Daily Market Newsletter
September 4, 2018Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
September Expiration
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Market Commentary
Markets dropped today but recovered into the closing bell in typical price action that signifies consolidation. They all feel like “real” moves during the day but when you stand back and observe things from a larger perspective, it’s just noise. Traders are reacting to news but not over-reacting at this point. Most indices that we follow could use several days of consolidation to “work off” this current move.
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. The trick about building a plan for this market is that I don’t think it’ll be a one-way rocket like 2017 was. I expect to see a lot more volatility and I’m factoring that into the plan.
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:
- No entries for 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.
- Closing orders have been entered for all new spreads.
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 -37 advancers minus decliners.
SPX Market Timer : The Intermediate line flattened in 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 uptrend, and a short-term sideways trend. The Dow is in an intermediate uptrend and short-term downtrend.
VIX: The VIX rose to 13.16 after peaking at 50.3 eight months ago, inside the bollinger bands. The RVX rose to 15.07 and is inside the bollinger bands.
Fibonacci Retracements: The price has now broken above February highs on the S&P500, NASDAQ, & Russell 2000 so we might actually switch over to looking at Fib Extensions going forward.
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 32 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 flattened at 88, overbought. The RUT Stochastics indicator flattened at 92, 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 2810 and resistance at the upper band at 2920 and price is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1664 to 1751 and price is below the upper band. Markets are releasing their energy to the upside for now.
Position Management – NonDirectional Trades
I have the following positions in play:
- SPX 19OCT 2760/2770*3015/3025 Short Iron Condor (9/4) entered for $1.70 credit. We will target an $.85 debit as our profitable exit. We’ll also target exits if the short call delta hits .35 or the short put delta hits .45.
- RUT 21SEP 1630/1635*1755/1760 Long Iron Condor (8/10) entered for $1.48 debit. Per this weekend’s advisory, I closed the two spreads for $1.90 (calls) and $.10 (puts). This gave us a $44/contract profit or a 30% return on invested capital.
With the RUT at daily chart exhaustion and close to our profit target, it made sense to close this position on Tueday.
I finally got an entry on the duration condor for 19OCT. Nothing to do with that position now other than set the exit debit GTC.
I have the following position:
- SPX 24SEP 2850/2855*2925/2930 Short Iron Condor (9/4) was entered for a $2.50 credit. I will place a $1.80 debit limit order GTC to secure a 25% reward-to-risk exit. .
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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. KO was showing on Friday but has fallen below the 200 dma.
- 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 290.31, there is a +/-3.331 EM into this coming Friday. This is somewhat larger than last week’s 3.093 EM, which is important since there are only four trading days this week.
The EM targets for this Friday’s close is 293.64 to the upside, and 286.98 to the downside.
With short-term exhaustion on the daily chart, I could fade either EM marker 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).
Today the position is up about 8.5% so I’d like to see if we can secure a deeper run before selling premium, or just close the position out for a profit with the long option alone.
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 no current positions at this time.
I have no plans to enter longs this week, as most markets that we follow are in exhaustion.
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..