Daily Market Newsletter
May 23, 2019Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
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June Expiration
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Market Commentary
Hello all. It is Alex here covering for Doc who is on vacation for the next couple of weeks.
Trade wars, trade wars, and more trade wars. One would have though that the market had priced in all the negativity associated with the ongoing US-China trade wars, but today proved that theory wrong. While the initial impact of the trade wars was likely priced into the market, there has been growing concern that there may be little to no progress on the negotiation front for some time to come. The S&P’s hit their low point of the day with an hour left in the session and, fortunately for the bulls in the crowd, the dip buyers arrived to the party allowing the S&P’s to regain 15 points from the session lows and finish strong into the close. The Dow Jones fared the best only shedding 1.1% while the S&P’s, Nasdaq and Russel lost 1.2%, 1.6% and 2.1% respectively. Oil took it on the chin hard, being down at one point almost 6% today. The spill over from the trade war stalemate is further stoking fears of a worldwide recession. Domestic US oil inventory levels were reported this week to be at their highest level since July of 2017, while at the same time production levels are also peaking.
The consolidation wedge on the S&P daily chart, which had been in play for the last couple of weeks, was firmly breached to the downside today. Between the overnight and follow-on intra-day losses they were great enough to achieve our expected move in a one day session, with the price bouncing off of the lower expected move that was set last Friday. Volume was up markedly from what we had seen over the last couple of days. The market sent us a nice note in it’s own way that it wasn’t ready for the long weekend yet. For those of you who put on straddles on Tuesday morning of this week for tomorrow’s expiry, you all should have made out nicely.
Yesterday I talked about putting on straddles for Tuesday or long iron condors for a week tomorrow if we got another day of sideways movement. Coulda, shoulda, woulda. Interestingly, even though we saw significant downside movement today, the expected move for a week tomorrow is now at 58 points versus a value of yesterday of 51 (but with one less trading day now) indicating that the option market does see higher volatility risk but isn’t pricing in a large follow through of what we saw today. This, in the face of the VIX jumping 15% today. Our fractal energy levels on the daily chart increased significantly to 0.63. We are at peak levels of energy indicating we are in store for a significant move in the near term. In that light, I may still look to place those trades tomorrow as long as we don’t have huge overnight moves.
Cheers and have a great long weekend
Alex
If you have any questions, please feel free to reach out to me at alex_docs_trading@outlook.com
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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.
- No new orders for Monday.
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 today, doubling yesterdays volume in a wave of sell side activity. The advancers versus decliners ended firmly down at -295 after hitting the low for the day of -433 shortly after the open
SPX Market Timer : The Intermediate and momentum and near-term lines are in a divergent position. 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 sideways trend, and a short-term downtrend. The Dow is in an intermediate uptrend and short-term downtrend.
VIX: The VIX exploded upwards by close to 15% to 16.92, inside the bollinger bands. The RVX increased almost 12% to 20.82 and is inside the bollinger bands.
Fibonacci Retracements: The pullback had pulled price down to the 61.8% retracement of the March/April swing. after sitting in the consolidation wedge we made a significant move back towards the 61.8% level that was hit mid month.
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. The RUT closed a mere whisker above the 1500 support level today after breaching through it earlier in the session.
Fractal Energies: The major timeframe (Monthly) is charged again with a reading of 53 but slowly dropping as some of the old choppiness works itself off. The Weekly chart has an energy reading of 49, pushing higher. The Daily chart is showing a level of 63 which in creased significantly as we have started to drop off some of the large candles from 13 days ago. The daily energy has increase to peak levels seen only a couple of other times in the last 3 months. With the energy levels we are now seeing, we should expect to start to see some significant moves.
Other Technicals: The SPX Stochastics indicator rose to 49, mid-scale. The RUT Stochastics indicator fell to 22.5, pushing away slightly from the lower boundary. The SPX MACD histogram is below the signal line, showing continued downside momentum. The SPX is inside the Bollinger Bands with Bollinger Band support at 2799 and resistance at the upper band at 2969 with price is above the lower band. The RUT closed right at the lower Bollinger Bands with its boundaries at 1501 to 1626 and price is above the lower band.
Position Management – NonDirectional Trades
I have no remaining positions 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. The puts were closed (5/13) for a $.48 credit. This gave us a net $140 profit from the puts alone. The calls expired for a net $95 loss so our return on this trade was a net 27.2% after commissions.
With the S&P500 charts nearly at full energy again across the board, it might be time soon for another long condor.
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.
No additional stock plays until I return from travel 2nd week June; I’d like to see if the current pullback plays out a little deeper.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – Looking for the next signal. I don’t like these signals to the short side.
- 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. At this point any kind of positive return on this trade would be welcome as I’m running out of time, a shame as this trade was within a penny of firing at my target.
Crypto had a big rally this week, and Bitcoin had a monstrous dump on Friday, effectively shaking off all of the late-to-the-party longs. So far the price action is positive.
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 285.84, there is a +/-5.309 EM into this coming Friday; this is about the same as last week’s 5.539 EM. The EM targets for this Friday’s close are 291.15 to the upside, and 280.53 to the downside.
The lower EM for this week lines up with the low test of last week, so this might be a good level to fade with an ITM call option should it be tested and offer support.
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 no remaining positions in play at this time:
- TGT 17MAY 80/82.5 debit call spread (4/9) entered for $1.25 debit and expired OTM for a net $254 loss on two contracts.
- SBUX 31MAY 77/78 debit call spread (4/29) entered for $.48 debit and closed (5/16) for $.72 credit. This gave me a net profit of $20/contract or 42% net return on capital after commissions. .
- MCD 7JUN 197.5/200 debit call spread (5/6) entered for $1.14 debit and closed (5/17) for $1.57 credit, giving us a net $39/contract profit or a 34.2% return on capital after commissions.
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.