Daily Market Newsletter
November 22, 2016Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
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December Expiration
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Market Commentary
Well there we go, S&P 2200, a level never-before seen. With the amount of skepticism that I’m seeing these days, perhaps we should get used to seeing new numbers like that. Don’t believe that it can happen? Remember how I’ve been saying for months that we have a “500 point SPX move” waiting in the wings. Seems like we’ve already got the first 100 points of that in the bank.
I know that many folks are frustrated, not having the charts do “what they thought” but a little patience for this trend to normalize will pay huge dividends for us down the road, especially if we get the stair-stepping market from 2013 again. That one sprung from similar conditions and was good for about 30%. Let’s keep an open mind and be patient for the clues; I actually like where this is going.
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Offensive Actions
Offensive Actions for the next trading day:
- Nothing for tomorrow with very light holiday volume expected.
Defensive Actions
Defensive actions for the next trading day:
- Any vertical or diagonal debit spreads that we set up are risk-managed from day one, and no defense is really required.
- I will need to close out the UPS Diagonal position on Friday morning regardless of the outcome of that trade.
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 less than average today. Breadth was modest and diverging with +113 advancers minus decliners.
SPX Market Timer : The Intermediate line turned up into the Upper Reversal Zone, showing a bullish bias. Another strong bearish cluster was created today with the two strongest timeframes in the Upper Reversal Zone; this can create a pause.
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 fell .08% to 12.41, back inside the bollinger bands. The RVX fell .17% to 17.97 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 53. The Weekly chart is now fully-charged showing an energy reading of 60, due to the recent chop. The Daily chart is showing a level of 32 which is starting to reflect the move to the upside, and is showing exhaustion. This increases the probability that we’ll see a short-term consolidation in the near future.
Other Technicals: The SPX Stochastics indicator rose to 90, overbought. The RUT Stochastics indicator rose to 94, overbought. 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 2079 and resistance at the upper band at 2218 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1116 to 1361 and price is below the upper band.
We might be seeing the market pricing in a shift in character out of the recent lifeless Fed-driven economy, and into an unrestrained one. I think this will bring about a big shift in how the market behaves.
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.
I have no current positions. I have to wait for the next consolidation zone and the SPX 2200 level has been breached.
I have the following positions:
- UPS 25NOV/2DEC 111/113 call diagonal (11/17) was entered for a $.97 credit. I will look to exit the position for about a 50% return on risk. If we don’t see a pullback tomorrow then we’ll be exiting this position on Friday morning in the short session
- MS 2DEC/9DEC 39/41 Call Diagonal (11/21) was entered for a $1.10 credit. I will look to exit the position for about a 50% return on risk
I set the risk for these such that I have no “stop” other than closing the position on expiry. If we see a quick downdraft the profits will come quickly; shooting to exit at about half of the credit value.
- 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. I keep threatening to sell against something else and it might be time.
Nothing to do at this time with current positions.
Position Management – Directional Trades
- 8/21 EMA Crossover -We’ll look for the next crossover, which is happening now. If we see a rapid pullback that pulls the price down below the 8ema I might consider going long with a debit vertical spread.
- 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.
I have no positions at the current time. Many stocks are already exhausted after moving very quickly.
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.
I will be adding the next series of FEB puts this week….maybe if we see a reason.
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. Quite honestly, selling the “financing” trades has been a huge challenge in this low-vol environment.
We currently have the following positions in play with this strategy:
- SPY JAN17 193 Long Puts – I entered this position (10/24) for a $1.33 debit.