Daily Market Newsletter

October 3, 2016

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October Expiration

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Market Commentary

As I walk through the valley in the shadow of interest rate hikes, I will fear no Fed speakers. We have NINE Fed speakers this week, all eager to push their agenda and ultimately confuse us. What they have to say will not make any difference between now and December when they could potentially hike rates, but still the market will react based on what they have to say.

And even this Friday’s Jobs report is out of play for the December decision, but the market will still do its best job to efficiently price in all known information. Translation: the market is still holding its’ collective breath and waiting for a sign. Add to that the end of the fiscal year quickly approaching for mutual funds, and we have a recipe for the calm before the storm.

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Offensive Actions

Offensive Actions for the next trading day:

Please see the “swing trades” section below for my SPY 8/21 ema setup that I’ll try again to take on Tuesday.

Defensive Actions

Defensive actions for the next trading day:

Very little to “defend” or manage at this point. Any vertical debit spreads that we set up are risk-managed from day one.

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 below average today. Breadth was soft with -186 advancers minus decliners.

SPX Market Timer : The Intermediate line flattened below the Upper Reversal Zone, still showing a neutral 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 downtrend, an intermediate uptrend, and a short-term uptrend. The Dow is in an intermediate uptrend and short-term uptrend.

VIX: The VIX rose 2.11% to 13.57, inside the bollinger bands. The RVX rose 2.41% to 18.73 and is inside the bollinger bands.

Fibonacci Retracements: No retracements in play at this time..

Support/Resistance: For the SPX, support is at 2100 … 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 recovering quickly from recent technical exhaustion by showing an energy reading of 51, due to the recent chop. The Daily chart is showing a level of 58 which is fully-recharged after the recent drop.

Other Technicals: The SPX Stochastics indicator rose to 60, mid-scale. The RUT Stochastics indicator rose to 66, mid-scale. The SPX MACD histogram rose above the signal line, showing a return of upside momentum. The SPX is inside the Bollinger Bands with Bollinger Band support at 2118 and resistance at the upper band at 2194 and is below the upper band. The RUT is inside the Bollinger Bands with its boundaries at 1209 to 1271 and price is below 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: We might have to wait weeks for the next dip in price. The last one was only 70 points. I am anticipating further upside grinding, low-vol price action which are poor conditions for HP Condors.

I have no positions in play: We’ll look for the next range to take advantage of. I might have to look beyond the usual index candidates for these in today’s market, since I don’t see any index candidates right now, however the RUT is close.

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 wrote 21OCT 20.5 calls (9/7) against half of my position for a $.21 credit.
SSO – Waiting for the next pullback to sell puts against the SSO, preferably at the 50 level or lower. In today’s video I’ll show how I will look for stocks that pay a dividend and are experiencing a pullback, which we might consider candidates for selling puts.

Nothing to do at this time with current positions.

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover -I will enter the 8/21 ema long setup with an ATM SPY vertical spread, using the 26OCT 216/218 call spread, paying a debit near $1. I did not enter today due to the weak price action, my preference is to see the moving averages actually cross before entering this trade.
RSI(2) CounterTrend – Looking for 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. .

Nothing else to do right now. This is not the time to add bearish positions.:

I have no positions at this time. Nothing showed up in my scans this weekend, other than Energy stocks which have been dead money for the past several months.

I see many stocks showing a nice pattern, like MRK and GLD, however no concrete signals just yet. Markets are coiling up into the next range and are about to show their next hand. I’ll look for more opportunities this weekend.

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 don’t think that this move will turn out to be anything more than a pullback.

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 200.

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

SPY OCT 194 Long Puts – I entered this position (7/18) for a $1.52 debit.
SPY NOV 197 Long Puts – I entered this position (8/22) for a $1.56 debit.