Daily Market Newsletter

June 10, 2017

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Market Commentary

Things are getting interesting now; Friday’s volatility literally came out of nowhere as traders took profits in Tech and funneled that cash back into Financials, Energy, and Materials. This might be following a warning from Goldman Sachs that there are “difficult-to-decipher risk narratives.” Whatever that means, it led to the trigger that caused selling in Tech. This is fairly common in intermediate market tops, as the volatility comes from money rotating furiously between different asset classes, perhaps more rapidly than we’ve seen in the past.

We had invested in several Financial stock setups lately, most of which fired to the upside on Friday, some providing our profit objective, and the others getting close. We also saw our profit objective hit on our SPY time spread, as the vol initially came out of the back week on the Comey testimony and British election. Now what? We get to deal with Wednesday’s Fed meeting, which at first blush should provide next-to-no excitement based on how well the Fed has telegraphed the hike in this meeting, but something tells me that we’ll see more volatility this coming week. We are overdue for it.

If you cannot get the above video to play, try this link.

Offensive Actions

Offensive Actions for the next trading day:

I will sell puts against HPE; see “stocks” section below.
I will enter a SBUX RSI(2) call spread; see “swing trades” 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 high on Friday. Breadth was positive with +163 advancers minus decliners.

SPX Market Timer : The Intermediate line turned up into the Upper Reversal Zone, now showing a bullish bias. No leading signals but this chart is once again close to a bearish cluster.

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 sideways trend, and a short-term uptrend. The Dow is in an intermediate uptrend and short-term uptrend.

VIX: The VIX jumped higher by 5.31% to 10.70, back inside the bollinger bands. The RVX rose to 15.83 and is back inside the bollinger bands.

Fibonacci Retracements: Fibs are out of play again.

Support/Resistance: For the SPX, support is at 2355 … with no overhead resistance. The RUT has support at RUT 1335 with overhead resistance at about 1434. 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 51, due to the recent chop. The Daily chart is showing a level of 37 which is in exhaustion again and is likely to lead to sideways price movement over the next few days.

Other Technicals: The SPX Stochastics indicator fell to 90, overbought. The RUT Stochastics indicator rose to 70, mid-scale. 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 2364 and resistance at the upper band at 2455 and is below the upper band. The RUT is back outside the Bollinger Bands with its boundaries at 1353 to 1420 and price is above the upper band.

We are seeing the market pricing in a shift in character out of the recent lifeless Fed-driven economy, and into an unrestrained one. Markets are still showing perfect “Quiet & Trending” behavior regardless of what we “think” that they should do.

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.

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.

I will look for the next daily/weekly consolidation signal to sell LP Condors again.

I have the following positions:

SPY 16JUN/21JUL 244 Put Calendar (6/5) was entered for a $1.31 debit. I closed this position (6/9) for a $1.48 credit. This gave me a net profit of $13/contract or a 10% return on capital. I will talk a little bit more about last week’s time spread which worked out almost to perfection and was worth the risk that we took.

I will be on the lookout for more short call diagonals as this is the type of market that they should work well in.

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 21JUL $17.5 calls (6/6) for $.19 credit.
X – I was assigned at the $25 price level.. I sold 21JUL X $25 calls against this position for a $.40 credit. I will bail out of this position if the price closes below $16/share. Ultimately I would like to bail on this position as there has been so much technical damage that it might be difficult to get this stock bid up again.In the short term, we have weekly exhaustion and a high level of energy on the daily chart, so this might encourage a quick bounce to at least set up a “lower high” which we could use.
AMD – I sold 16JUN $9 puts (5/8) for $.25 credit. Bounced nicely at $10/share.
NVDA – Not really interested in this one above $100/share.
XLF – I sold the 16JUN $22 puts (4/10) for $.25 credit and will accept assignment if the price pulls back.

HPE came up on a scan recently; they pay a 1.53% yield and $16 looks like a good support floor. I will sell the 18AUG $16 HPE puts and will try to get a midpoint fill of about $.30.

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover – Looking for the next 8/21 ema entry.
RSI(2) CounterTrend – CAT is showing an RSI(2) FE hit. I entered the CAT 16JUN 104/106 call spread (6/8) for a $.99 debit, and I closed this trade (6/9) for a $1.34 credit. This gave me a net $31/contract profit, or a 31.3% return on capital.

SBUX is currently showing an RSI(2) signal; I will enter a 23JUN 62/63 call spread on Monday morning, or the equivalent spread to keep the debit at $50 or less per contract.

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.

Earnings for 1Q2017 are just about done with; the next cycle will start in early July.

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 last Friday’s close.at 243.41, there is a +/- 3.109 EM into this Friday.

The EM targets for next Friday’s close is 246.52 to the upside, and 240.30 to the downside.I will watch for either of those levels to be tagged, and will fade that level with an ATM debit spread.I might also consider targeting one of the EM levels with an OTM long option or debit spread.

I had written on Thursday in this section: “If the EM targets are hit tomorrow, I will fade that price level with a 9JUN call or put option ATM.” At about 1450ET on Friday, the lower SPY Weekly EM was hit (242.04) so I just entered some long 9JUN 242.5 call options for $.28/contract, and sold them four minutes later for $.62/contract. This gave me a $32 net profit/contract, or a 110% return. This might be the fastest options profit that I’ve ever seen. Long options are definitely the way to go for the EM fade on the day of expiry.

I have the following positions:

SPY 21JUL 229/230 Debit Put Spread (5/15) was entered for a $.14 debit.

Nothing else to enter at this time.

I have the following positions:

TWTR 16JUN 21/22 Debit Call Spread (2/6) was entered for a $.20 debit. This one is unlikely to fire for a profit this week.
C 23JUN 63.5/64.5 debit call spread (5/15) was entered for $.27 debit. I closed this position (6/9) for a $.60 credit; this gave me a net profit of $29/contract, or a 100% return on capital .
BIDU 23JUN 202.5/205 call debit spread (5/17) entered for $.39 debit.
AXP 7JUL 78/80 debit call spread (6/5) was entered for a $.99 debit. I will take this trade off on Monday as it’s showing a 40% profit, which is about what I’d like to see after 5 days.
AAPL 16JUN 160/162.5 debit call spread (6/5) was entered for a $.34 debit and will likely expire after Friday’s drubbing.

CMI looks to be in a pretty good pattern. Not really enthused about any Whale entries at this point.

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

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.

We currently have the following positions in play with this strategy:

SPY JUN17 215 long puts – I entered this position (3/17) for a $1.19 debit.
SPY AUG17 214 long puts (5/2) – I entered this position for a $1.22 debit.