Daily Market Newsletter

Third quarter earnings are all but over, there is a 91.5% chance that the Fed will raise rates in December, and markets are already up substantially on the year. What possible catalysts are there to continue the run? After seemingly being forever on the brink of crashing, Bonds are starting to soften as interest rates begin to rise into December. It’s as if the Bond market doesn’t believe in this equity rally and strengthening numbers, and is daring the greater market to blink. Now if that does occur, then money will flip out of bonds and into equities…again….unless other fixed-rate instruments begin to rise and attract “safe harbor” capital. The higher that rates do actually rise, the more difficult that it becomes for money to find its way to equities, especially after nine years of unchecked gains.

A little incident that occurred around me this morning reminded me once again that you cannot be too prepared when it comes to understanding recovery and disaster planning; make sure that you have a backup plan in place in case you lose power, lose internet, or lose general connectivity to your provider. We put a lot of faith into those systems’ availability but there always seems to be that one “perfect storm” where events collude against you. Know what to do in case you can’t get there from where you are.

The market remains at extreme risk of an “exogenous event” which is news coming into the market that has not already been priced in. We could easily see a 3-5% single day event if the wrong news hit the wire. Make sure that your treatment of risk in your account can account for that potential move. We should continue to trade with the uptrend but in this Musical Chairs market, the music can stop very quickly. Any dip regardless of depth should create higher prices to follow.

The scan for the “Cheap Stocks with Weeklys” is available here.

The current MAIN “high liquidity” watchlist that I’m scanning against in thinkorswim is available here.

The latest crypto video (WaltonChain FAQ2 Q&A) is available here

If you cannot view today’s video, please click here to view an embedded flash video.

Offensive Actions

Offensive Actions for the next trading day:

Weekly EM levels have been set; see “weekly EM” section below.
I will look to sell 17NOV calls against my NUGT stock position, see “stocks” below.
I will look to sell the next series of DUST puts, see “stocks” section below.
I have two RSI(2) entries available, see the “swing trades” section below.
I will enter a ratio butterfly on the SPY on Monday, see “ratio butterfly” 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.

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 average Friday and breadth was mixed with -47 advancers minus decliners.

SPX Market Timer : The Intermediate line flattened in the Upper Reversal Zone, still showing a bullish bias. This chart has faded lower after showing a Strong Bearish Cluster for two days in a row last week, after the previous Friday’s Full Bearish Cluster, both of which are a leading signal for a pause.

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

VIX: The VIX rose to 11.29, inside the bollinger bands. This is after a twenty-year low on the VIX. The RVX rose to 15.49 and is inside the bollinger bands.

Fibonacci Retracements: If we see an actual pullback then I’ll start to determine fib levels that might act as potential support.

Support/Resistance: For the SPX, support is at 2509 … with overhead resistance at 2575. The RUT has support at RUT 1350 with overhead resistance at about 1515. 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 down into exhaustion again with a reading of 26. The Weekly chart is now in exhaustion with an energy reading of 37, due to the recent trend. The Daily chart is showing a level of 49 which is now recharging quickly and above technical exhaustion. We are seeing the movement that we expected, however with an exhausted monthly chart, I don’t think any breakout will be able to reach its potential. The DOW was in triple exhaustion which is a rare exhaustion signal.

Other Technicals: The SPX Stochastics indicator rose to 83, overbought. The RUT Stochastics indicator fell to 40, mid-scale. The SPX MACD histogram fell below the signal line, showing a loss of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2551 and resistance at the upper band at 2598 and is below the upper band. The RUT is back outside the Bollinger Bands with its boundaries at 1475 to 1515 and price is below the lower band with the bands starting to expand after the squeeze.

We are seeing the market reaching into a full “runaway” condition, where “fear of missing out” means abandoning any former patience and “wait for the dip” strategy. This usually occurs near the top of the intermediate move.

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.I have not put this strategy into play since the 2016 Brexit reaction as the ultra-low risk premium in today’s market has not made this a wise strategy to pursue due to the inherent risk against the backdrop of super-low risk premium.

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.

I would need to see a SIGNIFICANT pullback to make me want to initiate this strategy again. Those selling call spreads are screaming in pain once again.

I have no positions in play. It makes no sense to pursue an order with this strategy until we see normalization in the price action.

I have no remaining positions. This is normally a perfect time to be selling calendar spreads against the RUT or SPX due to the exhaustion levels, however with my most recent experience with them in September, the effort was barely worth the hassle since we’re selling 6% vol and buying 7.5% vol against it. I might target higher IV underlyings to overcome this, at the risk of seeing greater movement.

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 personally believe that while markets are in “runaway” mode, easy gains may be had however there is always a huge amount of risk to “buying at the top.” To combat this risk, I am targeting stocks using short puts/covered calls that offer a much lower absolute risk point, where in event of crash we can almost define our total risk by the price of the underlying. While this is not how I intend to manage risk in these positions, I view this as fundamentally more solid than trying to actively manage risk on assets that are going for $$$hundreds which have also gone parabolic.

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 the NOV $18 calls for $.22
F NOV17 $11 Puts (9/18) were entered for a $.19 credit. I also have the F 15DEC $11 puts that were sold for $.12 (10/16). These positions look to be doing well and my hope is that I can leave the 17NOV puts to expire this week.
CHK DEC17 $3.5 puts were sold for $.19 credit. I also own the CHK 17NOV $4 puts (10/9) for a $.20 credit. I would rather roll positions than take the assignment, given the choice. We have seen a really nice bounce in this stock that has broken the descending trendline, so we might be able to close these positions soon. I will hold off against doing anything with the 17NOV position until later this week.
NUGT stock – I own 500 shares at the $31 assignment price, although due to selling for the past several weeks, my cost basis is now $28.14 including commissions. Per the weekend advisory I added the 10NOV NUGT $31 calls (11/6) for a $.42 credit and these expired on Friday to create a $205 net profit or 1.3% return. Please see actions required below to sell 17NOV calls.
DUST – per this weekend’s advisory I sold the 10NOV $25.5 puts for $.30 credit. I closed this position for $.05 on Friday for a net $145 profit or a 1.1% return. Please see actions below regarding put sales on DUST this week.
AMD – I sold the 14DEC AMD $10 puts for $.23. (10/30). This stock has rallied strongly due to rumors of collaboration with INTC.

I want to sell the 17NOV NUGT $31 calls on Monday morning if I can get at least $.25 for them. This is slightly less than 1% return but I’m trying to strike a balance against collecting greater premiums vs. not having to take any action in the case of a rally. If I cannot get at least a $.25 credit then I will move down to the $30.5 strike price and sell whatever credit is available.

I want to look for the next significant pullback on the hourly DUST chart to look for a 1% return short put, preferably at the 25.5 or lower strike price. Unless gold bounces higher this week, I might not take a fill on this position.

I want to use any continued pullback in SLV to sell 15DEC $15 puts for a minimum of $.15 credit.

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover – Looking for the next 8/21 ema entry. The last entry was at the end of August.
RSI(2) CounterTrend – Both UPS and FDX are showing valid RSI(2) signals. Of the two, UPS offers a better chain to take the trade with. I would trade the ATM call debit spreads using the 24NOV series, and will discuss in Saturday’s video.
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.

Bitcoin and Ethereum are still the ones to accumulate. The strategy for these two coins remains to be “buying the dip” and there was lots of bad news in September to buy. This week has been nuts as the Segwit2x hard fork was called off and money flowed back out to Alt-coins again.

Please refer to the left sidebar section if you’d like to get caught up on “FAQ” -style intro videos.

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.”

Here is the most recent video which is “WaltonChain FAQ part 2”

Viewing the SPY from the current Friday closing price at 258.09, there is a +/- 3.138 EM into this Friday. This is a larger EM than we have seen lately, approximately 50% larger than the usual EM of 20 SPX points per week.

The EM targets for this Friday’s close is 261.23 to the upside, and 254.95 to the downside.

The price got within millimeters of hitting the SPY EM lower target on Thursday, so we got a nice test last week.

If either level is tested this week, I will fade that level with a vertical spread on Monday/Tuesday/Wednesday. I will use long options on Thursday and Friday.

I have no current positions.

I would like to add an 8DEC SPY 258/260/262 Ratio Butterfly on Monday, currently going for a $.38 credit. I will show how to enter this position in Saturday’s video.

Entry criteria are:

Using calls
17 to 50 calendar days
center strike .25 to .40 delta
ratio is 1/3/2 quantity, from the bottom, calls are long/short/long

We will exit the spread at a 60-70% level of credit received. The max risk on the trade is defined on the graph if the price goes much higher. There are no early exits, only exiting the week of expiry to avoid assignment. Also avoid dividend periods.

I am currently trialing some trades and will discuss them in the newsletter; after a few cycles, I will start adding these trades to circulation.

TOS scan code: http://tos.mx/ZsIjgu

I have no current positions.

With weekly index charts at exhaustion, this is not a great time to look for explosive breakouts.

No trades for this week at this time.

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.

Frankly, 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

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

SPY JAN18 229 long puts (10/11) – i entered this position for a $1.19 debit.