Daily Market Newsletter
February 27, 2017Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
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Market Commentary
Once more we saw the ever-present “groundhog day” price action with early weakness being squeezed out of the market, inch by inch, with Bears screaming in pain as they are once again eviscerated into all-time highs. We have seen this same pattern over and over again through the years, but it never ends in the same way twice. Rallies in 2007, 2010, and 2011 ended in crashes of sorts, while the 2013/2014 rally ended up by getting very quiet first before it got progressively noisier and more unstable.
The next “risk event” to come up will be Trump’s Pseudo-State Of The Union address tomorrow evening, and even the mainstream press has picked up on the risk potential. That probably just means that it will turn out differently than the pundits are predicting. Real market moves always catch everyone by surprise.
If the above video does not work, please try this link.
Offensive Actions
Offensive Actions for the next trading day:
- I have a potential Whale trade on VLO that I’ll watch for, see “whale” section below.
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.
- I have a SPY time spread which is doing well but close to adjustment; please see “time spreads” section below for how I will manage this.
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 below average today. Breadth was somewhat positive but diverging with +84 advancers minus decliners.
SPX Market Timer : The Intermediate line turned up into the Upper Reversal Zone, showing a bullish bias. Another rare Full Bearish Cluster showed for the second day in a row with all three timeframes in the Upper Reversal Zone..
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 5.41% to 12.09, inside the bollinger bands. The RVX rose 2.49% to 17.32 and is inside the bollinger bands.
Fibonacci Retracements: Fibs 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 now into exhaustion with a reading of 36. The Weekly chart is now technically exhausted with an energy reading of 33, due to the recent breakout. The Daily chart is showing a level of 28 which is super-exhausted now. It’s rare when we have all three major timeframes in exhaustion.
Other Technicals: The SPX Stochastics indicator rose to 96, overbought. The RUT Stochastics indicator flattened at 88. 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 2256 and resistance at the upper band at 2390 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1345 to 1422 and price is below 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, but a pullback to stoke up the negativity would be a good thing to see first.
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. If and when we get this movement we’ll need to identify levels that we want our credit spreads to be “below.” This is the same type of price action that was so perilous to HP condors back in 2013, so let’s not fight it.
If I see price drop to the SPX 2200 level, this might be our first opportunity to sell premium against that level.
I have the following positions:
- AAPL 3MAR 129/131*135/137 Iron Condor (2/13) was entered for a $.91 credit. I will need to close this position by this upcoming Friday.
- SPX 10MAR 2315/2320*2370/2375 (2/17) entered for $2.50 credit. I have already entered my $2.00 GTC debit order.
- AMGN 24MAR 167.5/170*180/182.5 Iron Condor (2/24) was entered for a $1.27 credit. I’m going to shoot for a $1 debit exit GTC.
- RUT 24MAR 1360/1365*1425/1430 Iron Condor (2/27) entered for $2.50 credit. I will submit a $2.00 GTC debit closing order.
With all index charts at maximum exhaustion, now is the highest-probability window of opportunity for range-bound trades….however it feels positively suicidal doing so. This is usually the measure of a good setup. .
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I have the following positions:
- SPY 17MAR/21APR 235 Put Calendar (2/21) was entered for $1.44 debit. My action point to the upside to add a MAR/APR 241 call calendar would be if the price hits the $237.87 point on the SPY. Quite honestly, unless the price gaps up tomorrow morning and forces my hand into adjusting, I would rather close the position profitably rather than adjusting at this point.
The 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 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,. I had to close out my SLV FEB calls on Friday as they slipped ITM by a few pennies. I will look for the next daily exhaustion signal to sell further OTM calls against this position.
- GE Did not give us much of a pullback to sell puts against.
- TWTR I will look for the next cycle of puts to sell against TWTR. .
- RIG I added the $12 MAR17 puts (1/30) for $.19 credit. .So far the $13 support is holding and I’d like to see if I can secure lower, deeper puts.
- X – I added the MAR17 $25 puts (1/30) for $.47 credit. .We’ll look for the next dip in price to sell again.
- AMD – I sold the APR $11 puts (2/27) on AMD for $.19 credit. .
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover -This one is gone. Looking for the next crossover, however it will be to the downside, and the first downside crossover is usually a poor signal. .
- RSI(2) CounterTrend – I’ll look for more of these in the near future as a new range approaches.
- 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 position:
- DIA 10MAR 199/201 Debit Put Spread (1/30) was entered for a $.94 debit. I will look for a 50% return from this position. I show this as a $1.46 credit limit.
- QQQ 19MAY 116 Puts (2/16) were bought for $.70 debit.
I have the following positions:
- BIDU APR17 190/195 Debit Call Spread (1/30) entered for a $.98 debit.Understand that I do not have a “stop” in this trade. I closed down half of the contracts (2/17)for a $1.82 credit, or a net profit of $80/contract. I will hold the rest of the contracts longer-term and wait on the breakout.
- TWTR 16JUN 21/22 Debit Call Spread (2/6) was entered for a $.20 debit.
What was threatening to break out, has broken out. The only candidate that I’m following now is VLO, looking for a break above the $68 level and would cause me to enter a ~35 day $2-wide vertical call debit spread for about $1.
We might be on borrowed time with directional upside plays.
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.
Quite honestly, 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 currently have the following positions in play with this strategy:
- SPY MAR17 203 long puts – I entered this position (12/28) for a $1.07 debit.
- SPY APR17 206 long puts – I entered this position (1/27) for a $.92 debit.