Daily Market Newsletter
March 16, 2019Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
April Expiration
Day(s)
:
Hour(s)
:
Minute(s)
:
Second(s)
Market Commentary
I think that we’re back in “Goldilocks” territory again; not too hot, not too cold, just enough skepticism to keep markets slowly grinding higher. The recent pullback, which was incredibly overdue and long-awaited, did not even make it to the 23.6% fib retracement before setting a new relative high on the SPX and NQ.
But the recent strength has been Tech and Utility-powered, as the other sectors languish. We need to continue to watch the Dow and Russell 2000 carefully, because if the market if to catch everyone napping, then it will do so by printing a “lower high” starting with the daily charts, which might then migrate to the weekly and monthly charts. Markets will always move towards the “pain” and that is still squeezing Bears out after the December crash, but we’ve just about reached statis.
In today’s video I’ll dust off the mighty Calendar Spread as we place a small “test” position to see if markets truly are transitioning to quiet/trending.
As long as we have a dovish Fed, we should continue to expect money to be plowed into equities. Be careful of the “lower high” in some indices, however.
Please sign up for our free daily crypto report here.
An embedded flash video is available here.
Offensive Actions
Offensive Actions for the next trading day:
- I’ll enter a short put position on PFE on Monday; see “stocks” section below.
- I like a long call spread on PYPL now (see whale section below) but unclear if we’ll have the options to enter on Monday.
- See the “Time Spreads” section below for a calendar spread trade on the SPY.
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.
- Closing orders have been entered for all new spreads.
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 average Friday and breadth ended the day modestly higher at +157 advancers minus decliners.
SPX Market Timer : The Intermediate line rose into the Upper Reversal Zone, now showing a bullish bias. This chart is very close to a strong bearish cluster again.
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 uptrend, and a short-term uptrend. The Dow is in an intermediate uptrend and short-term uptrend.
VIX: The VIX fell to 12.88 after peaking at 50.3 a year ago, inside the bollinger bands. The RVX fell to 15.33 and is inside the bollinger bands.
Fibonacci Retracements: The price has moved through several important Fib levels and is not caring about any confluence levels that these present. The recent retracement did not even get to the 23.6% fib retracement.
Support/Resistance: For the SPX, support is at 2700 … with overhead resistance at 2941. The RUT has support at RUT 1500 with overhead resistance at 1600 and 1742. The S&P500, Russell 2000, Dow, and Nasdaq 100 have all printed a Death Cross with the 50ma crossing below the 200ma; this can be a leading signal for a true Bearish move. It can also signal “false” and create a massive swing higher. We might be seeing the latter scenario.
Fractal Energies: The major timeframe (Monthly) is charged again, with a reading of 58. The Weekly chart has an energy reading of 37, in exhaustion from the uptrend. The Daily chart is showing a level of 42 which is starting to soften due to the strong uptrend this past week.
Other Technicals: The SPX Stochastics indicator rose to 54, mid-scale. The RUT Stochastics indicator fell to 32, below mid-scale. 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 2750 and resistance at the upper band at 2824 with price is at the upper band. The RUT is inside the Bollinger Bands with its boundaries at 1524 to 1605 and price is above the lower band. The Bollinger Bands are starting to squeeze again.
I had the following results for the 15MAR 2019 Options Cycle:
High Probability Iron Condors
- SPX 15MAR 2820/2830 call credit spread entered for $.80 credit and closed for $3.55 debit. This created a net loss after commissions of $279.
Low Probability Iron Condors
None this period.
Time Spreads
No trades this period.
Cash-Secured Puts/Covered Calls
- AMD MAR19 $19 puts were opened for a $.24 credit. and were closed for $.05 debit giving me a profit of $18/contract, or a $180 profit on ten contracts..
“Whale” Trades
- NFLX 1MAR 347.5/350 debit call spread entered for $1.28 debit and closed for $1.92 credit. This gave me a profit of $60/contract after commissions, which was a 46% return on capital, or a $300 profit on five contracts.
- DE 15MAR 165/167.5 Debit Call spread entered for $1.27 debit and expired OTM, creating a $258 loss on two contracts.
Swing Trades
- 15MAR GLD 121/122 Debit Call Spread (RSI2) gave a net profit after commissions of $29/contract, or $145 on five contracts.
- BAC 26.5/27.5 debit put spread entered for $.24 debit and expired OTM, creating a $52 net loss on two contracts.
Hindenburg Positions
No trades this period.
SPY EM Fade/Target
No trades this period.
Lessons Learned from this cycle:
We got whipsawed in this cycle and it was barely above break-even for me. Let’s see what we got right, and what we booted:.
What I think we did right this cycle: We did a few things right this cycle, because a lot of folks got killed on the rebound.
- We kept long and did not try to short the rally all the way up.
What I think we screwed up in this cycle:
- I have difficulty with persistent uptrends like this one; if I get “hit” on a bearish or neutral trade from the uptrend, I will pull a turtle and say “I’ll just wait until it tells me when it’s over.” We did have some excellent Weekly signals to tell us when the uptrend had hit a statistical limit, and I should have persisted selling against it. I think this persists from some old wounds that I incurred in 2006 and 2013 from similar rallies. Events are statistically independent from each other, but the subconscious mind doesn’t believe that.
- I missed the ema 8/21 trade not only on the first shot, but the second one as well on the test of the 21ema. Inherently I do not trust it.
What we have to do going forward: Test your hypothesis that markets are transitioning to quiet/trending and then stick with it.
Position Management – NonDirectional Trades
I have the following positions in play:
- SPY 27MAR 271/272*287/288 Long Iron Condor (2/25) entered for $.18 debit on the call spreads and $.16 debit on the put spreads. I will look for a 200% return on each side individually and may the best side win.
No additional trades for now.
I have no positions in play.
Waiting for the next condition to sell options again; realized vol is out-pacing implied vol again. The rebound off of the bottom has been violent and traders are chasing after the move.
I have no remaining positions.
Calendar spreads are good for markets in quiet/trending character, so we’ll test this current market with a small position to see if we can sustain premium selling through time spreads.
I will set up a 29MAR/26APR SPY Put Calendar Spread on Monday per my directions in the video today. Let’s use the SPY (vs. the SPX) as this is more of a “test” position to see if we’re truly into quiet/trending price behavior.
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:
- SLV Stock – I have 1000 shares of the SLV that was assigned at the $15 level. I currently have the SLV 18APR $15.5 calls (2/11) for a $.17 credit.
- EBAY 26APR $34 puts (3/11) sold for $.73 credit. I will look to remove this trade for a $.10 debit.
I like PFE for a 17MAY $39 put for at least 1%, or at least a $.39 credit.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – Looking for the next signal.
- RSI(2) CounterTrend – None at this time.
- Daily S&P Advancers – Looking for the next signal to go long when we have single-digit advancers on the ADSPD.
- Swing – I have no positions at this time.
Crypto has had relative strength over the last few weeks and no one believes this rally.
Investors should currently be looking to find technical entries to warehouse BTC/ETH/LTC assets for eventual trades on Alt-coins. You should also be looking to devices like “trezor” or other cold-storage devices to keep your assets off of the network, or other secure wallet such as Navcoin. Relying on the security of your broker is no longer good enough; no one can log into your ETrade account and “steal” your stock assets, but the whole nature of Cryptocurrencies and their portability means that someone can grab your assets and transfer them elsewhere. I will continue to discuss the tradingview platform in daily videos as I think that it is currently the best way to chart the “big three.”
From Friday’s close at SPY 281.31, there is a +/- 3.382 EM into this coming Friday. The EM targets for this Friday’s close are 284.69 to the upside, and 277.93 to the downside.
I think there’s a very good chance that we’ll see light volatility going into Wednesday’s FOMC meeting, and perhaps beyond that. As long as Powell hits it down the middle of the fairway, everything is already priced into the market.
I will start playing directional bear spreads once we see upside exhaustion on more than one timeframe.
The scan that I discussed in the 8/4/2018 video is available to download for thinkorswim here: http://tos.mx/OvdVnz I will also be adding a second Larry Connors scan to this section as well; here is the Connors Crash scan: http://tos.mx/BhHuKL
I have the following positions in play:
- UPS 29MAR 112/113 Debit Call Spread (3/4) entered for $.50 debit.
- SBUX 29MAR 71/72 Debit Call Spread (3/4) entered for $.50 debit.
- CSCO 26APR 52/53 Debit Call Spread (3/13) entered for $.50 debit.
The Weekly exhaustion on the S&P is going to give markets a headwind for a couple of weeks, but it might not affect the “Momentum” stocks. PYPL is now over $100 and might start to run above that level. Honestly, I do not know what $1-wide options spread that I can use on Monday morning to enter this one…I’ll have to see what’s available. I will look at both the 18APR and 26APR series and try to pay about $.50 for a $1-wide spread.
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.
I have no positions at this time. I cleared out the most recent set of puts on the drop to the 200ma back in October. I will “reload” again soon, if/when the weekly chart goes into upside exhaustion. The three-month puts are coming down in price closer to what I’d prefer to pay. (3 months out/90% of current value)