Daily Market Newsletter
April 5, 2017Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
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Market Commentary
For the third time in the last five weeks, “good news” was pushed and ramped higher, and then sold into. We saw this with the State of the Union Address on March 1st, we saw it with the last FOMC release in mid-March, and again today as the catalyst appeared to be a good ADP payroll number leading the market to discount Friday’s Non-Farm Payroll report early. That all came unglued this afternoon as the Fed Minutes added uncertainty and the move was quickly sold.
This tells me that markets are still in “corrective” mode and will likely stay in this manner until we see a new “support” floor built in, which I’m hoping is SPX 2300 or lower. Bring on the chaos and the Implied Vol!
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 entries 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.
- Please note the closing levels for current positions..
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 higher today. Breadth was soft with -144 advancers minus decliners, after being over +400 earlier in the day.
SPX Market Timer : The Intermediate line flattened below the Upper Reversal Zone, now showing a neutral 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 downtrend. The Dow is in an intermediate uptrend and short-term uptrend.
VIX: The VIX rose 9.33% to 12.89, back inside the bollinger bands. The RVX rose 8.69% to 18.76 and is back inside the bollinger bands.
Fibonacci Retracements: Fibs are not in play right now.
Support/Resistance: For the SPX, support is at 2320 … with overhead resistance at about 2400. The RUT has support at RUT 1335 with overhead resistance at about 1415. 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 just above technical exhaustion with an energy reading of 43, due to the recent chop. The Daily chart is showing a level of 52 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 into late February.
Other Technicals: The SPX Stochastics indicator rose to 46, mid-scale. The RUT Stochastics indicator rose to 52. mid-scale. 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 2337 and resistance at the upper band at 2387 and is above the lower band. The RUT is back inside the Bollinger Bands with its boundaries at 1341 to 1395 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.
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 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 no positions at this time.
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.
Position Management – Directional Trades
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 – No current positions; watching for this signal to fire with any dip.
- 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 no positions at this time. The next earnings season will begin on April 10th, and we will play this one aggressively if markets hold up.
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.
- 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.
- .MSFT 5MAY 68.5/69.5 debit call spread (4/3) was entered for a $.21 debit
- KO 5MAY 42/44 debit call spread (4/5) was entered for an $.85 debit.
No more bull trades for now while markets work through the corrective action.
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.