Daily Market Newsletter

June 12, 2017

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Market Commentary

More volatility today, particularly in the NASDAQ as the FAANG (facebook, apple, amazon, netflix, google) stocks saw further erosion in their value. I spoke about these charts needing to set up a “bigger range” last week and this is precisely what they are in the process of doing. We need to be careful, however, as the bigger picture shows the formation of a head/shoulders pattern on the NAZ. Once again, money rotated into the XLE and XLF but those gains did not stick. Markets should settle down somewhat tomorrow as they hold their collective breath into Wednesday’s FOMC release.

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

Offensive Actions

Offensive Actions for the next trading day:

No new entries tomorrow.

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 above average toiday. Breadth was mixed with +6 advancers minus decliners.

SPX Market Timer : The Intermediate line turned down inside the Upper Reversal Zone, still showing a bullish bias. No leading signals at this time.

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 11.96% to 11.97, back inside the bollinger bands. The RVX rose to 16.19 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 52, due to the recent chop. The Daily chart is showing a level of 42 which is bouncing from exhaustion again and is likely to lead to sideways price movement over the next few days.

Other Technicals: The SPX Stochastics indicator fell to 87, overbought. The RUT Stochastics indicator rose to 72, 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 2366 and resistance at the upper band at 2456 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1352 to 1424 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 no current positions:

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 – I sold the 18AUG $16 puts (6/12) for $.30 credit.

No other actions right now; all of my JUN puts should expire OTM this week .

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover – Looking for the next 8/21 ema entry.
RSI(2) CounterTrend – SBUX is currently showing an RSI(2) signal; per the weekend advisory I entered a 23JUN 61.5/62.5 call spread on Monday morning for a $.44 debit. I will look for a 30% return from this trade.

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 this 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. If either level is hit on the Friday, I will use ATM “front day” long options to fade that level.

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.
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 closed this trade (6/12) for a $1.38 credit.which produced a $35/contract profit or a 35.3% return on capital .
AAPL 16JUN 160/162.5 debit call spread (6/5) was entered for a $.34 debit and will likely expire after last Friday’s drubbing.

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. This position will likely expire worthless this Friday.
SPY AUG17 214 long puts (5/2) – I entered this position for a $1.22 debit.