Daily Market Newsletter

November 2, 2016

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November Expiration

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Market Commentary

One more FOMC release out of the way and this one was notable absent of drama, as we discussed yesterday. Everything depends on the next two Jobs reports, the first being on Friday, and the next being in early December.

Well, that’s five days in a row to the downside; Fund Managers that operate by an October 31 Fiscal Year end are now releasing capital to put to use at some point later in the quarter, and are also releasing risk prior to next weeks’ events. This is going to make any potential move even more potent.

Facebook released earnings after the bell and it’s down somewhat….I wonder how that will affect tomorrow’s tape? A blowout was expected.

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Offensive Actions

Offensive Actions for the next trading day:

There is an RSI(2) signal showing long; see the “swing trades” section below..

Defensive Actions

Defensive actions for the next trading day:

Any vertical 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 today. Breadth was weak with -262 advancers minus decliners.

SPX Market Timer : The Intermediate line turned down into the Lower Reversal Zone, showing a bearish bias. No leading signals at this time, however all timeframes are very close to showing a bullish cluster.

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 downtrend, an intermediate downtrend, and a short-term downtrend. The Dow is in an intermediate uptrend and short-term downtrend.

VIX: The VIX rose 4.09% to 19.32, outside the bollinger bands. The RVX gained 2.54% to 23.79 and is outside the bollinger bands.

Fibonacci Retracements: No retracements in play at this time..

Support/Resistance: For the SPX, support is at 2100 … with overhead resistance near 2200. The RUT has support at RUT 1090 with overhead resistance at about 1300. 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 still highly-charged with a reading of 52. The Weekly chart is now fully-charged showing an energy reading of 61, due to the recent chop. The Daily chart is showing a level of 48 which is starting to reflect the move to the downside.

Other Technicals: The SPX Stochastics indicator fell to 44, mid-scale. The RUT Stochastics indicator fell to 18, oversold. The SPX MACD histogram fell below the signal line, showing a loss of upside momentum. The SPX is outside the Bollinger Bands with Bollinger Band support at 2107 and resistance at the upper band at 2167 and is below the lower band. The RUT is outside the Bollinger Bands with its boundaries at 1170 to 1256 and price is below the lower band.

If Central Banks go “all-in” to save each sovereign economy, this will not be sustainable in the long run. We will continue to monitor price action that will show us if the character of the market is moving towards a change in character to a Quiet/Trending Bull again. For now, we’re seeing necessary corrective action come in to “shock-start” markets and volatility again. Markets have become complacent to all of the central bank monetary policy and that’s not a good thing..

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: If this dip in price hits the 2050-2100 level on the S&P, we are game on for back month put spreads.

I have the following position:

GILD 4NOV 70/71*76/77 Iron Condor (11/1) was entered for a $.50 credit, and was closed (11/2) for a $.20 debit. This gave me a net profit of $22/contract, or a 44% return on risk.

No setups at the current time as we allow election risk to pass.

I have no time spreads at the current time. My preference is to take these on DAILY exhaustion and not WEEKLY exhaustion signals, since the weekly exhaustion creates unwanted price volatility. Similar to the LP Condors above, I will likely have to expand my view to include equity candidates that are showing a likely short-term consolidation. This is never my first choice due to the additional variables that we encounter.

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, and will continue to write time against these shares on every rally. I will look to sell more calls in the next bounce higher in SLV.
SSO – Waiting for the next pullback to sell puts against the SSO, preferably at the 50 level or lower. .

Nothing to do at this time with current positions.

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover -We’ll look for the next crossover.
RSI(2) CounterTrend – The next signal is showing. I think I’ll set up an 11NOV call spread that is $2-wide and costs approximately $1 debit. The exit signal is when the RSI(2) hits the 70 level.
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.

Looking for the next edge. Price has been so choppy that it’s been difficult to identify the next edge.

I have the following positions in play:

QQQ 11NOV 116/118 debit put spread (10/17) – I entered this trade by buying the 118 put and simultaneously selling the 116 put, for an .84 debit, and I will look for about a 50% return from this trade. This will be a $1.36 credit

I have the following positions:

GILD 4NOV 73/74 long put spread (10/31) entered for $.50 debit. I closed this position (11/2) for a $.69 credit. This gave me a net profit of $15/contract, or a 30% return on capital.

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.

To remove the current series of puts, I will look for a move down to and below the SPX 2100 level. We are almost there now but the NOV position is not profitable. If we see a real “waterfall” decline with the price coming down to about the SPX 2000 level I will at least close the NOV position and hold the JAN.

I never got the upside “burst” to allow me to sell call spreads above SPY 230 that I wanted; now I can concentrate on selling put spreads at some level below SPY 200.

We currently have the following positions in play with this strategy:

SPY NOV 197 Long Puts – I entered this position (8/22) for a $1.56 debit.
SPY JAN17 193 Long Puts – I entered this position (10/24) for a $1.33 debit.