Daily Market Newsletter

Once again, while equity markets rose almost in unison to new all-time highs, that story is so 2017. Bitcoin futures debuted on Sunday evening, and Bitcoin survived. I will talk about today’s action in the Bitcoin futures in tonight’s video.

All is not completely well with the overall market, however. The Russell 2000 is on the verge of a lower high and a break into a daily downtrend, reversing the recent slingshot. This could be a race into “safe harbor” into year’s end.

The market remains at extreme risk of an “exogenous event” which is news coming into the market that has not already been priced in. We could easily see a 3-5% single day event if the wrong news hit the wire. Make sure that your treatment of risk in your account can account for that potential move. We should continue to trade with the uptrend but in this Musical Chairs market, the music can stop very quickly. Any dip regardless of depth should create higher prices to follow.

The scan for the “Cheap Stocks with Weeklys” is available here.

The RSI(2) FE scan is available here.

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

The latest crypto video (Bitcoin vs. Ethereum?) is available here

If you cannot view today’s video, please click here to view an embedded flash video.

Offensive Actions

Offensive Actions for the next trading day:

SPY Expected Move levels have been derived; see the “Weekly EM” section below for actions.
I’m going to take a flier trade on the QQQ into year-end; see “whale trades” 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.
Please see my defensive posture for the two DEC LP Iron Condors, listed in the “LP Condor” section below.
I will look for an exit on AMD by week’s end.

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 today and breadth was mixed with +26 advancers minus decliners.

SPX Market Timer : The Intermediate line rose into the Upper Reversal Zone, now showing a bullish bias. This chart is now once again showing a strong bearish cluster with the two strongest 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 uptrend, and a short-term downtrend. The Dow is in an intermediate uptrend and short-term uptrend.

VIX: The VIX fell to 9.34, back inside the bollinger bands. This is after a twenty-year low on the VIX. The RVX fell to 14.41 and is inside the bollinger bands.

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 2557 … with no overhead resistance. The RUT has support at RUT 1350 with no overhead resistance. 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 24. The Weekly chart is now in exhaustion with an energy reading of 30, due to the recent trend. The Daily chart is showing a level of 45 which is now above technical exhaustion. 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 was in triple exhaustion recently which is a rare exhaustion signal, the S&P was showing the same thing.

Other Technicals: The SPX Stochastics indicator flattened at 76, below overbought. The RUT Stochastics indicator fell to 63, mid-scale. The SPX MACD histogram rose above the signal line, showing a return of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2557 and resistance at the upper band at 2669 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1467 to 1558 and price is below the upper band.

We are seeing the market reaching into a full “runaway” condition, where “fear of missing out” means abandoning any former patience and “wait for the dip” strategy. This usually occurs near the top of the intermediate move.

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.I have not put this strategy into play since the 2016 Brexit reaction as the ultra-low risk premium in today’s market has not made this a wise strategy to pursue due to the inherent risk against the backdrop of super-low risk premium.

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.

I would need to see a SIGNIFICANT pullback to make me want to initiate this strategy again. Those selling call spreads are screaming in pain once again.

I have the following positions in play:

SPX 15DEC 2560/2565*2615/2620 Iron Condor (11/21) was added for a $2.50 credit.I will look for a 20% return on this trade however now that the price is above the 2600 level, I might look to just close the position if we see any kind of material dip, which at this point needs to be almost a 50 point dip in the next week. If not, I will try to buy back the call spreads for a $5 debit by Thursday.
SPX 29DEC 2620/2625*2695/2700 Iron Condor (12/4) was added for a $2.50 credit.

Here is my defensive posture on my two Iron Condors:

IF the price of the SPX ticks at or above the recent highs (2665.19) then I will CLOSE the 29DEC Iron Condor and CLOSE the call spreads on the 15DEC Iron Condor.
If the price does NOT tick above 2665.19 then I will look to close the call spreads on the 15DEC Condor by Thursday morning.
At this point I will need to close the call spreads for a full $5 debit..

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.

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 personally believe that while markets are in “runaway” mode, easy gains may be had however there is always a huge amount of risk to “buying at the top.” To combat this risk, I am targeting stocks using short puts/covered calls that offer a much lower absolute risk point, where in event of crash we can almost define our total risk by the price of the underlying. While this is not how I intend to manage risk in these positions, I view this as fundamentally more solid than trying to actively manage risk on assets that are going for $$$hundreds which have also gone parabolic.

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 19JAN $15 puts (12/4) for $.19 credit.
F 15DEC $11 puts were sold for $.12 (10/16). These are available to buy back for a penny now.
CHK DEC17 $3.5 puts were sold for $.19 credit. I closed this position (12/11) today for a $.02 debit per my trade advisory sent today.
NUGT stock – We are out of NUGT for the time being as it’s in a primary downtrend. We’ll look for a reversal back to the upside to begin selling puts again. Alternatively we could take an aggressive fill at recent lows, looking for a $22 fill as the chart shows exhaustion. This is super-aggressive and is just a possibility.
DUST – Wait on the next dip! I would like to sell down near the $25 level again on DUST but the recent rally has put this one out of reach. I do not want to chase this current DUST move as the chart is in exhaustion on the daily chart. If we start to see DUST pull back to around the $28.5 area, we should look to sell puts to create a 1% return. .
AMD 15DEC $10 puts entered for $.23. (10/30). I will place a $.05 GTC debit limit order to close these down.
BAC 19JAN $25 puts (11/27) were sold for $.40 credit. These are already showing over 50% profit.

We have a several positions expiring this week; some are close and others can be let go. I will need to make a decision on AMD as to whether I want to close/roll the position, or allow assignment.

No new trades for tomorrow.

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 filled the AMAT 15DEC 52/53 call spread (12/4) for $.49; I will look for a 30% net return on any bounce.
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 are still the ones to accumulate. Bitcoin is now fully on the consciousness of the investing public and has gone completely parabolic. I’m holding my current ETH and LTC.

I asked TD Ameritrade about their plans to offer/list bitcoin futures, and here was the rep’s response: “While the Futures department intends to offer Bitcoin futures they will not be offered for trading on the first day they are listed on the exchange(s). Our Futures department will be monitoring volume/open interest/liquidity and will make them available to trade when deemed suitable. You will be able to see the quotes/data on those when they open on their respective exchanges under the tickers /XBT for the CBOE (CFE) and /BTC for the CME product.”

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 “Bitcoin vs. Ethereum”

Viewing the SPY from the current Friday closing price at 265.51, there is a +/- 2.874 EM into this coming Friday. This is somewhat larger-than-normal EM vs. the normal 2 point SPY EM that we’ve seen lately, but less than last week’s 3.5 point EM that came nowhere close to the EM boundaries.

The EM targets for this Friday’s close is 268.38 to the upside, and 262.64 to the downside.

I will fade either of these levels this week as long as I see some reaction to the level as it hits it. I will use front-week debit spreads to fade the level through about Wednesday, and I would switch to long options on Thursday/Friday.

I have the following current positions:.

SPY 8DEC 258/260/262 Ratio Butterfly (11/13) was entered for a $.35 credit. I closed this position for a $2.00 debit on Friday, for a full $1.65 net loss. I failed to close this position when the exit signals were given, as I felt that there was more potential for the downside. In retrospect that appears to be a very poor decision on both metrics. Lesson for me: Close the position at the target and don’t change the game mid-stream.

I have no new trades to add with this strategy.

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 no current positions.

OK, I’m going to take a flier. The Nasdaq chart has full daily energy and might just power the index higher into year-end. Tomorrow I will enter an ATM 29DEC call spread, $1-wide, for about a $.50 debit. Afterhours this is the 29DEC QQQ 156/157 call spread but likely will be different tomorrow morning.

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 JAN18 229 long puts (10/11) – i entered this position for a $1.19 debit.