Daily Market Newsletter
August 10, 2017Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
View Doc's New Book
August Expiration
Day(s)
:
Hour(s)
:
Minute(s)
:
Second(s)
Market Commentary
I had written yesterday, “…..The unsaid story that no one is reporting is that the Russell 2000 just printed a downtrend and lost support at the important 1400 level. That is NOT good for fund manager sentiment, as the Russell is a barometer of risk.” That proved to be true as any catalyst will work to drive markets at extremes….the administration doubled down on North Korea today and issued more verbal threats, ones that took more certainty out of the market. It’s like the market has been climbing for years, looking only up, and someone said “don’t look down” today….which of course, it did. WOW is it a long way up there and a 35 handle move on the SPX looks positively miniscule.
One of the questions that I’ve had for a while with the Cryptocurrency market (Bitcoin, etc) is whether or not they are tied to the hip with “normal” trading instruments like the US market. BTCUSD hit a new high today, perhaps showing that crypto instruments are being used as a non-correlated hedge against a potential black swan.
My new section on cryptocurrencies will be added by the end of August in this newsletter.
Starting on August 1st , I am still in the middle of traveling for three weeks overseas; during this time I will be trading less-than-usual and my ability to produce the report and video in a timely manner in the evenings will be dependent on my ability to source connectivity. I’m hoping that this continues to be a quiet period but my experience with travel, as well as the time of year it is, says otherwise.
No embedded flash player available for today’s video. Please make sure that your browser has Flash enabled.
Offensive Actions
Offensive Actions for the next trading day:
- Weekly EM levels have been set; see “weekly EM” section below, however I am not looking to fade the broken lower level.
- Keeping my powder dry for what could be an opportunistic pullback; no trades for next week yet.
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 large today. Breadth was very negative with -401 advancers minus decliners.
SPX Market Timer : The Intermediate line fell out of the Upper Reversal Zone, now showing a neutral bias. The two weaker timeframes are showing a bullish cluster, which can often lead to a short-term bounce.
DOW Theory: The SPX is in a long term uptrend, an intermediate uptrend, and a short-term downtrend. The RUT is in a long-term uptrend, an intermediate downtrend, and a short-term downtrend. The Dow is in an intermediate uptrend and short-term downtrend.
VIX: The VIX rose to 16.04, outside the bollinger bands. This is after a twenty-year low on the VIX. The RVX rose to 19.20.
Fibonacci Retracements: Fibs are out of play again.
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 35. The Weekly chart is now recharging quickly with an energy reading of 47, due to the recent chop. The Daily chart is showing a level of 47 which is now showing some erosion of energy after this quick move lower.
Other Technicals: The SPX Stochastics indicator fell to 63, mid-scale. The RUT Stochastics indicator fell to 19, oversold. The SPX MACD histogram fell below the signal line, showing a loss of upside momentum. The SPX is back outside the Bollinger Bands with Bollinger Band support at 2452 and resistance at the upper band at 2490 and is below the upper band. The RUT is back outside the Bollinger Bands with its boundaries at 1387 to 1460 and price is below the lower band.
We are seeing the market reacting to any fear catalyst right now.
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.
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 (it’s here) so it makes no sense to pursue an order with this strategy.
I have no current positions; no current setups showing.
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.
- X – I was assigned at the $25 price level. I added new AUG17 $25 calls for $1.12 credit (7/17). The price has faded somewhat from their earnings rally, and is now once again below my assignment point. As long as the price is underwater, I will continue hammering against the $25 level in hopes of being called out at some point. My hope is that the price will rise just into the money by AUG opex and it will call me away for full profit.
- HPE – I sold the 18AUG $16 puts (6/12) for $.30 credit.
- AMD – I sold the 15SEP $12 puts (7/31) for $.40 credit. I would sell the position if it closed below $10/share.
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 – 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.
This is a new section that I’m going to start laying out trades for weekly “expected moves.” The S&P500 has done a nice job of moving pretty much to one end of the overall expected move every week. We can either speculate on that direction ahead of time using OTM spreads, or we can “fade” the price when it hits one of the EM levels.
Viewing the SPY from the current Friday closing price at 247.41, there is a +/- 2.289 EM into this Friday.
The EM targets for this Friday’s close is 249.70 to the upside, and 245.12 to the downside.
The lower EM level was eviscerated this morning; I was notified of the hit but had no chance to fade it. This is actually the first EM signal on the downside that has not been defended, which by itself is significant. I would not expect to see the price close above the lower EM level by tomorrow but anything can happen.
Due to the Daily exhaustion, fading the upper leg looks to be a very good setup. Fading the lower leg has been the best setup over the last few months. I will not take a directional “target” position this week. If the lower EM target gets hit by Thursday or Friday of this week, then I would look to just use a long call option although it’s doubtful that I will trade this week due to my schedule.
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. .
I will likely clear all put options if the price drops 5% from the recent highs at SPX 2400. Not sure that I can expect much more than that given the current climate. The OCT puts have gained a lot in value since entry…
We currently have the following positions in play with this strategy:
- SPY AUG17 214 long puts (5/2) – I entered this position for a $1.22 debit.
- SPY OCT17 222 long puts (7/24) – I entered this position for an $.85 debit.