Daily Market Newsletter

The gloves are off now; once past the shortened holiday week after Labor Day, markets are normally back to full strength/full volume. This means that we might actually see some movement with conviction going forward. Which way will that be? Analysts are predictably leaning slightly bearish right now, given the tone of the nation and “state of things,” as well as the time of year. Normally when I read something like this I lean in the opposite direction.

But we’ve seen this movie before. Markets are caught in anemic, drifting range similar to the summers of 2015 and 2016, before a final catalyst drove them into big moves. I have simply found that the best way to handle these times is to “box in” the price and just let the market tell you which way that it wants to go. Taking ourselves “in” to any downside trend will be impossible because they just occur too quickly to jump on board without losing a huge chunk of edge…..I normally look to sell bullish premium against that initial spike.

Bitcoin and other cryptocurrencies have had a couple of hard days….weeks, in fact…..due to a second wave of rumors about further crackdowns in China. Being able to penetrate the Chinese market is a huge test for the legitimacy of cryptocurrencies going forward, because the Chinese are notorious for their need to control information….technically impossible in an open, distribute system. This is making established regulatory bodies nervous everywhere which is a good thing.

You’ll also notice that I’ve removed the “earnings” section from the last section below, and replaced it with the “crypto” section; this is where we’ll start to feature trades on Bitcoin, as well as inexpensive Altcoins. It’s a brave new world, let’s get on board before everyone else turns this into a bubble. The latest crypto video (Researching Altcoins) is available here

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Offensive Actions

Offensive Actions for the next trading day:

Weekly EM levels have been set; see “weekly EM” section below.
I have a short call diagonal play set up for GDX, described in the “Time Spreads” section below.
I will be rolling the SLV covered call position to the NOV cycle, described in the “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 average on Friday. Breadth was mixed with +47 advancers minus decliners.

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

VIX: The VIX rose to 12.12, back inside the bollinger bands. This is after a twenty-year low on the VIX. The RVX fell to 15.49.

Fibonacci Retracements: If we see the pullback continue then I’ll start to determine fib levels that might act as potential support.

Support/Resistance: For the SPX, support is at 2410 … with overhead resistance at 2484. The RUT has support at RUT 1350 with overhead resistance at about 1452. 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 34. The Weekly chart is now recharging quickly with an energy reading of 67, due to the recent chop. The Daily chart is showing a level of 46 which is now charged up again after this recent chop. 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 rose to 65, mid-scale. The RUT Stochastics indicator rose to 77, below overbought. The SPX MACD histogram fell above the signal line, showing a loss of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2423 and resistance at the upper band at 2481 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1352 to 1416 and price is below 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. At this point I’m expecting movement again because short-term charts are strongly charged, so 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 current positions.

GDX shows daily exhaustion near an overhead resistance level, so this is a good place for this chart to pause. To that end I’m adding a GDX 22SEP/29SEP 24/26 short call diagonal on Monday; this is currently showing a $1.05 credit but in today’s video I’ll show how I intend to scope this one out and enter on Monday.

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 15SEP $16.5 calls (7/24) for $.17 credit. I will have to take action this week to roll the $16.5 calls forward, since my goal is NOT to be called out on those SLV shares. There is some risk that I could be called out early so I’m going to take action on Monday to close out the 15SEP $16.5 calls and roll them forward to the 17NOV cycle at the $18.5 strike price.
X – I was assigned at the $25 price level. I then rolled the position forward to SEP17 $25 calls for $.68 credit. We are still in a good position with this stock since the underlying stock is ITM and I just received the dividend, so I’m ready to cut this one loose and repurpose capital elsewhere. There is still $.08 of extrinsic value to the options so I’d like to remain patient this week to see if I can get called out, or possibly just close the whole position later this week when the extrinsic value drops to a couple of pennies. Make no mistake, I’d like to scrap this position and go to cash with it.
AMD – I sold the 15SEP $12 puts (7/31) for $.40 credit. I would sell the position if it closed below $10/share. The last few days have not been kind and I might be looking at assignment on this stock. My preference is still to remain a put seller and continue to lower cost basis, but I will accept assignment on this stock if the options are ITM by the end of this week. On the other hand, if I can buy back the options for a few pennies and roll them forward to a lower/forward strike, I will do so this week.

Not looking to add anything at these levels at this time. I’d like to keep my powder dry and wait on a more severe correction.

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover – Looking for the next 8/21 ema entry.
RSI(2) CounterTrend – I will continue looking for additional setups as long as markets are trending higher
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.

This is a new section that I’m starting in the summer of 2017; all Cryptocurrency trades are by definition going to be “directional” trades due to the fact that there are no premium-selling strategies available.

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 “Researching AltCoins.”

Viewing the SPY from the current Friday closing price at 246.58, there is a +/- 3.4 EM into this Friday. This is larger than last week’s EM, and well above previous week’s EM values of about 2 points during most of the summer.

The EM targets for this Friday’s close is 249.98 to the upside, and 243.18 to the downside.

Either target is in play for this week. The upper target at nearly SPX 2500 is certainly a “fade.”

I have no positions at this time. Nothing else to enter at this time.

I have the following positions:

SPY 15SEP 249/250 Call Spread (8/28) was entered for an $.11 debit, and looking for the price to re-test recent highs. I will look to sell this position into strength this week

No other trades right now; I like TSLA and AMAT as candidates. Few stocks are moving right now with any kind of momentum to the moves, as the overall market is gridlocked a la summer 2015/summer 2016. This will loosen up soon.

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

With a new all-time low VIX, the opportunity to buy inexpensive short deltas was too great, so I added some OCT puts recently.

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% and the temptation to remove it for a profit is 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.