreads this week as we would have had some anxious moments during the Tuesday night “limit down” environment. I still do not want to set up OTM credit spreads in this low-vol environment until we see real movement to the downside.

I have no positions right now; it’s highly likely that I’ll set up a LP Condor on the SPX early next week.

I have no time spreads at the current time. My preference is to take these on DAILY exhaustion and not WEEKLY exhaustion signals, since the weekly exhaustion creates unwanted price volatility. Similar to the LP Condors above, I will likely have to expand my view to include equity candidates that are showing a likely short-term consolidation. This is never my first choice due to the additional variables that we encounter.

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, and will continue to write time against these shares on every rally. I will look to sell more calls in the next bounce higher in SLV.
SSO – Waiting for the next pullback to sell puts against the SSO, preferably at the 50 level or lower. .

Nothing to do at this time with current positions.

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover -We’ll look for the next crossover, which is happening now. If we see a pullback early next week I might consider going long.
RSI(2) CounterTrend – Awaiting the next signal.
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.

Looking for the next edge. Price has been so choppy that it’s been difficult to identify the next edge.

No positions at this time.

I have no positions at the current time. We’ll wait until this weekend to look for new candidates.

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.

To remove the current series of puts, I will look for a move down to and below the SPX 2100 level. We were there but the NOV position was not profitable. If we see a real “waterfall” decline with the price coming down to about the SPX 2000 level I will at least close the NOV position and hold the JAN to exit as those positions get ATM.

I never got the upside “burst” to allow me to sell call spreads above SPY 230 that I wanted; now I can concentrate on selling put spreads at some level below SPY 190.

We currently have the following positions in play with this strategy:

SPY NOV 197 Long Puts – I entered this position (8/22) for a $1.56 debit.
SPY JAN17 193 Long Puts – I entered this position (10/24) for a $1.33 debit.