Daily Market Newsletter

June 5, 2017

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Market Commentary

An incredibly quiet, range-bound day in the markets, as a bunch of risk hits the tape later on this week in the face of markets up against short-term (and longer-term!) exhaustion signals. I am keeping my risk defined and manageable in light of this non-volatile tape that can get angry in a heartbeat. Make sure that you are comfortable with your current risk and holdings,

If you cannot get the above video to play, try this link.

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.
At this point I would welcome a break-even exit for the SPX LP Iron Condor but it’s unlikely after the big breakout.
I will cover defense for the new SPY time spread in today’s video..

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 low today. Breadth was somewhat weak with -122 advancers minus decliners.

SPX Market Timer : The Intermediate line turned up into the Upper Reversal Zone, now showing a bullish bias. This chart is showing a Strong Bearish Cluster with the two stronger timeframes in the Upper Reversal Zone for the second day in a row, and is also very close to a full bearish cluster again with all three timeframes in the URZ. This can be a leading signal for a pause.

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 2.46% to 9.99, back inside the bollinger bands. The RVX rose to 15.88 and is back inside the bollinger bands.

Fibonacci Retracements: Fibs are out of play again.

Support/Resistance: For the SPX, support is at 2355 … with no overhead resistance. 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 down into exhaustion again with a reading of 34. The Weekly chart is now recharging quickly with an energy reading of 53, due to the recent chop. The Daily chart is showing a level of 32 which is in exhaustion again.

Other Technicals: The SPX Stochastics indicator rose to 87, overbought. The RUT Stochastics indicator rose to 61, mid-scale. The SPX MACD histogram rose above the signal line, showing a return of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2362 and resistance at the upper band at 2442 and is at the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1358 to 1410 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. Markets are still showing perfect “Quiet & Trending” behavior regardless of what we “think” that they should do.

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 in play:

SPX 7JUN 2315/2320*2395/2400 Iron Condor was entered (5/18) for a $2.50 credit. I have entered a GTC $2.00 debit limit order as my closing order. At this point with a couple of days remaining I will just look to break even on this position but that’s looking less likely by the day. Quick “one day wonder” days have a pattern of roping me into thinking that the price will remain volatile yet range-bound in that area, however most of these have v-bottomed to the upside as this one has. Should price remain at this level I will look to exit the call spreads for a $5 debit by Wednesday. The closer to expiration that we get, the harder to accomplish this will be.

I have the following positions:

BBY 9JUN/16JUN 57.5/59.5 short call diagonal (5/30) was entered for $.94 credit. I will look for a 30% return on this position.
SPY 16JUN/21JUL 244 Put Calendar (6/5) was entered for a $1.31 debit. My action points are SPY 241.43 and 247.42, and my current 10% limit order is $1.48 credit GTC. I will discuss management of this trade in tonight’s video.

LVS looks to be setting up as a good short call diagonal candidate.

I will be on the lookout for more short call diagonals as this is the type of market that they should work well in.

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 need to look for the next set of calls to sell against SLV; I would like to sell at the $17.5 level for JUL but need to get at least an $.18 credit.
X – I was assigned at the $25 price level.. I sold 21JUL X $25 calls against this position for a $.40 credit. I will bail out of this position if the price closes below $16/share. Ultimately I would like to bail on this position as there has been so much technical damage that it might be difficult to get this stock bid up again.In the short term, we have weekly exhaustion and a high level of energy on the daily chart, so this might encourage a quick bounce to at least set up a “lower high” which we could use.
AMD – I sold 16JUN $9 puts (5/8) for $.25 credit. Bounced nicely at $10/share.
NVDA – Not really interested in this one above $100/share.
XLF – I sold the 16JUN $22 puts (4/10) for $.25 credit and will accept assignment if the price pulls back.

I will put in a GTC $.18 credit limit order for SLV JUL17 calls.

Still not thrilled by available candidates. I will look more in-depth this week to see what I can target, even if it’s damaged goods. .

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover – Looking for the next 8/21 ema entry.
RSI(2) CounterTrend – .Looking for the next RSI(2) candidate.
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.

Earnings for 1Q2017 are just about done with; the next cycle will start in early July.

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 last Friday’s close.at 244.17, there is a +/- 2.132 EM into this Friday.

The EM targets for next Friday’s close is 246.30 to the upside, and 242.04 to the downside.I will watch for either of those levels to be tagged, and will fade that level with an ATM debit spread. If we see a short-term consolidation show up this week, then I will target the next available upside EM target with an EM debit spread.

I have the following positions:

SPY 21JUL 229/230 Debit Put Spread (5/15) was entered for a $.14 debit.

Nothing else to enter at this time.

I have the following positions:

TWTR 16JUN 21/22 Debit Call Spread (2/6) was entered for a $.20 debit.
C 23JUN 63.5/64.5 debit call spread (5/15) was entered for $.27 debit. Let’s look for a 100% return from this trade.
BIDU 23JUN 202.5/205 call debit spread (5/17) entered for $.39 debit.
ABBV 30JUN 65.5/57.5 debit call spread (5/30) was entered for $.95 debit. Looking for 50% return which is a $1.48 credit.
AXP 7JUL 78/80 debit call spread (6/5) was entered for a $.99 debit. Looking for 50% return from this trade.
AAPL 16JUN 160/162.5 debit call spread (6/5) was entered for a $.34 debit and will look for 100% return.

Most of these are in good shape for now as long as markets are pressing higher.

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