Daily Market Newsletter
August 29, 2018Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
September Expiration
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Market Commentary
I wrote yesterday in this space: “I have several trades working well right now but I believe that I will take profits on at least two of them as a long weekend approaches and charts at exhaustion.” What’s a week without a little headline risk? For once our timing was spot-on to remove the two directional long trades on QQQ and XLF, and it appears time to light up a new SPX Iron Condor as September approaches; I’ll discuss that trade entry in tonight’s video.
I am reviewing/refining my current trading plan and expect to have it finalized shortly; when I do, I’ll post it in the left-hand sidebar on this page. Much of it depends on where the focus will be into the fourth quarter. At this point I’m anticipating a general upward grind, with deep pullbacks.
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.
For an embedded video player version of today’s market video, please click here.
Offensive Actions
Offensive Actions for the next trading day:
- I will be adding short condor positions in the SPX tomorrow; see “HP Condors” section below as well as today’s video.
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.
- I will close the QQQ and XLF trades tomorrow.
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 very weak with -advancers minus decliners.
SPX Market Timer : The Intermediate line flattened in the Upper Reversal Zone, still showing a bullish bias. After three straight days of a Strong Bearish Cluster, the chart faded and is showing no leading signals.
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 sideways trend. The Dow is in an intermediate uptrend and short-term uptrend.
VIX: The VIX rose to 13.53 after peaking at 50.3 seven months ago, inside the bollinger bands. The RVX rose to 14.61 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 and we might start looking at Fib Extensions soon as the price breaks above Feb highs.
Support/Resistance: For the SPX, support is at 2700 … with no overhead resistance. The RUT has support at RUT 1630 with no overhead resistance. 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 almost recharged again, with a reading of 49. The Weekly chart is at exhaustion with an energy reading of 36. The Daily chart is showing a level of 34 which is at exhaustion. We’ve seen a major break in price higher and charts are at exhaustion short-term.
Other Technicals: The SPX Stochastics indicator rose to 85, overbought. The RUT Stochastics indicator rose to 88, 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 2809 and resistance at the upper band at 2910 and price is at the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1660 to 1744 and price is at the upper band. Markets are releasing their energy to the upside now.
Position Management – NonDirectional Trades
I have the following positions in play:
- RUT 21SEP 1630/1635*1755/1760 Long Iron Condor (8/10) entered for $1.48 debit. Let’s assume an average cost of $.74 per side; we will look for a 200% return on either “side” to assure a 50% overall gross return. This means that I need to place $2.22 credit limit orders on each “side” of the trade. I find that these are easier to fill than placing a four-legged overall order, since the losing side is often zero-bid by that point.
We have switched our stance from “range” to “trend” so we closed the short condor and opened a long condor. We’ll need to see the the RUT either drop to the 1630 level, or rise to 1760 in the next three weeks.
Now it’s time to light up a short SPX Iron Condor. We’ll use the 19OCT SPX series, and afterhours I show that we want the .10 short call at the 3025 strike. That is 124 points OTM, so we’ll want the put spreads equidistant which would place the short put at about 2775. I’ll go through an example of how to set up this trade tomorrow morning and I will enter in the first few minutes of the morning using the criteria that I discuss in tonight’s video, which will not necessarily be the strike prices noted here.
I have no positions at this time.
I will look to set up a new LP condor probably next week; I want to see if we can get an even more extreme upside move.
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 will look for the next bounce to sell calls into.
No entries at this time; I’d like to see a decent pullback before we go shopping again for new stock candidates.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – No current positions.
- 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 Larry Connors “PowerZones” long setup has been working, and we will look to take the next signal but this requires a sharp pullback, not a breakout.
The crypto market is participating in a slow grind higher the last week or so. Trading volumes are starting to pick up.
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 287.51, there is a +/-3.093 EM into this coming Friday. This is somewhat smaller than last week’s 3.532 EM, which shows that the market is starting to discount some of the risk events.
The EM targets for this Friday’s close is 290.60 to the upside, and 284.42 to the downside.
With a lot of short-term energy available on the daily chart, I only want to look to fade the lower EM this week. You can see why I made that statement over the weekend, as the upper EM was blown through this week.
This is a new section for this newsletter; I would like to start to carefully build some bearish positions that would be the virtual opposite of a covered call, yet I will use deep ITM long puts as the short stock substitute, and write short covered puts against those long puts.
I would like to add one additional consideration to the criteria, in that I’d like to see the price print a “lower high” first on the daily chart. Otherwise what is “high” can go “higher” as we’ve seen repeatedly over the years.
I will also publish the criteria for managing the short and long positions with this strategy. This is definitely counter-trend for now but might prove to be valuable down the road.
Right now I’m seeing MRK, PFE, and LLY show up on this scan; I’m going to add the MRK 16NOV $75 puts for about $7.00/contract. I’ll just track this one on paper for now while we develop management rules. If the price continues to drop I will sell short-term puts against it (on paper).
The scan that I discussed in the 8/4/2018 video is available to download for thinkorswim here: http://tos.mx/OvdVnz
I will also be adding a second Larry Connors scan to this section as well; here is the Connors Crash scan: http://tos.mx/BhHuKL
I have the following positions:
- XLF 7SEP 28/29 call vertical (8/6) entered for $.46 debit; I closed this trade down (8/30) for a $.53 credit. This gave us a net profit of $3/contract or a 7% return on capital after commissions.
- QQQ 28SEP 189/190 call vertical (8/27) entered for $.22 debit. I closed down this trade (8/30) for a $.40 credit, or a $14/contract profit or a 64% return on capital after commissions.
Per yesterday’s advisory I felt that things were getting too “frothy” so I took profits today, and the exits were timely for once.
I have no current positions at this time nor any plans to enter tomorrow.
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. We have no positions at the current time.
I have the following position:
- SPY 16NOV 257 Puts (8/23) entered for $1.50 debit. I would close these on a test of the 200 day moving average..