Daily Newsletter
February 18, 2020Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
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February Expiration
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Market Commentary
The closest thing to a distribution day that we’ve seen in some time, as AAPL warned ahead of the Corona Virus. It hasn’t felt like it, but we’ve actually seen the S&P pull into a tight consolidation over the last 5 trading days, which coincides with the daily SPX chart finally dipping into exhaustion. We now have ALL THREE timeframes showing fractal energy “exhaustion” to one degree or another. Seems like an excellent place for a rest, but this trend over the last five months has been relentless and will likely not follow any logical structure as it probes the extremes of sentiment.
I have a task for myself to start tracking my subconscious hunches, to see if it’s worth starting to take risk positions with them (or maybe even against them). And one that I’ve felt for a few weeks would be the “fade” into November’s election. Here we are in mid-February and the world has checked out and assumed that the US election is over and that the economy will remain exactly as is until that point. It’s very likely that we will see some event of “uncertainty” between now and November, 9 months away is a long time. We saw the same thing happen in October 2018 when rates were rising and everything looked great. The Fed was caught flat-footed by rapid changes in state and spooked the market.
And who could forget the chaos just prior to the 2008 election? If there is blood in the streets around the time of an election, then people tend to vote out the incumbent party.
Am I calling for a bear market? No, I just think that there’s too much time between now and November to keep all of these plates spinning up in the air, without expecting at least one to drop along the way. I may be looking to set up some relatively extreme reward-to-risk plays between now and then. The edge will be in adding them when everyone else is looking the other way.
Earnings are all but over; there will be an occasional mover/shaker as we get to the end of the cycle and start to anticipate the next cycle which starts mid-March. The market’s on its own from here, the next Fed Meeting policy release is March 18th.
The following stocks are reporting earnings over the next few days:
- Wednesday: Small Caps and Energy
- Thursday: FSLR, HPE
- Friday: Small Caps
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. At this point we’re wondering how far this swing could go, yet it’s showing incredible resilience.
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Offensive Actions
Offensive Actions for the next trading day:
- No new trades for tomorrow.
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 average today, with the advancers minus decliners showing a somewhat weak value of -145.
SPX Market Timer : The Intermediate line has flattened into the Upper Reversal Zone and is now “bullish.” After showing a Strong Bearish cluster for the third day in a row, with the two strongest timeframes in the Upper Reversal Zone, this study faded from that signal on Friday and is showing declining momentum. This can be a leading signal for a pause.
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 uptrend, and a short-term uptrend. The Dow is in an intermediate uptrend and short-term downtrend.
VIX: The VIX rose to 14.83, inside the Bollinger bands. The RVX rose to 16.63 and is inside the Bollinger bands.
Fibonacci Retracements: The SPX has come down to test the 23.6% fib retracement of the entire October- January swing, and is above the 50% fib retracement of the latest swing higher since December. Back to the former highs again.
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 1715.
Fractal Energies: The major timeframe (Monthly) is into exhaustion now at a value of 33, and is starting to reflect energy bleed from the very linear trend from late 2018. The Weekly chart has an energy reading of 37, just into exhaustion and starting to bleed energy again due to the upside strength of the last two weeks. The Daily chart is showing 37, into exhaustion again.
Other Technicals: SPX Stochastics rose to 84, overbought. RUT Stochastics rose to 75, below overbought. The SPX MACD flattened above the signal line, showing a decrease in positive momentum. The SPX is below the upper bollinger band with the range 3225 to 3409. The RUT is below the upper bollinger band with the range 1625 and 1709.
Position Management – NonDirectional Trades
I have no positions in play at this time.
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 the following positions in play:
- SPX 28FEB 3150/3155*3320/3325 LP Iron Condor was entered for $2.55 credit (2/3) and will look for a 25% return on risk.
Based on the bounce that we’re seeing it looks like this move might turn into a “slingshot” in which case I’ll just wave goodbye at it. This swing out of the consolidation has been so incredibly strong that it’s running over every single attempt to catch the chart in a brief consolidation. This is what low interest rates will do, and has made this strategy almost unplayable since 2013.
I have no open positions at this time.
This is the wrong type of price character to play Time Spreads; we’re seeing vol crush and a huge buying panic.The previous fear about Corona has disappeared overnight.
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.
- BAC 03APR $32.5 Puts (2/18) were sold for $.33 credit.
No additional trades at this time.
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 in 2020. The price action looks very good and is moving into linear formation.
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 337.60 there is a +/-4.039EM into this coming Friday; this is smaller than the 5.125 EM from last week, but there are only 4 trading days next week. The EM targets for this Friday’s close are 341.64 to the upside, and 333.56 to the downside.
A lot of energy still coursing in these markets. The upper EM was once again blown out last week.
I have the following positions in play:
- SPY 21FEB 319/320 debit put spread (1/22) entered for $.11 debit. I am looking for a $.44 exit from this trade. I might have been too aggressive with my profit target as this trade got up to about a $.35 exit on 1/31.
- SPY 13MAR 328/323 debit put spread (2/12) entered for $.66 debit. I would like to see a 100% return from this trade.
No additional trades at this time.
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:
- XLF 6MAR 31/32 debit call spread (2/6) was added for a $.45 debit. I will look for a 50% return.
- FB 13MAR 212.5/215 debit call spread (2/10) was added for a $1.18 debit. I will look for a 50% return.
- INTC 20MAR 65/67.5 debit call spread (2.18) was added for a $1.25 debit. I will look for a 50% return.
No additional entries for tomorrow.
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. Looks like this one will burn off unused as the price never dropped below the 50ma the entire time.