Daily Newsletter
January 4, 2020Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
January Expiration
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Market Commentary
There is a theory that “news fits the move” rather than the other way around. What this means is that when the “market wants something,” it will use any catalyst/exogenous event as an excuse to move. And certainly with now all three timeframes in exhaustion, the SPX was looking for some external catalyst to begin the process of consolidation or “recharging.”
And Friday’s “event” was the removal of Iran’s Soleimani, which obviously creates a lot of uncertainty; markets HATE uncertainty. I think we’ll find out very soon as to whether this creates the usual “wave after wave” of negative news that spawns even more uncertainty…and pushes prices lower….or whether this is just one more global event that becomes back-page news in a week, as traders hungrily buy the dip and it’s business as usual.
But by a couple of objective measures, markets could take a breather either way in the near term. The number of PermaBears turning bullish has risen dramatically as of late:
And the seldom-employed McClellan Oscillator is showing a dearth of Bears as well, around the same level as major turning points in the past:
This looks like an obvious time to pause the “long” offense, and I’d like to add some more non-directional positions in the near term, however traders are not reacting with much “fear” yet. This is the type of situation that’s more like a coin flip vs. an actual condition where we have “edge” in place, so my preference is to ease back on the “longs” for right now.
Over the course of the next month, I’m going to start to integrate some of the strategies that will be released with the new advisory-based service that you all will be grandfathered into.
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. The first weekly trend from that consolidation is already into exhaustion and looks to be ready to consolidate.
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Offensive Actions
Offensive Actions for the next trading day:
- See the “Swing” section for setups on XLV, and XLP.
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 look to close any remaining long trades.
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, with the advancers minus decliners showing a relatively weak number of -219.
SPX Market Timer : The Intermediate line has flattened in the Upper Reversal Zone and is still “Bullish.” No leading signals at this time but once again VERY close to another Strong Bearish Cluster.
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 downtrend. The Dow is in an intermediate uptrend and short-term uptrend.
VIX: The VIX rose to 14.02, inside the Bollinger bands. The RVX rose to 16.07 and is inside the Bollinger bands.
Fibonacci Retracements: The price is near 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 into exhaustion now at a value of 38, and is starting to reflect energy bleed from the very linear trend from late 2018. The Weekly chart has an energy reading of 26, deeper into exhaustion. The Daily chart is showing 35, recovering from exhaustion again. We’re seeing a runaway bull once again but now ALL charts into exhaustion. Very few daily trends continue when the energy level is at 25 or lower, and Friday’s pullback was a welcome respite to the advance.
Other Technicals: SPX Stochastics fell to 89, overbought. RUT Stochastics fell to 81, overbought. The SPX MACD fell above the signal line, showing a decrease in positive momentum. The SPX is below the upper bollinger band with the range 3112 to 3277. The RUT is below the upper bollinger band with the range 1618 and 1691.
Position Management – NonDirectional Trades
I have the following positions in play at this time:
- SPY 27JAN 320/321*330/331 long condor (12/27) entered for $.25 debit on the put spreads and $.23 debit on the call spreads, for a total $.48 debit. I will seek a total 25% return on the entire trade, or a $.60 credit with a GTC limit order. At the time of entry, the price was about SPY 323.4 with a +/-9.25 EM.
We are not in a good mode for the traditional “High Probability” short iron condors since the price movement has been incredibly directional, and the Implied Vol is reflective of this with a very low/complacent value. Not good odds to sell options right now, better odds to buy them and go “long gamma.”
I have no positions in play.
No further trades with this strategy until this parabolic runaway move terminates and volatility gets out of the gutter. This is a great strategy while the price is in quiet/trending character with “stair-stepping” price movement, but a poor strategy when price is in a runaway “tail” move.
I have no current positions:
Calendar spreads would be good trades in expected chop, however we’re still suffering from a lack of short-term vol.
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.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – Awaiting the next signal.
- 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 – I have the Connors Powerzone setup showing on XLP and XLV. I will look to take an ATM 17JAN debit call spread on either or both, depending on me getting a $.50 entry on the $1-wide debit. I will look for a 50% return but if I secure 30% on the first day or two I’ll clear the position.
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 322.41 there is a +/-4.491 EM into this coming Friday; this is larger than the 3.589 EM from last week but we’re back to 5 days/week now. The EM targets for this Friday’s close are 326.90 to the upside, and 317.92 to the downside.
Volatility is increasing; the price almost hit the upper weekly EM of the SPY on Thursday, and then got close to the lower marker on Friday. The upper marker might be good for a fade entry this week.
I have the following positions in play:
- SPY 31JAN 312/313 debit put spread (12/30) entered for $.14 debit. I am looking for a 100% return from this trade. This should be an inexpensive speculative “flier” for capturing profits should we see a sharp downdraft in prices during the month.
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 and was closed (1/2) for a $.75 credit. This gave me a net return of $22.40/contract, which is a net 44.8% return on capital.
- DIS 10JAN 147/148 debit call spread (12/13) was entered for $.49 debit and closed (1.3) for a $.55 credit.
- 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 and was closed (12/27) for $1.80 credit. This gave me a net profit/contract after commissions of $52.40, or a net 42% return on capital.
- COST 24JAN 295/297.5 debit call spread (12/23) was entered for $1.25 debit, seeking 50%.
No further trades at this time. My job at this point is to harvest some kind of profit on as many of these trades as possible in the short term, prior to what we believe will be a higher level of volatility coming soon.
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.
If we see a continued rally into January, I will double up on my puts to add another position, at 10% OTM using APR puts.
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.