Daily Market Newsletter
January 18, 2018Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
January Expiration
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Market Commentary
You can feel it, how we might push just a little higher to torture the most fervent bear into covering….and at that exact moment we’ll have another “February 2007” or “August 2015” day come along. It’s been a long, LONG time since we’ve seen anything but green candles light our screens as the stock market has hit the “euphoria” phase by my markers in late November as the price crested the 2600 level.
I have NEVER seen a parabolic market that did not eventually have a very bad reaction to the downside. But before we get to that point, we have to part the cape and let the Bull run its course. With the dollar driving lower and rates rising and bonds dropping, it might continue higher further than we expect. But we continue to be vigilant for that “shot across the bow” move that will signal opportunity returning again.
This weekend’s report will summarize the January cycle, and how we need to adapt to stay with this market.
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 (New to Crypto?) is available here
Please sign up for our free daily crypto report 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.
- No other 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 above average today and breadth was modestly weak with -128 advancers minus decliners.
SPX Market Timer : The Intermediate line flattened in the Upper Reversal Zone, still showing a bullish bias. Another strong bearish cluster today, one of several over the last three weeks. These used to be a BIG DEAL ten years ago. Not now.
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 rose to 12.23, inside the bollinger bands. The RVX rose to 16.04 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 2672 … with no overhead resistance. The RUT has support at RUT 1505 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 23. The Weekly chart is now in exhaustion with an energy reading of 25, due to the recent trend. The Daily chart is showing a level of 25 which is now in massive technical exhaustion and well below where we normally see it during the finale of a rally. These are the lowest readings that I have ever seen in the past twenty years.
Other Technicals: The SPX Stochastics indicator rose to 93, overbought. The RUT Stochastics indicator flattened at 83, overbought. The SPX MACD histogram fell above the signal line, showing a loss of upside momentum. The SPX is back inside the Bollinger Bands after being outside six out of the last eight days with Bollinger Band support at 2638 and resistance at the upper band at 2812 and price is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1524 to 1591 and price is at 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 no positions at this time. Not the right type of market for non-directional trades.
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. I also sold FEB18 $17 calls (1/2) against my stock position for $.17 credit.
- NUGT stock – I entered the NUGT 26JAN $30.5 puts for $.31 credit (1/18) and will look to buy these back for $.05.
- DUST – We are out of DUST for the time being.
No 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 – Looking for the next setup.
- 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.
Many assets sold down hard today; a lot of this was due to China “FUD” about banning crypto, which we’ve been through before.
Perhaps it’s time to go “alt-coins.” The latest video shows “New to Crypto?” and should be viewed by anyone regardless of how long you’ve traded it. The crypto market has strengthened after the FUD related to south korea banning crypto was found to be false. Even CNBC was spreading this junk, quite surprising. Please refer to the left sidebar section if you’d like to get caught up on “FAQ” -style intro videos. I will be part of the creation of a new advisory site “readysetcrypto.com” which will actually start creating a daily advisory service in mid-January. Crypto is such a different world that it shares very little with the equities and options world and I cannot give it proper due in this newsletter. You’re welcome to sign up for our free daily report to start getting plugged into this exciting new world. 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 a recent video which is “Top Ten Sleeper Crypto picks”
Viewing the SPY from the current Friday closing price at 277.92, there is a +/- 2.697 EM into this coming Friday. This is about normal compared to the average EM that we’ve seen this past year, however consider that this is only pricing in four days of movement.
The EM targets for this Friday’s close is 280.62 to the upside, and 275.22 to the downside.
Once more I will fade any test of the EM this week with long put options ATM by Friday, and will seek 100% return.
I have the following current positions:
- SPY 31JAN 274/276/278 Ratio Butterfly (1/11) was entered for a $.30 credit. I will hold this trade to expiry if necessary.
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/hvWmMl
I have the following positions:
- SPY 31JAN 261/262 Debit Put Spread (12/29) entered for a $.12 debit. I will look for a minimum 100% return from this trade after commissions.
- WMT 9FEB 100/101 debit call spread (1/8) entered for $.53 debit; this position closed out today for an $.84 credit.
- SPY 9FEB 271/272 Debit Put Spread (1/16) entered for a $.10 debit.
- MCD 9FEB 175/177.5 Debit Call Spread (1/17) was entered for $1.10 debit.
Nothing for tomorrow, let’s regroup over the weekend.
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.
- SPY MAR18 240 long puts (12/20) – I entered this position for a $.94 debit