Daily Market Newsletter
May 11, 2019Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
May Expiration
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Market Commentary
As we get into mid-May, uncertainty runs high and we are in phase XIII of the China/US Trade War which really started last year. Both Trump and Xi are in a position where they cannot back down for lack of face; what this means is that the Trade War will likely drag on for some time yet, perhaps never really being resolved as salvos of tariffs get lobbed over the Pacific ocean. Who has more to lose in this scenario?
Trump certainly feels that it’s the Chinese. And part of the difficulty with these negotiations is cultural, since many Asian cultures feel that it’s rude to be confrontational in person, so promises are made to avoid same, leading to perceived “withdrawal” of negotiated conditions. So what this means is that it might never go away in the near term.
The “goldilocks” market that we had just a week ago might be gone, but all depends on what happens to the current “price frame” of the S&P500. I’m not willing to sell into the pullback just yet, I’d like to see some more of an extreme prior to selling downside premium on the S&P vs. spreads. I’ll discuss how I’m using this “frame” in today’s video. .
Strategies to play? We should be looking for pullbacks to sell puts against assets that we want. We should be looking for momentum breakouts. Nothing else will work in this environment. I want to give this pullback a little more room before we attack it, even at the risk of missing it, although I’m going to take a short put position in AMD come Monday morning, barring an overall crash.
Subscriber Update: I will be out of the country and not producing the report from Monday May 20th until Thursday June 6th; in my stead will be Alex who has started to do some guest videos (below) so that you get used to his voice and style. I will also NOT be setting up any positions that require any attention, they will be more of the “fire & forget” version.
Please sign up for our free daily crypto report here.
Here is Alex’s weekend video discussing “volatility” trading strategies.
Offensive Actions
Offensive Actions for the next trading day:
- I will set up the next series of short calls on SLV by selling the 19JUL $15 calls; see “stocks” section below. I will keep this as an open order.
- I will enter short puts on AMD Monday morning; see “stocks” section below.
- I will discuss an optional front-week Iron Condor in the “Expected Move” section 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.
- 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
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Technical Analysis Section
Market Internals: Volume was above-average Friday and breadth ended the day modestly stronger with +201 advancers minus decliners. The low-water mark that day was -418 advancers minus decliners.
SPX Market Timer : The Intermediate line fell from the Upper Reversal Zone, now showing a bearish bias. No leading signals at this time..
DOW Theory: The SPX is in a long term uptrend, an intermediate uptrend, and a short-term downtrend. The RUT is in a long-term uptrend, an intermediate uptrend, and a short-term downtrend. The Dow is in an intermediate uptrend and short-term downtrend.
VIX: The VIX fell to 16.04, back inside the bollinger bands. The RVX fell to 18.98 and is back inside the bollinger bands.
Fibonacci Retracements: The price has pulled down to the 50% retracement of the March/April swing.
Support/Resistance: For the SPX, support is at 2791 … with overhead resistance at 2954. The RUT has support at RUT 1500 with overhead resistance at 1617 and 1742. All indices that we track recently showed 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 as the Dow ,S&P500, RUT, and /NQ have now printed a Golden Cross.
Fractal Energies: The major timeframe (Monthly) is charged again, with a reading of 54, yet is starting to reflect the reversion to the larger uptrend again. The Weekly chart has an energy reading of 42, just above exhaustion from the uptrend. The Daily chart is showing a level of 48 which is charged again but starting to reflect the energy draw from the move down. These readings say that we should expect maybe one more week of choppy price behavior but will see sharp moves during this chop.
Other Technicals: The SPX Stochastics indicator fell to 59, mid-scale. The RUT Stochastics indicator fell to 63, mid-scale. SPX MACD histogram fell below the signal line, showing a loss of upside momentum after negative divergence. The SPX is inside the Bollinger Bands with Bollinger Band support at 2869 and resistance at the upper band at 2959 with price is at the lower band. The RUT is inside the Bollinger Bands with its boundaries at 1555 to 1611 and price is above the lower band.
Position Management – NonDirectional Trades
I have the following position in play:
- SPY 17MAY 282.5/283.5*297/298 Long Iron Condor (4/22) entered for $.16 on the put side and $.17 on the calls. I will look for a 200% return on either side as a closing order GTC. We’ll see if the price runs to an 8 point EM by mid-May.
If we see a little further pull to the downside, we might want to consider setting up a HP put credit spread on the SPY.
I have no positions in play at this time.
No additional trades at this time; the timing is absolutely crucial on these trades so we have to find absolutely exhausted conditions prior to taking these entries.
I have no current positions:
Calendar spreads are good for markets in quiet/trending character. If the market reverts back to quiet/trending, then I’ll look to continue this method; if we see the daily chart go into exhaustion I’ll set up a back week calendar.
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 will go out to the 19JUL series and sell the $15 calls for at least $.15 credit.
I like AMD right now after INTC’s stumble. I like the 28JUN $24 puts and we should be able to make a 2% return on these. I will enter these on Monday morning barring a big crash in equities.
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 set up a long swing trade on the Russell 2000 via the IWM (4/24), with a 24MAY IWM 163/164 debit call spread (4/24) for $.20 debit. I will look for 100% return on this trade.
Crypto has come down to a one-coin market (Bitcoin) which is absolutely ripping higher from a complex bottom. Not a great place to accumulate until the price fades lower first.
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 Thursday’s close at SPY 288.10, there is a +/-5.539 EM into this coming Friday; this is about 50% larger than last week’s 3.477 EM. The EM targets for this Friday’s close are 293.64 to the upside, and 282.56 to the downside.
At this point we can fade either EM depending on how the price tests it. Very good possibility that we’ll be range-bound. Those that are more aggressive might want to consider a front-week Iron Condor, which I’ll discuss in today’s video.
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 at this time:
- TGT 17MAY 80/82.5 debit call spread (4/9) entered for $1.25 debit. We will look for a 50% return on this trade. Earnings have already passed for TGT, but this one took it on the chin the other day as AMZN announced one-day delivery.
- SBUX 31MAY 77/78 debit call spread (4/29) entered for $.48 debit. I will look for a 50% return.
- MCD 7JUN 197.5/200 debit call spread (5/6) entered for $1.14 debit. I will look for a 50% return.
We are also keeping an eye on the Momentum stocks in this section. Most of those are a little extended at this point and this pullback might do the rest of the market a lot of good. I would like to let the market settle first before going heavily long.
No other entries at this point.
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.