Daily Market Newsletter
July 23, 2018Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
August Expiration
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Market Commentary
Here comes the most important week of the quarter, earnings-wise. About 40% of the S&P500 is about to report their numbers, and 22% earnings growth is expected.After the bell, GOOGL reported and after a brief shake-out, we have seen as much as a $75 gain/share which is only about 6%. Earnings per share were $11.75 vs. $9.59 expected, and top-line beat as well. As I write this, it’s propelled the NASDAQ futures about 45 handles higher. FB, AAPL, and AMZN all got a passive bounce from GOOGL as well. The big ones left for this week are FB and AMZN so volatility will not rest until AAPL reports early next week.
We have to give the uptrends the benefit of the doubt until they fail.
A huge chunk of the S&P500 reports this week; we have the following earnings events to watch for:
- Tuesday: MMM, T, UBS, VZ
- Wednesday: BA, F, FB, V
- Thursday: AMZN, AMGN, CELG, CMG,
- Friday: CVX, ABBV
- Next Tuesday: AAPL
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Subscriber Update: I will be traveling the last half of this week so I’m going to keep the activity to a dull roar. Newsletters should come out at their normal time.
The scan for the “Cheap Stocks with Weeklys” is available here.
The RSI(2) FE scan is available here.
The current MAIN “high liquidity” watchlist that I’m scanning against in thinkorswim is available here.
The latest crypto video (Cryptocurrency Market Visualized) is available here
Please sign up for our free daily crypto report here.
If you need a video link with an embedded player you can use this link.
Offensive Actions
Offensive Actions for the next trading day:
- We might have a LP Condor setup on the SPX this week; I covered this in Saturday’s video and we’ll need to see a quick pop to the upside based on Tech earnings.
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.
- Closing orders have been entered for all new spreads.
- A test of the 200 day SPX moving average would cause an exit from the Hindenburg strategy; see below.
- We might have to take an early exit on the XRT call spreads; see “whale” section below.
- Exits are defined for the new RUT Iron Condor, see “Hp Condors” below.
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
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Technical Analysis Section
Market Internals: Volume was average today and breadth ended the day mixed with 21 advancers minus decliners.
SPX Market Timer : The Intermediate line flattened into the Upper Reversal Zone, still showing a bullish bias. No other leading signals after last week’s Full 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 uptrend, and a short-term uptrend. The Dow is in an intermediate downtrend and short-term uptrend.
VIX: The VIX flattened to 12.62 after peaking at 50.3 five months ago, back inside the bollinger bands. The RVX rose to 14.31 and is inside the bollinger bands.
Fibonacci Retracements: The price has retraced 38.2% of the election rally; so far this has been a garden-variety correction.
Support/Resistance: For the SPX, support is at 2600 … with overhead resistance at 2878. The RUT has support at RUT 1530 with overhead resistance at 1708. 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 above exhaustion, with a reading of 51, almost fully-charged. The Weekly chart is starting to show fatigue with an energy reading of 43. The Daily chart is showing a level of 35 which is in exhaustion due to the linear upside trend. Markets are doing PRECISELY what they must in order to restore energy that has been incredibly depleted. Extreme Range Expansion leads to extreme range contraction (big swings).
Other Technicals: The SPX Stochastics indicator rose to 92, overbought. The RUT Stochastics indicator fell to 73, almost overbought. 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 2685 and resistance at the upper band at 2845 and price is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1637 to 1718 and price is below the upper band. We recently saw the market reaching into a full “runaway” condition, where “fear of missing out” means abandoning any former patience and “wait for the dip” strategy. This usually occurs near the top of the intermediate move. Markets are about to release from the sideways/volatile correction.
Position Management – NonDirectional Trades
I have the following positions in play:
- RUT 21SEP 1580/1590*1790/1800 Iron Condor (7/23) entered for $2.00 credit. My exits will be if 1) we’re able to buy back the condor for $1.00, 2) we are within 30 days of 21 September, 3) the short call hits .35 delta, or 4) the short put hits .45 delta..
Our next offensive cycle on the SPX will commence when either 1) the price continues to rally and hits daily exhaustion, or 2) we see the price sell off from this level and we hit an exhaustion level on the downside move, allowing us to enter put spreads.
I’m seeing Daily exhaustion on the SPX, but since the price is coming from a fairly large consolidation area, there might be more meat on this bone yet, so I’d rather wait until there is diminished Weekly chart energy before I set up the next duration condor. We could easily see this move hit SPX 2900 in short order with the current amount of skepticism.
I have no positions at the current time.
I may enter a LP Condor on the SPX this week if we see a spike higher which will further exhaust the SPX .
I have no remaining positions. Calendar spreads are good for markets in quiet/trending character, so there is a good shot that we can start to play these again.
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 am targeting stocks using short puts/covered calls that offer a much lower absolute risk point, where in event of crash we can almost define our total risk by the price of the underlying. While this is not how I intend to manage risk in these positions, I view this as fundamentally more solid than trying to actively manage risk on assets that are going for $$$hundreds which have also gone parabolic. I have the following positions in play:
- 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 currently have 17AUG $16.50 SLV calls (6/8) for $24 credit. .
No entries at this time.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – No current positions; the next crossover is showing right now. I will wait on a pullback to the 8ema before entering.
- 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.
- Swing – Looking for the next setup.
The crypto market has seen a decent rally to the upside over the past two weeks; watch the BTC/USD $7800 level to see whether or not this move is “real.”
Investors should currently be looking to find technical entries to warehouse BTC/ETH/LTC assets for eventual trades on Alt-coins. You should also be looking to devices like “trezor” or other cold-storage devices to keep your assets off of the network, or other secure wallet such as Navcoin. Relying on the security of your broker is no longer good enough; no one can log into your ETrade account and “steal” your stock assets, but the whole nature of Cryptocurrencies and their portability means that someone can grab your assets and transfer them elsewhere. I will continue to discuss the tradingview platform in daily videos as I think that it is currently the best way to chart the “big three.”
Viewing the SPY from the Friday closing price at 279.68, there is a +/-3.217 EM into this coming Friday. This is slightly larger than last week’s 2.99 EM, which shows importance of this week’s earnings and the likelihood of volatility.
The EM targets for this Friday’s close is 282.9 to the upside, and 276.46 to the downside.
The price stayed within the EM range last week, and I feel that it will stay within the range again this week, so EM fades are green light for this week.
I have no current positions. I will consider setting up another ratio fly as price approaches resistance:
Entry criteria are:
- Using calls
- 17 to 50 calendar days
- center strike .25 to .40 delta
- ratio is 1/3/2 quantity, from the bottom, calls are long/short/long
We will exit the spread at a 60-70% level of credit received. The max risk on the trade is defined on the graph if the price goes much higher. There are no early exits, only exiting the week of expiry to avoid assignment. Also avoid dividend periods. I am currently trialing some trades and will discuss them in the newsletter; after a few cycles, I will start adding these trades to circulation. TOS scan code: http://tos.mx/hvWmMl
I have the following positions:
- XLB 10AUG 58.5/60.5 call vertical (7/11) entered for $.91 debit. I will look for a 50% return from this trade.
- XRT 17AUG 49/51 call vertical (7/17) entered for $1.02 debit. I will look for a 50% return from this trade. If the price hits the $51 level and gets stuck there, let’s exit the trade rather than fight overhead supply.
No other trade setups at this time. We are better off looking for ETFs and Indices to play in the near term while earnings season is going full tilt.
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. Frankly, 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 entered the 17AUG SPY 245 puts (5/14) for a $1.41 debit. I will hold these through the next test of the 200 dma.