Daily Market Newsletter
March 14, 2017Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
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March Expiration
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Market Commentary
We’re approaching tomorrow’s FOMC “hike” with almost serene complacency, which is understandable given the number of times that the “script” has been followed recently….but even this is extreme. We *are* seeing some volatility rise into tomorrow’s release which is “trapping” my non-directional positions and forcing me to hold through the risk – pretty common.
I’m always trying to ask myself, “what move would cause the maximum amount of pain right now?” and to me, it would be a move similar to the SOTU address two weeks ago to the upside, which would attract more sideline money….and I think would also create another distribution point. If we see a move to the upside tomorrow I will likely “fade” that move with directional spreads on Thursday.
If the video above does not play, please try this version of the video with embedded player.
Offensive Actions
Offensive Actions for the next trading day:
- No other trades until after the FOMC reaction on Wednesday.
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 Calendar Spread with action points defined below in the “Time Spreads” section.
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 less than average today. Breadth was weak with -226 advancers minus decliners.
SPX Market Timer : The Intermediate line flattened below the Upper Reversal Zone, now showing a neutral bias. This chart is once again very close to showing a Full Bearish 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 uptrend, an intermediate uptrend, and a short-term downtrend. The Dow is in an intermediate uptrend and short-term downtrend.
VIX: The VIX rose 8.37% to 12.30, inside the bollinger bands. The RVX gained 3.13% to 15.82 and is back 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 29. The Weekly chart is now technically exhausted with an energy reading of 35, due to the recent breakout. The Daily chart is showing a level of 53 which is recovering quickly. It’s rare when we have all three major timeframes in exhaustion as we had for two weeks.
Other Technicals: The SPX Stochastics indicator fell to 52, mid-scale. The RUT Stochastics indicator fell to 27. above oversold. The SPX MACD histogram fell below the signal line, showing a loss of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2340 and resistance at the upper band at 2392 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1356 to 1422 and price is at the lower 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 and move into a larger trading range 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.
- 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. The price is near the top of the range but is showing exhaustion on Weekly timeframes. As long as this chart settles into a range it’ll be fine.
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. .
I have the following positions:
- SPY 24MAR/21APR 237 Put Calendar (3/6) was entered for a $1.36 debit. My 10% profit exit is $1.54.
I describe the management of this trade in Tuesday’s video. The Upper adjustment point is 239.27, and the lower adjustment point is 234.44. Please use alerts on your chart to notify yourself of required actions. We appear to be in good shape and this position should benefit from the vol coming out of the short option after the policy release. 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.
- 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 will look for the next daily exhaustion signal to sell further OTM calls against this position.
- 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. I also added the 19MAY $25 puts (3/13) for $.37 credit.
- AMD – I sold the APR $11 puts (2/27) on AMD for $.19 credit.
- NVDA – I sold the 19MAY $80 puts (3/13) for $.90 credit.
If we get more of a pullback then I can be a little more aggressive with this strategy.
Position Management – Directional Trades
- 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.
- DIA 10MAR 199/201 Debit Put Spread (1/30) was entered for a $.94 debit and expired OTM on Friday.
- 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.
- VLO 31MAR 67.5/69.5 Debit Call Spread (2/28) was entered for a $1.00 debit. I will look for a 50% gain from this position.
What was threatening to break out, has broken out. We might be on borrowed time with directional upside plays I will wait until after tomorrow’s release to pursue further setups.
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.