Daily Market Newsletter

I last wrote on Wednesday: “Markets are closed tomorrow, and will re-open on Friday for 3.5 hours until 1pm ET. Expect a pre-market burst of volatility as the Market tries to price in early returns from Black Friday. Hint: it’s usually been to the upside for the past several years.” Little surprise as the S&P rose 5 points, the DOW gained 31 points, the NASDAQ gained 25 handles, and the Russell 2000 gained 2.4 points. Nothing explosive by any means, but much like the rally after last year’s election, it just keeps chugging higher.

I believe the best approach to use in this market is the same one that we’ve been using for some time now:

Look for short put opportunities to sell against stocks that we’d like to own at current prices.
Look for long directional opportunities against specific setups that fire on our scans.

Looking for bearish and/or neutral opportunities in this market have not paid off for the past year. We just need to be patient to wait on the market to provide those opportunities instead of us forcing them. Yes, we will see a sharp retracement at some point in the near future, which will more than likely be an opportunity than anything else.

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 (IoT coins) 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:

I will add the 01DEC set of DUST puts, see “stocks” section below.
I will add short puts on BAC; see “stocks” 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.
I have a debit limit order placed for my SPX LP Iron Condor.

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 very low on Friday and breadth was mixed with +77 advancers minus decliners.

SPX Market Timer : The Intermediate line rose into the Upper Reversal Zone, now showing a bullish bias. This chart is showing a Strong Bearish Cluster for the second day in a row, which is a leading signal for a pause. (sometimes)

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 to 9.67, back inside the bollinger bands. This is after a twenty-year low on the VIX. The RVX fell to 15.27 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 around 2600. The RUT has support at RUT 1350 with overhead resistance at about 1520. 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 32, due to the recent trend. The Daily chart is showing a level of 54 which is now fully charged and showing a high potential for movement. 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 recently which is a rare exhaustion signal.

Other Technicals: The SPX Stochastics indicator rose to 61, mid-scale. The RUT Stochastics indicator rose to 55, mid-scale. The SPX MACD histogram rose below the signal line, showing a return of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2567 and resistance at the upper band at 2603 and is at the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1461 to 1524 and price is at the upper band.

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 the following positions in play:

SPX 15DEC 2560/2565*2615/2620 Iron Condor (11/21) was added for a $2.50 credit.

I will look for a 20% return on this trade however now that the price is above the 2600 level, I might look to just close the position if we see any kind of material dip.

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 will wait on the next series of calls until I see a reasonable rally that exhausts the daily fractal.
F 15DEC $11 puts were sold for $.12 (10/16).
CHK DEC17 $3.5 puts were sold for $.19 credit.
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 $27.89 including commissions. I sold the 01DEC $31 calls for $.51 (11/22) and will hold these into next week .
DUST might be changing polarity back to a downtrend with the “lower high.” I will look to sell the 01DEC $25 puts for a minimum $.25 credit on Monday.
AMD 14DEC $10 puts entered for $.23. (10/30).

I am going to sell the BAC 19JAN $25 puts on Monday; afterhours they are paying about $40/contract. I believe that financials are in a good position going forward and might feel the grip of Dodd-Frank loosen in the coming year, especially with rising rates.

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 – Looking for the next setup .
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 we are seeing massive gains across the board again in these coins. Ethereum finally broke out of a months-long triangle formation.

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 “Trading IoT”

Viewing the SPY from the current Friday closing price at 260.36, there is a +/- 2.159 EM into this coming Friday. This is a normal EM for a week that we have seen lately.

The EM targets for this Friday’s close is 262.52 to the upside, and 258.20 to the downside.

The Upper EM was hit Tuesday, so I added the SPY 24NOV 259.5/260.5 debit put spread for $.49 debit. I closed this position on Wednesday for a $.65 credit near the close; this gave me a net $12/contract profit last week.

I will look for either target to be tested and fade that level with a debit spread early in the week, and with a long option on Thursday or Friday.

I have the following current positions:.

SPY 8DEC 258/260/262 Ratio Butterfly (11/13) was entered for a $.35 credit. I will look for about a 70% profit to close the position.

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.