Daily Newsletter
October 8, 2019Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
October Expiration
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Market Commentary
We are starting to see some startling shifts in market volatility as we get into the fourth quarter; the S&P is very “quietly” starting to increase its daily trading range, now up to an average of about 36 handles/day. That’s roughly just over a 1% average range per day with the S&P’s up near 3000 points. Pick your poison, this afternoon it was the US putting visa restrictions on Chinese officials and the S&P’s almost immediately took a 20 handle haircut, with the NASDAQ losing about 60 handles in the blink of an eye. This market continues to crawl along the edge of a razor and I believe that any day now we could see a limit-down event which really kick-starts the volatility.
If we do see something like this, it will occur overnight and we’ll be greeted with an interesting surprise in the morning. We are limiting risk to our portfolio by keeping our long positions light as well as surrounding the range with long condors. Keep in mind that market “shocks” like that almost always create an upside “flush” first before any long-term downside kicks in.
Bank earnings kick off the 3Q2019 reporting season on Tuesday, October 15.
Short-Term Outlook: We’ve been in a massive consolidation pattern since early 2018, or almost another “horizontal bear market” like we had in 2015-2016. All that energy that’s been coiled up has to go somewhere, the policy and odds favor it to go higher, but we’ll know which price levels to respect to warn us if that energy’s going lower instead.
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Offensive Actions
Offensive Actions for the next trading day:
- No new orders for tomorrow, although watch the EM fade setup to the upside.
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 above-average today with advancers minus decliners showing a massively negative number of -442 at the closing bell.
SPX Market Timer : The Intermediate line has fallen further below the Upper Reversal Zone and is now “Bearish.” 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 rose to 20.33, inside the Bollinger bands. The RVX rose to 23.21, and is outside the Bollinger bands.
Fibonacci Retracements: The S&P has now undercut the 61.8% retracement from the recent August pullback, increasing the odds of “filling in the triangle” which it might have accomplished last week.
Support/Resistance: For the SPX, support is at 2825 and overhead resistance at 3028. The DOW has support at 25500 and overhead resistance at 28399. The RUT has support at 1450 and resistance at 1600.
Fractal Energies: The major timeframe (Monthly) is charged again with a reading of 52. The Weekly chart has an energy reading of 65, now fully-charged. The Daily chart is showing 44, recharging from the downdraft . Larger timeframe energies are waiting on a very big move, which will start with the smallest timeframes.
Other Technicals: SPX Stochastics flattened at 32, below mid-scale. RUT Stochastics fell to 18, oversold. The SPX MACD fell below the signal line, showing a decrease in positive momentum. The SPX is below the lower bollinger band with the range 2895 to 3046. The RUT is back inside the bollinger bands with the range 1464 and 1610.
Position Management – NonDirectional Trades
I have the following positions in play at this time:
- SPY 18OCT 289/290*308/309 Long Iron Condor (9/16) was entered for a $.16 debit on the put spreads and an $.18 debit on the call spreads. The put spreads fired at our target (10/2) of $.48 which means that we made a net profit after commissions of $28/contract on the put spreads, and still hold the call spreads. I will see if any rally higher in the near term allows us to harvest some value from the call spreads..
- SPY 15NOV 281/282*310/311 Long Iron Condor (9/30) was entered for a $.16 debit on the puts and $.18 debit on the calls. I will look for a 200% return on either side. Not enough gamma to get the put side to fire on the recent downdraft.
No additional orders at this point.
I have no positions in play:
This is not the right character of market for this strategy at this point.
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 sold the SEP $17.50 calls (8/13) for $.18 credit and closed down this position (9/5) for a $.44 debit. I will let this price chart trend as much as it wants to in the near future before writing against it again.
- CSCO – My cost basis is now $48.80/share prior to the latest trade. I sold the JAN20 $50 calls for $1.94/contract so our cost basis could be as low as $46.86 depending on the outcome of those JAN calls. Our shares also went ex-dividend on Thursday so that’s another $35/contract so our cost basis could now be as low as $46.51. I don’t want to see this trade below $46/share on a closing basis.
No other trades at this time.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – The short signal has fired; I do not take these in an overall positive market.
- RSI(2) CounterTrend – Per last Wednesday’s advisory I took the DIA 11OCT 261/262 debit call spread (10/3) which I entered for a $.50 debit. I sold the position (10/4) for a $.75 credit which gave me a net $21/contract profit, or a net 42% return on capital after commissions. I’ll look for the next setup.
- Daily S&P Advancers – Looking for the next signal to go long with single-digit advancers to close the day.
- Swing – None at this time..
Crypto got absolutely hammered last week and is testing to see how low that it can probe; support seems to be around $8k on bitcoin and $6500 below that.
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 294.35, there is a +/-5.442 EM into this coming Friday; this is about the same as last week’s 5.551 EM. The EM targets for this Friday’s close are 299.79 to the upside, and 288.91 to the downside.
The price blew through the lower Weekly EM again today. There was a perfect fade opportunity available late this morning, but I did not take it. This could be a good fade again if the price starts to trade above this level prior to Friday, however it appears that we’ll have to go lower first before the price can go higher.
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 positions in play at this time:
- MSFT 11OCT 139/140 Debit Call Spread (9/9) entered for $.48 debit and looking for a 50% return. We have to close this trade this week on any kind of positive return that we can secure.
- WMT 25OCT 118/119 Debit Call Spread (9/23) entered for $.50 debit and looking for a 50% return.
- COST 15NOV 290/295 Debit Call Spread (10/8) was entered for $2.50 debit and looking for 50% return.
No additional orders today.
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 open positions at this time. Skew is making OTM puts really expensive now.
If we see a decent bounce back up I might consider reloading.