Daily Market Newsletter
April 1, 2017Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
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This past Friday was the end of the week, the end of the month, and the end of the first quarter of 2017. The Nasdaq has risen 9% already in 2017, the S&P500 has gained 4.9%, the DOW has risen 4%, and the Russell 2000 is up 2%. From a technical perspective, the Russell 2000 is in the best position to take the baton and lead from here, after seeing nothing but consolidation so far this year, and at one point dipping negative, but right now we have major markets being driven by tech as the immense cup-with-handle pattern from the last seventeen years continues to play out to the upside.
Reflect on the fact that this index was still only half of it’s 2000 value as recently as 2011, and has more than doubled in six years as one game-changing technology after another gives way to the next. Yes, we may or may not have infrastructure projects to work with over the next few years, and we may or may not have an overhaul on Healthcare as well as Tax Reform….but you can bet that innovation in Tech will continue to drive profits and so far is NOT a replay of the 2000 bubble that had nothing behind it but promise.
I continue to believe that we’ll have some corrective action in the near future, but it will be mild. There’s also a possibility that last week’s “big red candle” of 29 points to the downside might be all we see in the near future….but problems such as “tax day” and the “government shutdown” might keep a lid on things due to uncertainty. This uncertainty was reflected in the VIX on Friday, rising 7% with a very mild decline in the S&P’s. Someone know something?
Offensive Actions for the next trading day:
- I have one “whale” entry on Monday morning; please see the “Whale” section below..
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.
- Please note the closing levels for current positions..
Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
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Market Internals: Volume was slightly higher on Friday. Breadth was mixed with -83 advancers minus decliners.
SPX Market Timer : The Intermediate line flattened below the Upper Reversal Zone, now showing a bearish 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 downtrend, and a short-term uptrend. The Dow is in an intermediate uptrend and short-term uptrend.
VIX: The VIX rose 7.19% to 12.37, back inside the bollinger bands. The RVX rose 2.02% to 16.16 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 30. The Weekly chart is now just above technical exhaustion with an energy reading of 40, due to the recent chop. The Daily chart is showing a level of 48 which is losing energy due to the downtrend. 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 39, mid-scale. The RUT Stochastics indicator rose to 49. mid-scale. The SPX MACD histogram rose below the signal line, showing a return of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2338 and resistance at the upper band at 2389 and is above the lower band. The RUT is back inside the Bollinger Bands with its boundaries at 1342 to 1397 and price is above 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.
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.” 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 2300 level, this might be our first opportunity to sell premium against that level.
I have the following positions:
- SPX 24APR 2285/2290*2375/2380 LP Iron Condor (3/27) was entered for a $2.50 credit, and I will look for a $2.00 exit debit. no positions at the current time.
- SPY 21APR 238/239 debit call spreads (3/28) were entered (3/28) for a $.21 debit to help hedge the upside on the LP Condor.
No new positions for now; let’s let the SPX find itself in the current range. The price has risen towards the top end of the SPX range but the vertical hedge spread is working well to null that out.
I have the following positions:
- ABBV 31MAR/7APR 64.5/66.5 Call Diagonal (3/20) was entered for a $.97 credit, and I closed this position today (3/30) for a $.71 debit. This gave me a net profit of $22/contract, or a 21% return on risk.
The best two setups that I’ve seen for this strategy are with TIF and BBY.
The calendar spread 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 sold 19MAY $18 calls (3/27) against this position for a $.22 credit.
- RIG I’m going to add more puts once we determine that the ” range” is printed on US markets. .
- X – I added the 19MAY $25 puts (3/13) for $.37 credit.
- AMD – I sold the APR $11 puts (2/27) on AMD for $.19 credit, and I sold 19MAY $10 puts (3/27) for a $.25 credit.
- NVDA – I sold the 19MAY $80 puts (3/13) for $.90 credit. We need to look for the next pullback before selling again.
If we get more of a pullback then I can be a little more aggressive with this strategy. I have a feeling that a lot of things will be on sale before long.
Thoughts on current swing strategies:
- 8/21 EMA Crossover – The 8/21 ema is starting to cross over to the downside now. I am taking the QQQ put spread on this signal .
- RSI(2) CounterTrend – I closed the following positions:
- XLF 7APR 23/24 call debit spread (3/28) was entered for a $.50 debit; I closed this position (3/31) for a $.73 credit, which gave me a $19/contract profit or a 38% return.
- XLF 7APR 23 long call (3/28) was entered for a $.61 debit. I closed this position (3/31) for an $.82 credit, or a net profit of $19/contract profit, or a 31% return .
- 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:
- QQQ 19MAY 116 Puts (2/16) were bought for $.70 debit. Still need more downside movement to light these up.
- CRM 21APR 79/80 Put Spread (3/21) was added for $.20 debit, and was closed (3/28) for a $.31 credit. This gave me a net profit on the trade of $9/contract, or a 45% return on capital.
- QQQ 28APR 130/132 debit put spread (3/28) was entered for $.85 debit. I will look for a 50% return on my position.
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 and expired on Friday for a full loss.
There is one “whale” that I like which might be an aggressive entry but looks to be building pressure again; on Monday I’ll enter the MSFT 5MAY 68.5/69.5 debit call spread for about a $.23 debit. If the market (and MSFT) opens very soft on Monday and does not recover in the morning, I will scrub this entry.
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
Per Thursday’s report I added the JUN17 long puts. I can’t think of a better market condition to be adding long puts.
I will likely clear all put options if the price drops 5% from the recent highs at SPX 2400. Not sure that I can expect much more than that given the current climate.
We currently have the following positions in play with this strategy:
- SPY JUN17 215 long puts – I entered this position (3/17) for a $1.19 debit.
- SPY APR17 206 long puts – I entered this position (1/27) for a $.92 debit.