Daily Market Newsletter

The shell game continues; the rotation that I called for last week showed up right on time with all of the big tech earnings firing on Thursday afternoon, which caused a short-seller’s rout on Friday. The NASDAQ composite gained 144 points or 2.2%, based on the performance of just a few stocks:

INTC up 7.38%
MSFT up 6.41%
AMZN up 13.22%
GOOGL up 4.26%
FB up 4.25%
AAPL up 3.58%
BABA up 3.42%

And that was about it for the market. The DOW actually had 18 issues declining with 12 advancing, three of those being INTC, AAPL, and MSFT. The reason that I called for the rotation back into Big Cap Tech was because of the available “energy” showing on the weekly and daily charts. This shell game will continue until there is no index chart left with any room left to grow. Any move to the downside now would catch investors on the wrong side of the tape and would create “the principle of maximum adversity” that has so far only affected bears for the past year.

Our gold miner trade got buried this week and I’m expecting to be notified of assignment later today or tomorrow. (It’s been a while!) I will detail my battle plan for fighting back in the “stocks” section below.

Earnings of Importance this week are:

Wednesday next week: FB, TSLA
Thursday next week: AAPL

Economic releases which might move the market this coming week are:

Chicago PMI Tuesday AM ET
ISM Mfg and Construction Spending Wednesday AM ET
FOMC policy release Wednesday PM ET
NFP Jobs Report Friday AM ET

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” that I discussed this weekend is available here.

The current MAIN “high liquidity” watchlist that I’m scanning against in thinkorswim is available here.

The latest crypto video (Bitcoin Gold – Scam?) 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:

Weekly EM levels have been set; see “weekly EM” section below.
I will place an RSI(2) vertical spread on CVX; see “swing trades” section below.
I will sell the 3NOV calls against my new NUGT shares; see “stocks” below.
I will sell the 3NOV puts against DUST; see “stocks” below.
I will sell puts against AMD on Monday; 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.

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 above average Friday and breadth was mixed with +55 advancers minus decliners.

SPX Market Timer : The Intermediate line flattened in the Upper Reversal Zone, still showing a bullish bias. This chart is once again close to showing a Full Bearish Cluster, which would be 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 sideways trend.

VIX: The VIX fell to 9.80, inside the bollinger bands. This is after a twenty-year low on the VIX. The RVX fell to 14.41 and is above the upper 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 2509 … with overhead resistance at 2575. The RUT has support at RUT 1350 with overhead resistance at about 1515. 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 28. The Weekly chart is now in exhaustion with an energy reading of 39, due to the recent trend. The Daily chart is showing a level of 52 which is now recharging quickly and above technical exhaustion. 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 is in triple exhaustion which is a rare exhaustion signal.

Other Technicals: The SPX Stochastics indicator fell to 79, below overbought. The RUT Stochastics indicator fell to 43, mid-scale. The SPX MACD histogram rose below the signal line, showing a return of upside momentum. The SPX is outside the Bollinger Bands with Bollinger Band support at 2530 and resistance at the upper band at 2580 and is above the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1494 to 1515 and price is below the upper band with the bands starting to squeeze strongly.

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.

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 no positions in play. It makes no sense to pursue an order with this strategy until we see normalization in the price action.

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 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. I also have the F 15DEC $11 puts that were sold for $.12 (10/16).
CHK DEC17 $3.5 puts were sold for $.19 credit. I also own the CHK 17NOV $4 puts (10/9) for a $.20 credit. I would rather roll positions than take the assignment, given the choice.
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 $28.94 including commissions. I could sell the stock on Monday for a small loss and still be ahead of the game. I choose to take the other approach and sell calls against the position until it’s relieved from my inventory by being “called out.” I will sell the 3NOV NUGT $31 calls on Monday for whatever I can get for them.

I want to use any continued pullback in SLV to sell 15DEC $15 puts for a minimum of $.15 credit.

I want to sell puts against AMD again; on Monday I will add the 15DEC AMD $10 puts for a minimum of $.10 credit. If the price gaps down on Monday, I will sell at the lowest strike price to give me a 1% return.

I also want to sell the DUST 3NOV put that corresponds with at least a 1% return; this weekend it’s the $25.5 put but may likely change by Monday morning.

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 enter an RSI(2) vertical spread for CVX on Monday. At this point I would enter the 10NOV 113/114 vertical call debit spread for about $.52, and immediately place a GTC order to harvest a 30% gain GTC. Depending on how the price opens on Monday, I might have to move my strike prices to pay approximately $.50 debit. You can also use a smaller timeframe to look for a reversal first.
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 have had tremendous weeks. The strategy for these two coins remains to be “buying the dip” and there was lots of bad news in September to buy. Right now BTC and ETH are in a consolidation due to daily exhaustion.

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 “Bitcoin Gold: Scam?”

Viewing the SPY from the current Friday closing price at 257.71, there is a +/- 2.36 EM into this Friday. This is slightly larger than the usual EM of 20 SPX points per week. Last week, the price tagged the lower EM and gave us a beautiful fade entry.

The EM targets for this Friday’s close is 260.07 to the upside, and 255.35 to the downside.

I will fade either EM target with the appropriate vertical debit spread ATM using front week options, or I will use ATM long options if the target is hit on Friday.

I have the following current positions:

DIA 17NOV 234/236/238 ratio call butterfly (10/24) was entered for a $.29 credit. .

The DOW is about as exhausted on all timeframes as any chart that I have ever seen; we’ll look for about a 70% profit target on our collected credit.

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:

IBB 27OCT 345/347.5 Vertical Call Spread (10/2) was entered for a $.60 debit and expired on Friday. A big disappointment from this beautiful pattern that had the trade up at least 30-40% at one point before fading.

Probably a little late to pound on the Whale trade with daily index charts at exhaustion, unless we pick on Tech.

No trades for Monday. XME and TIF look good but do not have current signals.

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.