Daily Market Newsletter

Now we’re seeing reports of a potential melt-up in equity markets; it’s no wonder that traders are confused. I content that markets always move in the direction that causes the greatest amount of pain to the largest cross-section of traders, and indeed that might be a move to the upside at this point (since last week everyone was negative on the market’s prospects). Don’t forget that pain can come not only from short positions that get trapped, but also by sideline investors that watch in horror as another rally goes by without them being on board.

Another entry on our NUGT strategy today as we position short puts OTM for the 13OCT cycle. I’m sure that I’ll have my moments to come, but so far this has been one of the easiest strategies to trade in some time, and reminds me of conditions ten years ago when it was easy to sell premium.

The current watchlist that I’m scanning against in thinkorswim is available here.

The latest crypto video (Alt-coins for October) is available here

If the above video does not play, try this version.

Offensive Actions

Offensive Actions for the next trading day:

Weekly EM levels have been set; see “weekly EM” section below. Note that I have entered the EM put spreads.
No trades for tomorrow. .

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 today. Breadth was modest with a +136 advancers minus decliners.

SPX Market Timer : The Intermediate line flattened in the Upper Reversal Zone, still showing a bullish bias. This chart is showing another strong bearish cluster for the fifth day in a row which is a leading signal for 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 rose to 9.63, back inside the bollinger bands. This is after a twenty-year low on the VIX. The RVX rose to 14.25 and is back inside the lower bollinger band.

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 2430 … with overhead resistance at 2512. The RUT has support at RUT 1350 with overhead resistance at about 1500. 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 30. The Weekly chart is now losing energy with an energy reading of 49, due to the recent trend. The Daily chart is showing a level of 35 which is now in technical exhaustion and might not support the uptrend much longer. 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.

Other Technicals: The SPX Stochastics indicator flattened at 82, overbought. The RUT Stochastics indicator rose to 95, 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 2466 and resistance at the upper band at 2540 and is at the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1383 to 1521 and price is at the upper band.

We are seeing the market reacting to any fear catalyst right now, and we’ll be watching to see if the price is able to make new highs or not. The overall trend is still higher and short-term energy is building quickly on this non-linear chop.

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. We can finally sell positions for SEP below SPY 230 but my sense is that still isn’t worth the risk just yet. A 10% correction would put the price at SPY 224 and we’d want to be well below that level with short puts.

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.

If I see price drop to the SPX 2300 level, this might be our first opportunity to sell premium against that level.

I have no positions in play. It makes no sense to pursue an order with this strategy until we see (at the very least) a daily exhaustion signal.

I have no remaining positions:

SPX 6OCT/3NOV 2500 Put Calendar (9/18) was entered for a $13.05 debit, and was closed (9/29) for a $13.55 credit. This gave me a net profit after commissions of $51, or a 3.9% net return on capital.

As evidenced by how well we “nailed” the consolidation on the entry of this trade, yet could only squeak out a 4% return by our fingernails. This is just a difficult market to sell non-directional premium in with implied vol levels of 6%; we are just playing with too little premium to make the sale of an option worth it unless we target much higher IV underlyings.

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 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.
CHK 20OCT $4 puts (9/20) were sold for a $.19 credit. I might look to add the NOV $4 puts shortly.
NUGT 6OCT $30 put (10/2) was entered for a $.40 credit; I closed this trade (10/3) for a $.10 debit limit order that gave us a net $28/contract profit. Per yesterday’s directive I used the next dip down in the 13OCT options on NUGT that gives me at least a 1% return to enter the 13OCT NUGT $31 puts for a $.51 credit, and I will look to close these out for a $.10 debit.

I would like one more shot at XLF at $22/share. If the price of SLV continues to drop, I will sell the 17NOV $15 SLV puts for a minimum of $.15 credit. We are getting close to this

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 – I will continue looking for additional setups as long as markets are trending higher. I am seeing JD show on my scan today, however this has moved into a primary downtrend and has not closed the gap.
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.

Most major Crypto coins continued their coiling price action which makes sense as their Monthly charts try to recharge.

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 “Altcoins for October.”

Viewing the SPY from the current Friday closing price at 251.23, there is a +/- 2.108 EM into this Friday. This has been a very “normal” EM lately of about 20 SPX points per week.

The EM targets for this Friday’s close is 253.36 to the upside, and 249.14 to the downside.

The upper EM target was hit today so I entered the SPY 6OCT 252.5/253.5 debit put spread for $.35 debit. I will look to secure a 50% return from this trade. Should the price continue higher I will let the position expire on Friday.

I am relabeling this section the Ratio Butterfly strategy. I have no candidates today. My test trade LYB is still in play for another three weeks and has jumped above resistance.

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 the following positions:

LOW 20OCT 79.5/80.5 Vertical Call Spread (9/27) was entered for a $.49 debit. I closed this trade today (10/4) for a $.71 credit, which was a net 41% return after commissions. It got within one penny of my desired $.79 fill today but was showing exhaustion.
IBB 27OCT 345/347.5 Vertical Call Spread (10/2) was entered for a $.60 debit. My goal is 100% return on this trade.
SPY 27OCT 255/256 Vertical Call Spread (10/2) was entered for an $.18 debit. I closed this trade today (10/4) for a $.33 credit, which gave me a net 55% return after commissions. This chart is now in exhaustion so I had to sell the position.

I also like the setup on WDC that could break soon but might be breaking lower, which is why we don’t enter these before breakout.

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.

Quite honestly, 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 OCT17 222 long puts (7/24) – I entered this position for an $.85 debit. This position was up 50% at one point and the temptation to remove it for a profit was strong, however the point of these trades is to hedge the downside for existing longs, AND try for those home runs on corrections that come out of nowhere.