Daily Newsletter
December 21, 2019Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
January Expiration
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Market Commentary
When runaway moves get started, they don’t stop when people THINK that they should stop. Overbought? The Market LAUGHS at your sentiment! We have many readings to share with you that shows the “dangerous” nature of this move, that it’s a little too cooked…however we have just as much historical precedent to show that these moves typically go MUCH FURTHER than anyone expects. It’s due to “Fear of Missing Out.” First, we have the CNN Fear and Greed Index:
The highest reading in a long time. Next, we have “Dumb Money Confidence” from Sentimentrader.com which shows that a year ago, dumb-money investors were never more confident in further losses….while today, they are at the second-most confident level in further gains:The Herd was panic-selling a year ago, and they’re panic-buying now:
This last graph is interesting, as it shows the percentage of stocks in the S&P500 is almost exactly the same as the last “high” in early 2018, after a similar rally in late 17/Jan 18.
Catching the “top” of a parabolic rally is actually much more difficult than catching the bottom of a once-a-year panic sell-off. While I think that we’ll see some tremendous opportunity in the near future to catch a down-draft and use the volatility to our advantage, the odds and seasonality favor a continued grind higher this week.
Short-Term Outlook: Prices are breaking from a massive consolidation pattern in play 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, and the first weekly trend is playing out in that direction yet might be nearing completion..
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Offensive Actions
Offensive Actions for the next trading day:
- I’ll look for potential longs on COST and INTC per the “Whale” 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.
- I will need to close the SPX call spreads of the LP Condor on Monday.
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 well above-average Friday, with the advancers minus decliners coming in at a relatively strong value of +261, topping out earlier in the day at +343.
SPX Market Timer : The Intermediate line has flattened in the Upper Reversal Zone and is still “Bullish.” This chart is showing the relatively rare Full Bearish Cluster with all three timeframes in the Upper Reversal Zone.
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 sideways trend, and a short-term uptrend. The Dow is in an intermediate uptrend and short-term uptrend.
VIX: The VIX rose to 12.51, inside the Bollinger bands. The RVX rose to 14.45 and is inside the Bollinger bands.
Fibonacci Retracements: The price is into new highs again and no point in looking at retracements yet.
Support/Resistance: For the SPX, support is at 2825 with no overhead resistance. The DOW has support at 25500 and no overhead resistance. The RUT has support at 1450 and resistance around 1742.
Fractal Energies: The major timeframe (Monthly) is charged again with a reading of 41, and is starting to reflect the very linear trend from late 2018. The Weekly chart has an energy reading of 30, deeper into exhaustion. The Daily chart is showing 25, into exhaustion again. We’re seeing a runaway bull once again but both Weekly and Daily charts into exhaustion. Very few daily trends continue when the energy level is at 25 or lower..
Other Technicals: SPX Stochastics rose to 88, overbought. RUT Stochastics rose to 88, overbought. The SPX MACD rose above the signal line, showing an increase in positive momentum. The SPX is above the upper bollinger band with the range 3082 to 3219. The RUT is at the upper bollinger band with the range 1590 and 1675.
Position Management – NonDirectional Trades
I have the following positions in play at this time:
- SPY 20DEC 296/297*319/320 Long Iron Condor (11/4) was entered for a $.17 debit on the puts and a $.16 debit on the calls. I closed the call spreads (12/12) for $.42 credit. Since the put spreads expired worthless, this gave me a net return after commissions of $5.10/contract or a 15.4% return on capital.
No additional positions at this time. If we get another week or two of upside movement, we’ll set up another Long Condor regardless of the energy levels.
I have the following positions in play:
- SPX 23DEC 3015/3020*3150/3155 Iron Condor (12/3) was entered for a $2.50 credit. This trade got absolutely run over from the SPX slingshot move, so the call spreads must be closed on Monday else we get cash-settled, which would be an extra charge.
No further trades with this strategy until this parabolic runaway move terminates.
I have no current positions:
Calendar spreads are good for markets in quiet/trending character. The issue that we have in the short run is the volatility inflation on the back end of the curve, implying that we’ll see movement into January, but none is priced into options in the short-term. We’ll have to wait until January to kick our offense off.
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. Looking for the next rally to sell calls against.
No other trades at this time. Let’s let the moonshot subside and look for a general pullback in markets.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – The long cross has fired and is gone. The next entry would be off of the 21ema which occurred the week of Dec 2.
- RSI(2) CounterTrend – 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..
BTC and other top-ten coins are once again in a downtrend; could this be the final capitulation after slipping into a Bear almost two years ago?
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 320.73 there is a +/-2.897 EM into this coming Friday; this is much smaller than the 5.004 EM from last week. The EM targets for this Friday’s close are 323.63 to the upside, and 317.83 to the downside.
We will continue to look for downside tests of the weekly EM. The upper EM was almost hit on Friday, even though it was larger-than-normal.
I have no positions in play:
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:
- PYPL 3JAN 108/109 debit call spread (12/2) was entered for $.50 debit. I will seek 50%.
- DIS 10JAN 147/148 debit call spread (12/13) was entered for $.49 debit. I will seek 50%.
- WMT 24JAN 121/122 debit call spread (12/16) was entered for $.50 debit. I will seek 50%.
- V 24JAN 185/187.5 debit call spread (12/17) was entered for $1.25 debit. I will seek 50%.
The two candidates for Monday entry are COST and INTC; we’ll look for a $.50 debit on a $1 spread width for INTC, and a $1.25 debit on a $2.50 spread width for COST. Both will use 24JAN call options.
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 the following open positions at this time:
- SPY 21FEB 279 long puts (11/15) entered for $2.21 debit. I will look to clear half of the position on any test of the 200 sma, and the other half upon a 10% haircut in price.