Daily Market Newsletter

April 20, 2017
Non-Directional Strategies
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Semi-Directional Strategies
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Directional Strategies
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Market Commentary

What made the market rally today? Perhaps it was news that the current administration still had a tax deal on the table, perhaps not…in the end it does not really matter. Traders get so caught up in trying to analyze current news and how it affects price, that they don’t often see that many of the moves are priced in ahead of time.

In today’s video I’ll discuss how the same market can be analyzed by technical and statistical analysis, and ultimately end up at the same conclusion.

We close another winning “earnings” trade today. In this weekend’s report, we’ll summarize the “APR” options cycle and see what changes need to be made for the next cycle going forward…I hope you join me.

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 trades 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.

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 average today. Breadth was good with +295 advancers minus decliners.

SPX Market Timer : The Intermediate line flattened below the Upper Reversal Zone, now showing a neutral bias. No leading signals at this time.

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 fell 5.22% to 14.15, back inside the bollinger bands. The RVX fell 8.76% to 18.02 and is back inside the bollinger bands.

Fibonacci Retracements: The SPX has come down to the 23.6% Fib Retracement of the entire November-March rally.

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 46, due to the recent chop. The Daily chart is showing a level of 59 which is now recharged. Charts are doing precisely what they need to do to work off the enormous move off of the election bottom.

Other Technicals: The SPX Stochastics indicator fell to 40, mid-scale. The RUT Stochastics indicator rose to 44. mid-scale. The SPX MACD histogram rose below the signal line, showing a return of upside momentum. The SPX is inside the Bollinger Bands with Bollinger Band support at 2333 and resistance at the upper band at 2371 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1345 to 1387 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 and move into a larger trading range would be a good thing to see first.

 

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.” 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 was closed (4/13) for a $2.00 debit. This gave us a profit of $42/contract after commissions, or a 16.8% return on risk.
  • 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. Unless there is a big bounce tomorrow this trade will expire OTM.

 

No other entries at this time..

 

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. This stock is getting hammered but we had an excellent entry on it and it’s likely to bounce before assignment. If the price drops lower i might consider selling JUN puts too, perhaps at the $20 level.
  • 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.
  • XLF – I sold the 16JUN $22 puts (4/10) for $.25 credit and will accept assignment if the price pulls back.

 

I will let any APR positions expire tomorrow.

 

 

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 –  I will look for more RSI(2) trades in the near future.
  • 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 set up a BEARISH earnings trade on VZ (4/19) , entering the VZ 21APR 48.5/49.5 put spread for $.48 debit, and the position was closed on my GTC credit order of $.72. This gave me a net profit after commissions of $20/contract, or a 41.7% return on capital.

We’ll look for more earnings trades next week.

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, or a $1.28 GTC credit.

 

 

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 let this position expire tomorrow.
  • 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. I have a $1.28 GTC credit limit order on this position. .

 

I see a bunch of potential entries right now that require a breakout; I’ll talk more about them in the weekend report..

 

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

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. This position will expire tomorrow.