Daily Market Newsletter

May 2, 2017

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Market Commentary

We’ve seen a stalled market for the past two months, which is about the very minimum that I’d expect considering the level of exhaustion that late February showed on the S&P500…so the baton got passed to the NASDAQ “superstars” recently, and that looks like it’s just about run its course with today’s somewhat-soft AAPL report. A lot of risk in the charts over the next few days, culminating with the Friday Jobs report. Will the baton get passed again, or fumbled?

Watch out for a whole-lotta-nothing from tomorrow’s FOMC report. If it DOES generate a reaction we need to pay attention..

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, however watch for the SPY levels on the EM fade listed 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 my action points defined for my SPY Calendar spread in the “time spreads” section below.

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

Technical Analysis Section

Market Internals: Volume was below average today. Breadth was mixed with 83 advancers minus decliners.

SPX Market Timer : The Intermediate line turned up into the Upper Reversal Zone, now showing a bullish bias. No leading signals at this time but this chart is close to a full bearish cluster.

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 sideways trend, and a short-term uptrend. The Dow is in an intermediate uptrend and short-term uptrend.

VIX: The VIX rose 4.75% to 10.59, back inside the bollinger bands. The RVX rose .85% to 15.48 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 1426. 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 37. The Weekly chart is now recharging quickly with an energy reading of 48, due to the recent chop. The Daily chart is showing a level of 43 which is losing energy due to the recent uptrend. 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 rose to 70, below overbought. The RUT Stochastics indicator rose to 80. 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 2324 and resistance at the upper band at 2400 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1336 to 1425 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.

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 no positions at this time. While I do think that we have a small window of opportunity to play LP Condors yet in this environment, the energy is quickly building up in most markets that we follow and my preference is that we wait on a short-term exhaustion signal to fire before we risk capital based on a hunch.No entries at this time..

I have the following positions at this time:

SPY 19MAY/16JUN 237 Put Calendar (4/24) was entered for $1.69 debit.
SPY 19MAY/16JUN 241 Call Calendar (4/25) was entered for $1.10 debit.
My lower “action point” is 237, and my upper action point is 241. If one of those action points is hit, then I will exit the opposite side of the trade and double up on the remaining calendar spread .
My GTC credit limit for this position to secure an 8% return is a $3.10 credit. The aggregate trade is in the black right now but we have a long way to go to reach that.

If the SPY gets back up to the 240 level I want to place a short call diagonal against that level with a weekly spread.

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.
X – I added the 19MAY $25 puts (3/13) for $.37 credit. This stock is getting hammered. I would accept assignment if it comes to that, however my “get out of dodge” level is $16/share which is where I no longer want to be an owner of X
AMD – I sold 19MAY $10 puts (3/27) for a $.25 credit. Getting hammered but will hold on.
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.

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover – I entered the IWM 2JUN 140/142 (4/26) for a $1.01 debit, and will look for a 50% return from this position.
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’m going to back off of earnings trades in the near term..

This is a new section that I’m going to start laying out trades for weekly “expected moves.” The S&P500 has done a nice job of moving pretty much to one end of the overall expected move every week. We can either speculate on that direction ahead of time using OTM spreads, or we can “fade” the price when it hits one of the EM levels.

Viewing the SPY from Friday’s close.at 238.08, the EM for Friday’s close is 239.87 to the upside, and 236.29 to the downside.

I set up a debit put spread “around” that lower EM target by entering the SPY 5MAY 235.5/236.5 debit put spread (5/1), for $.09 or less. My target profit would be 100% return.

We can also look to fade either level when touched with an ATM debit spread. At this point if the price rallies up to the 239.87 level then I will set up a 5MAY in/out call spread against it.

I have the following positions:

QQQ 19MAY 116 Puts (2/16) were bought for $.70 debit. Still need more downside movement to light this position up.

I have the following positions:

TWTR 16JUN 21/22 Debit Call Spread (2/6) was entered for a $.20 debit.

Most of the candidates showing on the Whale scan watchlist are about to report earnings. We need to keep an eye on BIDU as the huge monthly pattern might be about to break.

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.

I will use the current “super low” IV conditions to enter the next Hindenburg cycle by buying SPY 18AUG17 puts at the 214 strike price on Tuesday.

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 AUG17 214 long puts (5/2) – I entered this position for a $1.22 debit.