Daily Market Newsletter

July 3, 2017
Non-Directional Strategies
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Semi-Directional Strategies
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Directional Strategies
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Market Commentary

 

A very odd day in the markets as Energy and Financials rallied while Tech sold off; profits were taken in Tech to pay for these holdings as the rotation was fairly clear. Perhaps the rally had something to do with Dennis Gartman issuing a bearish call on Crude. Gartman’s calls have been taken lately as a very accurate form of contrary indicator. On the daily chart, this appears to be nothing more than a bounce back up to the top of the channel again on the XLE. The Financials, however, are clearly in breakout mode from a very defined consolidation pattern.

The rest of this week should contain more fireworks than just Tuesday’s parades, as we have Fed Minutes on Wednesday, ADP on Thursday, and the full Jobs report on Friday. Please note that tomorrow is a full market holiday so there will be no newsletter tomorrow. Happy 4th of July and see you Wednesday!

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

Offensive Actions

Offensive Actions for the next trading day:

  • No neutral spread selling now….price is about to move.
  • Weekly EM levels have been set, see “weekly EM” section below.
  • MGM is showing an RSI(2) entry for Wednesday, discussed in the “swing trade” area 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.

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 low toay. Breadth was modest with +140 advancers minus decliners.

SPX Market Timer : The Intermediate line fell below the Upper Reversal Zone, now showing a neutral bias. No leading signals at this time but still showing a strong potential of a bearish cluster with the next breakout..

DOW Theory: The SPX is in a long term uptrend, an intermediate uptrend, and a short-term sideways trend. 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 .36% to 11.22, back intside the bollinger bands. The RVX rose to 15.21 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 1434. 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 32. The Weekly chart is now recharging quickly with an energy reading of 49, due to the recent chop. The Daily chart is showing a level of 60 which is massively charged up and we do not see markets pause for long in this state..

Other Technicals: The SPX Stochastics indicator fell to 49, mid-scale. The RUT Stochastics indicator turned up to 49, mid-scale. The SPX MACD histogram fell below the signal line, showing a loss of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2418 and resistance at the upper band at 2449 and is above the lower band. The RUT is back inside the Bollinger Bands with its boundaries at 1394 to 1432 and price is below the upper band. The SPX Bollingers are starting to squeeze again.

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. 

SPX chart

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 in play.

I will look for the next daily/weekly consolidation signal to sell LP Condors again.

I have no current positions; no current setups showing.

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 the 21JUL $17.5 calls (6/6) for $.19 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.
  • HPE – I sold the 18AUG $16 puts (6/12) for $.30 credit.

 

I will look for a deeper pullback in stocks before selling more puts.

Position Management – Directional Trades

Thoughts on current swing strategies:

  • 8/21 EMA Crossover – Looking for the next 8/21 ema entry.
  • RSI(2) CounterTrend –  MGM is showing a valid RSI(2) entry; I can enter this position on Wednesday using the 14JUL 30.5/31.5 debit call spread for about $.50 or less, or whatever spread from that series that offers the same entry price. We will look for a 30% return.
  • 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 2Q2017 will start on the 19th of July with AA.

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 the current Friday closing price at 241.80, there is a +/- 2.48 EM into this Friday.

The EM targets for this Friday’s close is 244.28 to the upside, and 239.32 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 either level is hit on the Friday, I will use ATM “front day” long options to fade that level.

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:

 

  • SPY 21JUL248/249 debit call spread (6/26) was entered for $.16. This is an inexpensive, high reward-to-risk trade that’s looking for the SPY to head up to the expected move by the JUL expiry.
  • UPS 28JUL 111/112 debit call spread (7/3) was entered for a $.52 debit. I will look for a quick 40% return in the next week if possible.

 

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