Daily Market Newsletter
December 1, 2016Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
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December Expiration
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Market Commentary
More “rotation” today, mostly at the expense of Technology. I think what we’re seeing is a classic case of money rotating out of assets that have performed very well, and into ones that are expected to be the beneficiary of the upcoming policies, which include things like “infrastructure.” We could also be seeing the end to the earnings recession, as companies are going to be more likely to spend again.
This is far too early to know whether any of this can be pulled off, but the market is as optimistic as I’ve seen in some time and it will shoot first and ask questions later.
What we’re also seeing is (for now) the end of Fed-dominant policy and a shift to the animal spirits that drive a “normal” market. Hallelujah….
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Offensive Actions
Offensive Actions for the next trading day:
- No entries for tomorrow; we’ll look again this weekend.
Defensive Actions
Defensive actions for the next trading day:
- Any vertical or diagonal debit spreads that we set up are risk-managed from day one, and no defense is really required.
- I will close out the MS Diagonal position on Friday morning.
- I will look for an early exit from the AAL position. .
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 slightly above “average” today. Breadth was somewhat weak with -139 advancers minus decliners.
SPX Market Timer : The Intermediate line turned further up into the Upper Reversal Zone, showing a bullish bias. After three straight strong bearish clusters, the SPX took a break over the past few days with no leading signals, however the two weaker timeframes have almost clustered in the lower reversal zone, which would be a short-term bullish signal. .
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 uptrend and short-term uptrend.
VIX: The VIX rose 3.33% to 13.33, back inside the bollinger bands. The RVX fell 1.19% to 19.02 and is back inside the bollinger bands.
Fibonacci Retracements: The RUT 161.8% extension is up at the 1375 level; that might represent some token level of resistance.
Support/Resistance: For the SPX, support is at 2193 … with no overhead resistance . 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 56, due to the recent chop. The Daily chart is showing a level of 43 which is quickly coming out of exhaustion. This increases the probability that we’ll see a short-term consolidation in the near future.
Other Technicals: The SPX Stochastics indicator fell to 92, overbought. The RUT Stochastics indicator flattened at 92, overbought. The SPX MACD histogram fell above the signal line, showing a fade of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2090 and resistance at the upper band at 2245 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1146 to 1403 and price is below the upper band.
We might be seeing the market pricing in a shift in character out of the recent lifeless Fed-driven economy, and into an unrestrained one. I think this will bring about a big shift in how the market behaves.
Position Management – NonDirectional Trades
Offense: I still do not want to set up OTM credit spreads in this low-vol environment until we see real movement to the downside.
I have the following positions:
- MS 2DEC/9DEC 39/41 Call Diagonal (11/21) was entered for a $1.10 credit. I will look to exit the position for about a 50% return on risk, and I will need to exit by tomorrow morning.
- M 9DEC/16DEC 42.5/44.5 short call diagonal (11/28) – entered for a $.98 credit. Exited (11/30) for a $.38 debit; this gave me a net profit of $56/contract after commissions or a 55% return on risk ..
- AAL 9DEC/16DEC 45/47 short call diagonal (11/28) – entered for a $.94 credit. Would like to exit for $.40. If I can get close to this exit tomorrow I’ll pull the trigger rather than hold over the weekend.
I set the risk for these such that I have no “stop” other than closing the position on expiry. If we see a quick downdraft the profits will come quickly; shooting to exit at about half of the credit value.
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.
- 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 – The SSO is “gone” and I don’t want it at these levels.
- GE JAN17 30 puts (11/28) – I sold five contracts of $30 puts for $.39 credit
- TWTR JAN17 $15 puts (11/30) I sold ten contracts of $15 puts for $.22 credit.
Nothing to do at this time with current positions. I will be continuing to “bottom fish” in the subsequent weeks to identify stock candidates that I would want to own long-term.
Position Management – Directional Trades
- 8/21 EMA Crossover -We’ll look for the next crossover, which is happening now. If we see a rapid pullback that pulls the price down below the 8ema I might consider going long with a debit vertical spread. This one is very likely “gone” based on past experience with these types of rallies.
- RSI(2) CounterTrend – Awaiting the next signal.
- 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.
To remove the current series of puts, I will look for a move down to and below the SPX 2100 level.
I will be adding the next series of FEB puts if we see a reason to. So far I don’t see a reason to add them. At this point I’d rather let the market play out another few days before adding a FEB position..
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 190. Quite honestly, selling the “financing” trades has been a huge challenge in this low-vol environment.
We currently have the following positions in play with this strategy:
- SPY JAN17 193 Long Puts – I entered this position (10/24) for a $1.33 debit.