Daily Newsletter

October 7, 2019

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October Expiration

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Market Commentary

Markets are just flat range-bound, stuck in about a two-hundred handle range on the S&P, where any tidbit of news not already priced in will influence the direction. Today, it was doubt about a trade deal with China…what else is new? 

Bank earnings kick off the 3Q2019 reporting season on Tuesday, October 15. We have a relatively light reporting week ahead of us other than Jerome Powell speaking two more times this week. 

Short-Term Outlook: We’ve been in a massive consolidation pattern since early 2018, or almost another “horizontal bear market” like we had in 2015-2016. All that energy that’s been coiled up has to go somewhere, the policy and odds favor it to go higher, but we’ll know which price levels to respect to warn us if that energy’s going lower instead. 

Please sign up for our free daily crypto report here.

Offensive Actions

Offensive Actions for the next trading day:

  • I will try again tomorrow enter a COST debit call spread; see “Whale” 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

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Technical Analysis Section

Market Internals:  Volume was average today with advancers minus decliners showing a relatively negative number of -298. 

SPX Market Timer : The Intermediate line has flattened below the Upper Reversal Zone and is now “Neutral.” 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 uptrend, an intermediate sideways trend, and a short-term downtrend. The Dow is in an intermediate uptrend and short-term uptrend.  

VIX: The VIX rose to 17.86, inside the Bollinger bands. The RVX rose to 21.14, and is inside the Bollinger bands.

Fibonacci Retracements: The S&P has now undercut the 61.8% retracement from the recent August pullback, increasing the odds of “filling in the triangle” which it might have accomplished this week. 

Support/Resistance: For the SPX, support is at 2825 and overhead resistance at 3028. The DOW has support at 25500 and overhead resistance at 28399. The RUT has support at 1450 and resistance at 1600. 

Fractal Energies: The major timeframe (Monthly) is charged again with a reading of 52. The Weekly chart has an energy reading of 64, now fully-charged. The Daily chart is showing 43, recharging from the downdraft . Larger timeframe energies are waiting on a very big move, which will start with the smallest timeframes.

Other Technicals: SPX Stochastics fell to 32, below mid-scale. RUT Stochastics fell to 19, oversold. The SPX MACD rose below the signal line, showing an increase/reversal in positive momentum. The SPX is above the lower bollinger band with the range 2908 to 3041. The RUT is back inside the bollinger bands with the range 1473 and 1607. 

SPX chart

Position Management – NonDirectional Trades

I have the following positions in play at this time:

  • SPY 18OCT 289/290*308/309 Long Iron Condor (9/16) was entered for a $.16 debit on the put spreads and an $.18 debit on the call spreads. The put spreads fired at our target (10/2) of $.48 which means that we made a net profit after commissions of $28/contract on the put spreads, and still hold the call spreads. I will see if any rally higher in the near term allows us to harvest some value from the call spreads.. 
  • SPY 15NOV 281/282*310/311 Long Iron Condor (9/30) was entered for a $.16 debit on the puts and $.18 debit on the calls. I will look for a 200% return on either side. Not enough gamma to get the put side to fire on the recent downdraft. 

No additional orders at this point. 

I have no positions in play:

This is not the right character of market for this strategy at this point. 

I have no current positions:

Calendar spreads are good for markets in quiet/trending character. If the market reverts back to quiet/trending, then I’ll look to continue this method; if we see the daily chart go into exhaustion I’ll set up a back week calendar. 

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:

  • SLV Stock – I have 1000 shares of the SLV that was assigned at the $15 level.  I sold the SEP $17.50 calls (8/13) for $.18 credit and closed down this position (9/5) for a $.44 debit. I will let this price chart trend as much as it wants to in the near future before writing against it again.
  • CSCO – My cost basis is now $48.80/share prior to the latest trade. I sold the JAN20 $50 calls for $1.94/contract so our cost basis could be as low as $46.86 depending on the outcome of those JAN calls. Our shares also went ex-dividend on Thursday so that’s another $35/contract so our cost basis could now be as low as $46.51. I don’t want to see this trade below $46/share on a closing basis

No other trades at this time.  

Position Management – Directional Trades

Thoughts on current swing strategies:

  • 8/21 EMA Crossover –  The short signal has fired; I do not take these in an overall positive market. 
  • RSI(2) CounterTrend –   Per Wednesday’s advisory I took the DIA 11OCT 261/262 debit call spread (10/3) which I entered for a $.50 debit. I sold the position (10/4) for a $.75 credit which gave me a net $21/contract profit, or a net 42% return on capital after commissions. 
  • Daily S&P Advancers – Looking for the next signal to go long with single-digit advancers to close the day.
  • Swing –   None at this time.. 

Crypto got absolutely hammered last week and is testing to see how low that it can probe; support seems to be around $8k on bitcoin and $6500 below that. 

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.”

From Friday’s close at SPY 294.35, there is a +/-5.442 EM into this coming Friday; this is about the same as last week’s 5.551 EM. The EM targets for this Friday’s close are 299.79 to the upside, and 288.91 to the downside

The price obliterated the lower Weekly EM this week. I did not pursue the fade trade on Friday due to being out for surgery. (whoever designed the knee…..) Once again I would be more interested in fading the lower EM level going forward although we might not get that opportunity. 

 

I will start playing directional bear spreads once we see upside exhaustion on more than one timeframe. 

The scan that I discussed in the 8/4/2018 video is available to download for thinkorswim here: http://tos.mx/OvdVnz I will also be adding a second Larry Connors scan to this section as well; here is the Connors Crash scan: http://tos.mx/BhHuKL

I have no positions in play at this time:

  • MSFT 11OCT 139/140 Debit Call Spread (9/9) entered for $.48 debit and looking for a 50% return. We have to close this trade this week on any kind of positive return that we can secure. 
  • WMT 25OCT 118/119 Debit Call Spread (9/23) entered for $.50 debit and looking for a 50% return. 

 

I will enter the 15NOV COST ATM debit call spreads again tomorrow. These are $5 spreads so we’ll have to back down the position size correspondingly, seeking a max $2.50 debit.  This morning I had $2.50 midpoint showing but it did not fill. I’ll try again tomorrow. 

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. 

I have no open positions at this time. Skew is making OTM puts really expensive now. 

If we see a decent bounce back up I might consider reloading.