Daily Market Newsletter
August 14, 2017Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
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A big bounce today as the basic catalyst behind the recent selling on Thursday – Korea – became back-page news due to unfortunate but news-grabbing events elsewhere in the country. As brutal as it seems, certainty came back to the US markets on Monday. The market is certainly insensitive to the needs of you and me, offers no safe spaces, and is perhaps the most brutally honest destination on the planet. There is only the Truth and forward projections and nothing else.
Watch carefully over the next couple of days; will this bounce create new highs? Or will it be sold into, leaving a “lower high?” The only way that this market has been going higher has been on pullbacks that create short squeezes. When the behavior changes, price will move very quickly to the downside.
My new section on cryptocurrencies will be added by the end of August in this newsletter.
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. I hope to be back at home base by this Saturday in one piece and of sound mind.
Offensive Actions for the next trading day:
- Weekly EM levels have been set; see “weekly EM” section below.
- Keeping my powder dry for what could be an opportunistic pullback; no trades for this coming week.
- I will roll my X calls to SEP tomorrow; see “stock” section below.
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.
Non-Directional Strategies
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Market Internals: Volume was average toay. Breadth was strong with +363 advancers minus decliners.
SPX Market Timer : The Intermediate line continued declining below the Upper Reversal Zone, now showing a bearish bias. The two weaker timeframes bounced after showing a bullish cluster for the second day in a row, which as I mentioned 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 uptrend. 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 uptrend.
VIX: The VIX fell to 12.33, back inside the bollinger bands. This is after a twenty-year low on the VIX. The RVX fell to 16.46.
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 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 51 which is now showing some erosion of energy after this quick move lower.
Other Technicals: The SPX Stochastics indicator fell to 53, mid-scale. The RUT Stochastics indicator fell to 14, oversold. The SPX MACD histogram rose below the signal line, showing a return of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2448 and resistance at the upper band at 2492 and is above the lower band. The RUT is back inside the Bollinger Bands with its boundaries at 1376 to 1463 and price is above the lower band.
We are seeing the market reacting to any fear catalyst right now.
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.
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). I will close the AUG $25 calls and open up new SEPT $25 calls by selling them to open the position. This will bring in approximately $60/contract of downside protection for this position. I will continue pounding against the $25 strike price. This chart is still showing a very well-defined bear flag so my hope is to get out of this position prior to it releasing lower.
- HPE – I sold the 18AUG $16 puts (6/12) for $.30 credit. These look like they will expire OTM this week as long as we don’t see an overall crash.
- 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.
- 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 244.12, there is a +/- 4.165 EM into this Friday. That is about double that of previous week’s EM.
The EM targets for this Friday’s close is 248.29 to the upside, and 239.96 to the downside.
Last week’s lower EM level was eviscerated on Thursday; this is the first time that we’ve seen the lower EM level NOT being defended this year. The bias might be shifting to more aggressively fading upper EM level tests. If I’m around to trade, I would definitely fade a test of the upper EM as it lines up with former highs.
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.