Daily Market Newsletter

June 21, 2017

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Market Commentary

Crude Oil was hammered again today, down another 2.25% and down more than 20% since the beginning of the year. Energy, Financials, and Materials all suffered, but the big winner was Healthcare as the XLV shot up almost 1.5%. I think that we are just now starting to see a massive global shift in how commerce is conducted, and this revolution will not stop until it’s routed every conventional way of life that exists, whether it’s transportation, education, energy, shopping, you name it. Perhaps we all just buy the Q’s and collect dividends….it certainly would have been the simple way to make money over the past decade. I will be a buyer of the QQQ’s, or the XLK during the next major correction, as I do feel that a correction is warranted but not a full crash. .

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

Offensive Actions

Offensive Actions for the next trading day:

AIG is setting up as a potential Whale entry; see “whale” section below.
I would like to enter a GLD call spread to enter the RSI(2) signal; 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 average today. Breadth was weak with -151 advancers minus decliners.

SPX Market Timer : The Intermediate line flattened 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 downtrend. The RUT is in a long-term uptrend, an intermediate sideways trend, and a short-term downtrend. The Dow is in an intermediate uptrend and short-term uptrend.

VIX: The VIX fell 1.01% to 10.75, back inside the bollinger bands. The RVX rose to 15.17 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 35. The Weekly chart is now recharging quickly with an energy reading of 50, due to the recent chop. The Daily chart is showing a level of 69 which is massively charged up and we do not see markets pause for long in this state..

Other Technicals: The SPX Stochastics indicator fell to 72, below overbought. The RUT Stochastics indicator fell to 67, mid-scale. The SPX MACD histogram fell below the signal line, showing a loss of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2407 and resistance at the upper band at 2453 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1368 to 1433 and price is below the upper band. The SPX Bollingers are starting to squeeze again.

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:

ABBV 30JUN/7JUL 70/72 short call diagonal (6/20) was entered for a $1.10 credit; risk on the trade is $.90 total, so a 30% net return on risk would mean an exit at $.79.

I will be on the lookout for more short call diagonals as this is the type of market that should support their use..

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

I will look for future entries for AMD and XLF going forward.

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 (last) weekend advisory I entered a 23JUN 61.5/62.5 call spread for a $.44 debit. I will look for a 30% return from this trade but we only have until Friday.

I would also be interested in adding a GLD 30JUN call spread since the RSI(2) FE signal fired yesterday. I would add the GLD 30JUN 118/119 call spread for about $.50 tomorrow.

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 the current price at 243.09, there is a +/- 2.122 EM into this Friday.

The EM targets for this Friday’s close is 245.21 to the upside, and 240.97 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 position:

SPY 23JUN 245/246 Debit Call Spread (6/19) was entered for a $.14 debit. I will remove this trade if it hits near the upper EM again.

I also think that there is a high probability of the price blowing through the EM that we calculated, since it made up most of that EM in one day. I still have plans to fade the EM with a put spread if that level is tagged, however I would like to delay entry for as long as possible if another strong day shows up.

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:

BIDU 23JUN 202.5/205 call debit spread (5/17) entered for $.39 debit. This one looks like it will expire OTM this Friday.

I like AIG as a whale candidate if the price breaks above the $64.40 price level. I would trade the AIG 14JUL 64/65 call spread for about a $.50 debit, or the equivalent strike pair if that is not available.

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 AUG17 214 long puts (5/2) – I entered this position for a $1.22 debit.