Daily Newsletter
January 29, 2020Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
February Expiration
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Market Commentary
A relatively benign FOMC reaction confirms that fact that the Federal Reserve is “backing the system” and realizes that it cannot lead the monetary system forward; it must follow. Jerome Powell got to this point about a year ago and it’s been smooth sailing with him ever since. I used to really dread FOMC meetings because it created issues with my trades; since then I’ve learned how to NOT fight the market and the Fed. But the Ten Year Note continues to fall which might be a concern if this move is prolonged. It’s been a 15 month slide so far.
Earnings news was huge after the bell today and the reactions were mixed; FB got crushed and TSLA blew out all of the shorts AGAIN.
I’m still thinking that the S&P will print a “lower high” and fall into “corrective” for a few weeks. A lot of uncertainties out there and it’s going to get worse in the short run.
The following stocks are reporting earnings over the next few days:
- Thursday: AMZN, AMGN, V, VLO, VZ, WDC, X, WYNN
- Friday: CAT, XOM
- Monday: GOOGL
- Tuesday: COP, DIS, F, SNAP, SIRI
- Wednesday: GM, HUM, MET, MRK, QCOM
- Upcoming earnings of interest: AMZN 1/30, GOOGL 2/3,
Subscriber Update: I will be “grandfathering” OptionsLinebacker and DocsTradingTools customers over to a new advisory service, targeting the February timeframe. I intend to make this service more “actionable” with more trade alerts, and plan to include guest contributors who are experts in their specific strategies. If there are any elements of the OLD (existing) service that you want to make sure are carried into the new service, please let me know by dropping me at line at doc@docstradingtools.com
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:
- I am cancelling my bearish long put spread in the “Synthetic Shorts” section below. We will try again if the price pops higher and prints a ‘lower high.’
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.
- We need to see if we can score any profits from the 31JAN debit spread.
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 average today, with the advancers minus decliners showing a mildly weak -109 at the close.
SPX Market Timer : The Intermediate line has fallen below the Upper Reversal Zone and is now “neutral” 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 uptrend, and a short-term downtrend. The Dow is in an intermediate uptrend and short-term downtrend.
VIX: The VIX rose to 16.39, back inside the Bollinger bands. The RVX rose to 18.31 and is inside the Bollinger bands.
Fibonacci Retracements: The SPX has come down to test the 38.2% fib retracement of the latest swing higher since December.
Support/Resistance: For the SPX, support is at 3070 with no overhead resistance. The DOW has support at 27325 and no overhead resistance. The RUT has support at 1580 and resistance around 1742.
Fractal Energies: The major timeframe (Monthly) is into exhaustion now at a value of 36, and is starting to reflect energy bleed from the very linear trend from late 2018. The Weekly chart has an energy reading of 31, deep into exhaustion but recharging quickly. The Daily chart is showing 49, above exhaustion and recharging quickly. We’re seeing a runaway bull once again but now both parent charts into exhaustion. Very few daily trends continue when the energy level is at 25 or lower.
Other Technicals: SPX Stochastics fell to 73, below overbought. RUT Stochastics flattened at 55, mid-scale. The SPX MACD fell below the signal line, showing a decrease in positive momentum. The SPX is above the lower bollinger band with the range 3215 to 3341. The RUT is above the lower bollinger band with the range 1639 and 1701.
Position Management – NonDirectional Trades
I have the following positions in play at this time:
- SPY 21FEB 323/324*337/338 long condor (1/21) entered for $.50 debit. I will seek a 25% return on the trade. At the time of entry, the price of the SPY was 331.4 with a +/- 9.93 move into the 21FEB EM.
No additional trades at this time.
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.
We’ll look for the next pullback to potentially sell puts against our next candidate.
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; stay tuned for this signal to show in the near future.
- Swing – I have no positions in play:
BTC and other top-ten coins have been breaking higher over the last week. Not sure at this point whether the gains will hold, or whether this will just turn the advance into another Weekly “lower high.”
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 328.77 there is a +/-5.266 EM into this coming Friday; this is much larger than the 4-day 2.988 EM from last week. The EM targets for this Friday’s close are 334.04 to the upside, and 323.5 to the downside.
Volatility is increasing; the price hit the lower weekly EM of the SPY Monday. I don’t expect this level to hold if there is any more uncertainty that comes into the market this week.
I have the following positions in play:
- SPY 31JAN 312/313 debit put spread (12/30) entered for $.14 debit. At this point I am looking to secure any kind of positive return from this trade with only a few days left.
- SPY 21FEB 319/320 debit put spread (1/22) entered for $.11 debit. I would look for at least 100% return from this trade.
For now, I’m going to cancel this trade. We missed the entry (which would have been Friday): (I will add another position on Monday; one could either enter five contracts of the 28FEB SPY 316/317 debit put spreads, for about $.17 debit…or you could enter a somewhat more efficient SPY 28FEB 315/320 debit put spread for about $.79 debit with just one contract.)
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:
- WMT 24JAN 121/122 debit call spread (12/16) was entered for $.50 debit and expired OTM.
No further trades at this time. I think that the Weekly swing is over for now, or presents very poor reward/risk characteristics for us to take additional longs, unless they are non-correlated to the markets.
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.
Unless we see another rally leg into the end of January, we’re too late to double up on our position. .
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.