Daily Market Newsletter
November 3, 2016Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
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November Expiration
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Market Commentary
The Jobs report is a consensus 178k tomorrow but I don’t think anyone will care about it; every day that passes seems to provide another window into the soft white underbelly of the people in power, and most folks are uncomfortable knowing what’s actually in the sausage. If you step outside to see the forest for the trees, you can see paradigms around us being shattered on an almost daily basis. This is not a time to embrace if you don’t like to see things change.
And most folks HATE change; it puts them outside their comfort zone. If I’ve learned one thing about the market, however, it’s that those that embrace changes in the market quickly will be those best able to secure edge. Most traders fight this change in character until it becomes “obvious” and is the new “norm,” at which point it’s about ready to change again. If you don’t embrace change in the markets, you will forever be fighting an uphill battle.
And I expect to see a big change in character in the market very soon, and am ready to embrace what’s next. It might not be what I want, but I’ll learn to love it.
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Offensive Actions
Offensive Actions for the next trading day:
- Nothing planned for tomorrow; we’ll see if anything shows up this weekend but it’s going to be best to lay low until after Tuesday.
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
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Technical Analysis Section
Market Internals: Volume was about average today. Breadth was flat with -61 advancers minus decliners.
SPX Market Timer : The Intermediate line turned down into the Lower Reversal Zone, showing a bearish bias. This chart is now showing a Full Bull Cluster with all three timeframes oversold in the Lower Reversal Zone; this is often a leading signal for a bounce..
DOW Theory: The SPX is in a long term uptrend, an intermediate downtrend, and a short-term downtrend. The RUT is in a long-term uptrend, an intermediate downtrend, and a short-term downtrend. The Dow is in an intermediate downtrend and short-term downtrend.
VIX: The VIX rose 14.29% to 22.08, outside the bollinger bands. The RVX gained 4.96% to 24.97 and is outside the bollinger bands.
Fibonacci Retracements: The SPX has retraced more than 50% of the Brexit rally, but not quite 61.8%. It has also retraced more than 38.2% of the full Feb-August rally.
Support/Resistance: For the SPX, support is at 2080 … 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 53. The Weekly chart is now fully-charged showing an energy reading of 58, due to the recent chop. The Daily chart is showing a level of 42 which is starting to reflect the move to the downside.
Other Technicals: The SPX Stochastics indicator fell to 41, mid-scale. The RUT Stochastics indicator fell to 16, 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 2099 and resistance at the upper band at 2168 and is below the lower band. The RUT is outside the Bollinger Bands with its boundaries at 1161 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’m a little concerned about how deep this move could go depending on the results of Tuesday’s election. Might be best to wait on a big VIX spike first..
I have no positions right now:
No setups at the current time as we allow election risk to pass.
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. Per yesterday’s advisory I bought the SPY NOV11 209/211 call spread for a $1.14 debit. This is more expensive than I wanted to pay but it should move quickly if we see a mean reversion. I will look for a 50% return from this position.
- 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.
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 removed this position (11/3) for a $1.34 credit. This gave me a net $46 profit per contract or a 53% return on capital.
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 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.