Daily Market Newsletter

December 15, 2016
Non-Directional Strategies
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Semi-Directional Strategies
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Directional Strategies
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Market Commentary

We’ll probably continue to see a stair-stepping, upside grind through the rest of this year. Once we get to January, then the fun begins. In the meantime I hope to keep things as simple and straightforward as possible, simply acting on what’s being shown to us on the charts, and not trying to read anything more into that.

In Saturday’s report I’ll tabulate wins and losses and lessons learned from the December options cycle; I think we did well but the market always has a lesson for us to keep us humble.

If the above video does not work, please try this link.

Offensive Actions

Offensive Actions for the next trading day:

  • No new positions 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.
  • The LP Iron Condor is risk-managed with the initial setup, however if the price is going to continue screaming to the upside, we’ll hedge the position with the SPY butterfly (and closed vertical) spreads that we already have in place.
  • I discussed SPY Calendar defense in today’s video.

 

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 above average today. Breadth was modest with +155 advancers minus decliners.

SPX Market Timer : The Intermediate line flattened within the Upper Reversal Zone, showing a bullish bias. No leading signals today .

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 fell 3.03% to 12.79, back inside the bollinger bands. The RVX fell 3.07% to 17.68 and is back inside the bollinger bands.

Fibonacci Retracements: Fibs (retracements and extensions) are not in play right now.

Support/Resistance: For the SPX, support is at 2188 … with no overhead resistance. The RUT has support at RUT 1300 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 still charged with a reading of 44. The Weekly chart is declining with an energy reading of 43, due to the recent breakout. The Daily chart is showing a level of 36 which is at technical exhaustion for the sixth day in a row. We are seeing the expected short consolidation at this level.

Other Technicals: The SPX Stochastics indicator flattened at 79, below overbought. The RUT Stochastics indicator flattened at 73, below overbought. The SPX MACD histogram fell above the signal line, showing a loss of upside momentum. The SPX is inside the Bollinger Bands with Bollinger Band support at 2162 and resistance at the upper band at 2276 and is at the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1295 to 1393 and price is at the upper band.

We are 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. 

SPX chart

 

 

 

 

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:  I still do not want to set up OTM credit spreads in this low-vol environment until we see real movement to the downside. If and when we get this movement we’ll need to identify levels that we want our credit spreads to be “below.”

I have the following positions.

  •  SPX 2165/2170*2230/2235 LP Iron Condor (12/5) was entered for a $2.50 credit. I will look for a $2.00 closing debit in the coming days. I do not have any “defense” for this position, it is risk-managed from day one, however I will take a quick exit if I see the price pull back into the Condor range.
  • SPX 2225/2230*2285/2290 LP Iron Condor (12/15) was entered for a $2.50 credit. I will look for a $2 closing debit.

Per yesterday’s advisory I set up the next trade and will look for a quick exit before it gets trendy again..

 

I have the following positions:

  • C 23DEC/30 DEC 58.5/60.5 Call Diagonal (12/12) was entered for a $.96 credit. I will look for about a 50% return on risk to exit this trade.
  • SPY 28DEC/20JAN 226 Put Calendar (12/15) was entered for a $1.30 debit. I will look for about a 10% return from this trade. My upside adjustment point is SPY 228.6, at which point I will add the SPY 231 call calendar in the same series.

 

 

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 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.
  • 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.
  • RIG JAN17 $12 puts (12/8) I sold ten contracts of $12 puts for $.18 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

Thoughts on current swing strategies:

 

  • 8/21 EMA Crossover -This one is gone. Looking for the next crossover. .
  • 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.
Looking for the next edge. Price has been so choppy that it’s been difficult to identify the next edge.

 

 

 

 

 

 

 

 

 

 

 

 

No positions at this time.
I have the following positions:

  •  SPY 28DEC 224/226/228 Call Butterfly (12/5) – added this position for $.21 debit.

 

I will hang onto the Butterfly position as long as I’m in the SPX LP Condor, or if the price starts to close outside the expiration envelope of the Butterfly.

 

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.

 

 

 

 

 

 

I added the FEB puts today, just in time to see the price tack on another 30 handles.  

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.
  • SPY FEB17 200 long puts – I entered this position (12/7) for a $.95 debit.