Daily Market Newsletter
September 22, 2018Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
October Expiration
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Market Commentary
What’s going on with this market?
Step back from the news for a week and you’ll see nothing but a nice, linear trend with an occasional light pullback.
Listen to the news and read the stock media and you’ll see nothing but angst, despair, political fisticuffs, and nuclear predictions.
Markets are still in an uptrend after a long-awaited correction from February to July of 2018. They have now escaped the bonds of that correction and are lurching higher because there are no viable alternatives yet. And I underscore the word YET. Rates are on the rise and is something that we need to be aware of, and I’ve heard of the 3.5% rate level as being the “third rail” of the equity markets. At what point will investors cash in their gains and move to an interest-rate bearing vehicle and more “safety” to avoid the next “big one?”.
With weekly exhaustion showing, I’m still awaiting a pullback to sell puts again and get more long delta. It’s been a market that’s rewarded the momentum follower, which is difficult to do if you’ve been trained to be patient and wait for the dips in price. If you don’t get them, you’re on the sidelines. In today’s video I’ll look at some potential inexpensive dividend paying stocks under $50.
The market is pricing in a 93.8% probability of a 26 SEP rate hike.
I have started to update my Trading Plan in the left-hand sidebar and the Non-Directional portion has been uploaded. I will populate the rest of the trading plan going forward. Again, the trading plan is designed to fit “today’s” market.
The scan for the “Cheap Stocks with Weeklys” is available here.
The RSI(2) FE scan is available here.
The current MAIN “high liquidity” watchlist that I’m scanning against in thinkorswim is available here.
The latest crypto video (Cryptocurrency Market Visualized) is available here
Please sign up for our free daily crypto report here.
For an embedded video player version of today’s market video, please click here.
Offensive Actions
Offensive Actions for the next trading day:
- I’ll set up a debit call spread for MCD on Monday morning; see “Whale” section below for details, as well as today’s video.
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.
- Closing orders have been entered for all new spreads.
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 above-average Friday and breadth ended the day mixed with +77 advancers minus decliners.
SPX Market Timer : The Intermediate line rose in the Upper Reversal Zone, now showing a bullish bias. This chart is now showing a Strong bearish cluster for the second day in a row with the two strongest timeframes clustered in the upper reversal zone.
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 sideways trend. The Dow is in an intermediate uptrend and short-term uptrend.
VIX: The VIX fell to 11.68 after peaking at 50.3 eight months ago, inside the bollinger bands. The RVX fell to 13.48 and is inside the bollinger bands.
Fibonacci Retracements: The price has now broken above February highs on the S&P500, NASDAQ, & Russell 2000 so we might actually switch over to looking at Fib Extensions going forward.
Support/Resistance: For the SPX, support is at 2700 … with no overhead resistance. The RUT has support at RUT 1630 with overhead resistance at 1742. 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 almost recharged again, with a reading of 48. The Weekly chart is at exhaustion with an energy reading of 35. The Daily chart is showing a level of 46 which is showing the recent short-term uptrend and has quite a lot of energy left to contribute before exhaustion.
Other Technicals: The SPX Stochastics indicator rose to 64, mid-scale. The RUT Stochastics indicator flattened at 29, below mid-scale. The SPX MACD histogram rose above the signal line, showing a return of upside momentum. The SPX is outside the Bollinger Bands with Bollinger Band support at 2866 and resistance at the upper band at 2929 and price is above the upper band. The RUT is inside the Bollinger Bands with its boundaries at 1701 to 1741 and price is between the bands and a squeeze is on. The S&P is breaking higher but the RUT has gone dormant.
I had the following results for the 21SEP 2018 Options Cycle:
High Probability Iron Condors
- SPX 19OCT 2760/2770*3015/3025 Short Iron Condor entered for $1.70 credit. and closed for $.85 credit. This gave us a net profit of $77/contract or a 9.3% return on risk in two weeks. With two contracts this gave me a net $154 profit.
- RUT 21SEP 1630/1635*1755/1760 Long Iron Condor entered for $1.48 debit. I closed the two spreads for $1.90 (calls) and $.10 (puts). This gave us a $44/contract profit or a 30% return on invested capital. With two contracts this gave me a net $88 profit.
Low Probability Iron Condors
- SPX 24SEP 2850/2855*2925/2930 Short Iron Condor was entered for a $2.50 credit and closed for $1.80 credit, creating a net profit per contract of $62 after commissions, or a 24.8% return on risk. With two contracts this gave me a net $124 profit.
Time Spreads
No trades this period.
Cash-Secured Puts/Covered Calls
No trades this period.
“Whale” Trades
- XLF 7SEP 28/29 call vertical entered for $.46 debit; I closed this trade down for a $.53 credit. This gave us a net profit of $3/contract or a 7% return on capital after commissions. With five contracts this gave me a net $15 profit.
Swing Trades
- QQQ 14SEP 186.5/187.5 debit call spreads for $.17 debit;this trade expired worthless. This was an $85 loss on five contracts.
- SPY 19SEP 292/293 debit call spread for $.19 debit. I closed this position for a $.23 credit which made it essentially a break-even trade.
Hindenburg Positions
None this cycle
SPY EM Fade/Target
- SPY 7SEP 287 calls entered for $1.27 debit, sold for a $1.51 credit; this gave me a net profit of $22/contract after commissions, or a 17% return on capital. This was a $110 profit on five contracts.
Lessons Learned from this cycle:
A quiet cycle that offered two small trends and one consolidation over the past four weeks. We played the consolidation to perfection on the short condors, including one lead-in on a long condor from the previous cycle. We were not able to take advantage of the generally positive bias for any effective swing trades. Most of our edge was lost by identifying the trade setup on the weekend, and then trying to enter on Monday morning. Unfortunately, most of the edge was gone by that time with huge upside gaps.
How to adjust? We’ll have to enter longs earlier, well before the trade shows any promise of working. You have to be “in it to win it.”
Position Management – NonDirectional Trades
I have the following positions in play:
- SPY 19OCT 282/283*295/296 Long Iron Condor (9/17) entered for $.16 debit puts and $.18 debit calls for a total debit of $.34. Will look for a 200% return on each leg independently over the next month to achieve a roughly 50% return on entire trade. I am entering a $.51 closing credit GTC on each “side” until one of them “fires,” and then I’ll look to see whether it’s worth it to close the opposite side which should be just about worthless at that point. The call spreads are going for $.37 which is close.
We’ll wait for some big movement with our long condor and will sell the next short condor when exhaustion hits.
I have no positions at this time.
We’ll park this strategy until the next high-probability condition shows. We’ll want to see daily exhaustion on the SPX or RUT after a strong move, at the very least.
I have no remaining positions. Calendar spreads are good for markets in quiet/trending character, so there is a good shot that we can start to play these again.
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 am targeting stocks using short puts/covered calls that offer a much lower absolute risk point, where in event of crash we can almost define our total risk by the price of the underlying. While this is not how I intend to manage risk in these positions, I view this as fundamentally more solid than trying to actively manage risk on assets that are going for $$$hundreds which have also gone parabolic. I have the following positions in play:
- SLV Stock – I have 1000 shares of the SLV that was assigned at the $15 level. I will look for the next bounce to sell calls into.
No entries at this time; I’d like to see a decent pullback before we go shopping again for new stock candidates.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – No current positions.
- RSI(2) CounterTrend – Looking for the next setup.
- 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.
- Swing – I have the following trades in play:
- AAPL 26OCT 220/222.5 debit put spread (9/18) entered for $1.23 debit. I will look for a 50% return on capital from this position.
Nice move over the last few days in the crypto space. Bull trap again?
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.”
Viewing the SPY from the Friday closing price at 291.99, there is a +/-3.376 EM into this coming Friday. This is somewhat smaller than last week’s 3.435EM but not by much. .
The EM targets for this Friday’s close are 295.37 to the upside, and 288.61 to the downside.
We can fade either marker this week; last week we got very close to the upper marker.
This also shows how the Market has discounted the upcoming Fed announcement.
This is a new section for this newsletter; I would like to start to carefully build some bearish positions that would be the virtual opposite of a covered call, yet I will use deep ITM long puts as the short stock substitute, and write short covered puts against those long puts.
I would like to add one additional consideration to the criteria, in that I’d like to see the price print a “lower high” first on the daily chart. Otherwise what is “high” can go “higher” as we’ve seen repeatedly over the years.
I will also publish the criteria for managing the short and long positions with this strategy. This is definitely counter-trend for now but might prove to be valuable down the road.
Right now we are seeing LOW and PFE (again!) show up on this scan.
Previously I was seeing MRK, PFE, and LLY show up on this scan; I added the MRK 16NOV $75 puts for about $7.00/contract as a paper trade. I’ll just track this one on paper for now while we develop management rules. If the price drops I will sell short-term puts against it (on paper). We’re seeing a very bullish market right now so I would not expect this strategy to be easy to trade right now; this is why we’re getting our feet wet and looking to build inventory when things go really off the rails.
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 the following positions at this time:
- IWM 19OCT 170/172 debit call vertical (9/17) entered for $1.03 debit and will look for 50% return on this position.
I like the setup on MCD to the upside at this time. I’ll look at a 26OCT 165/167.5 or equivalent call spread for <$1.25. You can elect not to take the trade if the price does not break the trendline.
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 have no positions at the current time.
I have the following position:
- SPY 16NOV 257 Puts (8/23) entered for $1.50 debit. I would close these on a test of the 200 day moving average.
- SPY DEC 262 Puts (9/17) entered for $1.72 debit. I would close these on a test of the 200 day moving average.
No further actions.