Daily Market Newsletter

Pundits are once again outdoing themselves trying to describe the current market environment, evoking the “seventh year” arguments as well as how it would take an “immaculate conception” to break this bull.

What I *do* know is that the index charts have weathered a remarkable level of larger-timeframe exhaustion for the past several months without pause, AND we are about to set a record for the longest stretch of a bull run without so much as a 3% correction. It is ALL about the liquidity and low interest rates. That is the story, period. When this move does break then yes, we will see some big volatility come in, but I’m expecting a transition to a larger range and nothing more for now.

We have to keep playing our “low volatility/high risk” approach…keep playing with the trend, but be very wary for risk. Ten years ago I would have been selling iron condors constantly against this market; no more until we have some IV to work with.

Bitcoin moved up about 24% alone this week. The number two coin ETHereum moved about 13% over the last two days. The CEO of JP Morgan continues to make a fool of himself with recent comments. Here are some reasons why the demand has increased recently.

The scan for the “Cheap Stocks with Weeklys” that I discussed this weekend is available here.

The current MAIN “high liquidity” watchlist that I’m scanning against in thinkorswim is available here.

The latest crypto video (Top Five ICOs for October) is available here

If the above video does not play, try this version.

Offensive Actions

Offensive Actions for the next trading day:

Weekly EM levels have been set; see “weekly EM” section below.
I will enter new DEC short puts against Ford; see “stock” 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.

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

Technical Analysis Section

Market Internals: Volume was average on Friday and breadth was mixed at +62 advancers minus decliners.

SPX Market Timer : The Intermediate line flattened in the Upper Reversal Zone, still showing a bullish bias. A pause again after several bullish clusters over the past two weeks.

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 uptrend.

VIX: The VIX fell to 9.61, back inside the bollinger bands. This is after a twenty-year low on the VIX. The RVX rose to 14.63 and is back inside the lower bollinger band.

Fibonacci Retracements: If we see an actual pullback then I’ll start to determine fib levels that might act as potential support.

Support/Resistance: For the SPX, support is at 2430 … with overhead resistance at 2555. The RUT has support at RUT 1350 with overhead resistance at about 1515. All three major index charts that we follow are now showing a Golden Cross with the 50 day moving average crossing above the 200 day average.

Fractal Energies: The major timeframe (Monthly) is now down into exhaustion again with a reading of 29. The Weekly chart is now losing energy with an energy reading of 45, due to the recent trend. The Daily chart is showing a level of 29 which is now in serious technical exhaustion and might not support the uptrend much longer. We are seeing the movement that we expected, however with an exhausted monthly chart, I don’t think any breakout will be able to reach its potential. The DOW is in triple exhaustion which is a rare exhaustion signal.

Other Technicals: The SPX Stochastics indicator rose to 95, overbought. The RUT Stochastics indicator fell to 88, overbought. The SPX MACD histogram fell above the signal line, showing a loss of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2482 and resistance at the upper band at 2569 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1428 to 1539 and price is below the upper band.

We are seeing the market reacting to any fear catalyst right now, and we’ll be watching to see if the price is able to make new highs or not. The overall trend is still higher and short-term energy is building quickly on this non-linear chop.

Position Management – NonDirectional Trades

I have no positions in play; I will wait on the first significant pullback to allow me to secure put spreads below support. We can finally sell positions for SEP below SPY 230 but my sense is that still isn’t worth the risk just yet. A 10% correction would put the price at SPY 224 and we’d want to be well below that level with short puts.

Offense: I still do not want to set up OTM credit spreads in this low-vol environment until we see real movement to the downside. If and when we get this movement we’ll need to identify levels that we want our credit spreads to be “below.” This is the same type of price action that was so perilous to HP condors back in 2013, so let’s not fight it.

If I see price drop to the SPX 2300 level, this might be our first opportunity to sell premium against that level.

I have no positions in play. It makes no sense to pursue an order with this strategy until we see (at the very least) a daily exhaustion signal.

I have no remaining positions. This is normally a perfect time to be selling calendar spreads against the RUT or SPX due to the exhaustion levels, however with my most recent experience with them in September, the effort was barely worth the hassle since we’re selling 6% vol and buying 7.5% vol against it. I might target higher IV underlyings to overcome this, at the risk of seeing greater movement. MSFT is a great example of a stock that represents a good setup, however we have earnings coming up very soon.

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:

SDS Stock – I still own 100 shares of this stock from 2011 and will continue to write calls against this position with every correction/pullback.
VXX Stock – I own 12 shares of this stock and will hold until Armageddon occurs.
SLV Stock – I have 1000 shares of the SLV that was assigned at the $15 level. I sold the NOV $18 calls for $.22
F NOV17 $11 Puts (9/18) were entered for a $.19 credit. The next pullback is showing; I will sell the F 15DEC $11 puts for a minimum $.11 on Monday.
CHK 20OCT $4 puts (9/20) were sold for a $.19 credit. I also set up the CHK 17NOV $4 puts (10/9) for a $.20 credit. CHK got beat up this week so we’ll see whether we can secure an elegant exit on the OCT position prior to this Friday. If it looks like I will be assigned, then I will just roll the puts to the DEC cycle at the $3.5 strike. My preference is to roll and sell premium vs. getting assigned but I will take assignment if I cannot execute a decent roll for a credit .
NUGT 20OCT $32 put (10/11) was entered for a $.40 credit. I have entered a $.10 debit closing order GTC. With the recent bounce in gold prices, this should fire on Monday or Tuesday for our exit. I will look for the next dip in prices on Monday or Tuesday to enter the next round of puts on NUGT and will see if I can continue to sell for this coming Friday’s expiration.

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover – Looking for the next 8/21 ema entry. The last entry was at the end of August.
RSI(2) CounterTrend – I will continue looking for additional setups as long as markets are trending higher. No signals right now..
Daily S&P Advancers – if I see the number of daily S&P500 advancers drop into single digits near the close of any trading day, I will go long shares of the SSO.

Bitcoin and Ethereum have had tremendous weeks. The strategy for these two coins remains to be “buying the dip” and there was lots of bad news in September to buy.

Please refer to the left sidebar section if you’d like to get caught up on “FAQ” -style intro videos.

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.”

Here is the most recent video which is “Top Five ICOs for October”

Viewing the SPY from the current Friday closing price at 254.95, there is a +/- 2.237 EM into this Friday. This has been a very “normal” EM lately of about 20 SPX points per week. Last week, the price stayed well within the EM as expected.

The EM targets for this Friday’s close is 257.19 to the upside, and 252.71 to the downside.

with markets at exhaustion, I would anticipate a continued consolidation week. I will fade either target being tested.

In today’s video I’ll show how we could potentially set up a weekly trade against the EM when the daily chart is in exhaustion.

I am relabeling this section the Ratio Butterfly strategy. I have no candidates today. My test trade LYB closed out this week for a profit. I will continue to look for more of these trades in the near future.I would love to enter DIA right now but that is a poor choice because of the dividend risk (monthly) and there is nothing to anchor the Dow against right now. I do not have any candidates to trade at the current time.

Entry criteria are:

Using calls
17 to 50 calendar days
center strike .25 to .40 delta
ratio is 1/3/2 quantity, from the bottom, calls are long/short/long

We will exit the spread at a 60-70% level of credit received. The max risk on the trade is defined on the graph if the price goes much higher. There are no early exits, only exiting the week of expiry to avoid assignment. Also avoid dividend periods.

I am currently trialing some trades and will discuss them in the newsletter; after a few cycles, I will start adding these trades to circulation.

TOS scan code: http://tos.mx/ZsIjgu

I have the following positions:

IBB 27OCT 345/347.5 Vertical Call Spread (10/2) was entered for a $.60 debit. My goal is 100% return on this trade; at the present time it’s showing a $.35 exit and needs to break out of this “next” flag to realize its potential.
AAPL 3NOV 155/157 Vertical Call Spread (10.9) was entered for a $1.23 debit; my goal is 50% return on this trade.

Probably a little late to pound on the Whale trade with daily index charts at exhaustion, unless we pick on Tech.

The best setup from this weekend is OKE; a break above $57.15 would cause me to go long, however I have concerns about the options chain and it might be a challenge to secure a decent entry that scores for us prior to their earnings release.

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.

Frankly, selling the “financing” trades has been a huge challenge in this low-vol environment. I will only sell put spreads on decent pullbacks that allow me to secure put spreads 10% OTM

We currently have the following positions in play with this strategy:

SPY OCT17 222 long puts (7/24) – I entered this position for an $.85 debit. This position was up 50% at one point and the temptation to remove it for a profit was strong, however the point of these trades is to hedge the downside for existing longs, AND try for those home runs on corrections that come out of nowhere.
SPY JAN18 229 long puts (10/11) – i entered this position for a $1.19 debit.