Daily Market Newsletter
March 8, 2018Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
March Expiration
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Market Commentary
Markets seem to have digested the “Trade War” as old news after two days and have moved on, yet we all wait for the next shoe to drop. I still believe that prices are unlikely to re-test the highs without first exploring the 2600 lows, but as we know anything can happen. Note the news cycle, though…in the past “bad news was good news” and led to higher prices, because any bad news was apt to forestall rate hikes so that the “free money” party could remain in place. Now bad news is simply….bad news, and it has pushed prices down in a way that we haven’t seen for ages. Welcome to corrective markets.
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 (What the FUD?) 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 but I’m not interested in fading them.
- I want to use this bounce in NUGT to sell anything that I can at the $31.5 strike price; see “stocks” 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
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Technical Analysis Section
Market Internals: Volume was average today and breadth ended the day mixed with +3 advancers minus decliners
SPX Market Timer : The Intermediate line flattened above the Lower Reversal Zone, still showing a bullish bias. No leading signals at this time.
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 17.76 after peaking at 50.3 four weeks ago, back inside the bollinger bands. The RVX fell to 19.27 and is back inside the bollinger bands.
Fibonacci Retracements: The price has retraced 38.2% of the election rally. The price has also tested the 50% fib off of the bounce from the bottom.
Support/Resistance: For the SPX, support is at 2500 … with overhead resistance at 2878. The RUT has support at RUT 1436 with overhead resistance at 1619. 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 33 and charging quickly. The Weekly chart is now well above exhaustion (for the first time in months) with an energy reading of 43, and is recharging rapidly. The Daily chart is showing a level of 53 which is near fully charged and ready to trend again. Markets are doing PRECISELY what they must in order to restore energy that has been incredibly depleted. Extreme Range Expansion leads to extreme range contraction (big swings).
Other Technicals: The SPX Stochastics indicator fell to 62, mid-scale. The RUT Stochastics indicator rose to 70, below overbought. 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 2611 and resistance at the upper band at 2790 and price is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1470 to 1581 and price is at the upper band. The bands are starting to squeeze again.
We recently saw 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, and the price action over the last week looks to have signaled the end of that move. We should be in sideways/volatile behavior for the next several months.
Position Management – NonDirectional Trades
I have no positions in play. We were in and out of MAR SPY put spreads earlier this month for a quick profit.
I was not able to sell additional put spreads on the re-test of the lows and do not believe in “chasing” price higher.
If this price ends up dropping near the February lows, we’ll get another shot to sell premium with put spreads; we’ll see whether or not Friday’s price “saved” markets or whether there is more downside to come.
I have no positions at this time. Not the right type of market for these trades. If/when the price rallies higher to resistance, that might be an excellent time to place a LP Iron Condor. Not there just yet.
I have no remaining positions. Calendar spreads are good for markets with some volatility but they are long vega so we can’t enter them during IV spikes or periods of elevated volatility.
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” as we saw at the end of last week. We’ll look to go shopping soon.
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:
- 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 20APR $16.5 calls (2/26) for $.17.
- NUGT stock – I was assigned on NUGT at the $31.5 price level. I want to sell 23MAR $31.5 calls for at least $.30 if the price rises far enough.
- DUST – We are out of DUST for the time being.
- GLW – I sold the 20APR $25 puts (2/12) for a $.25 credit
- HPE – I sold the 16MAR $14 puts (2/12) for a $.23 credit. We should be able to let these puts expire.
- XLF – I sold the 20APR XLF $27 puts for $.41. I will look to close these for $.05
No trades at present, other than continuing to look for $31.5 calls to sell for at least $.30 in the 23MAR series.
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. I entered the SPY 16MAR 285/286 debit call spread (2/26) for $.13 on the last cross up, and now you can see why I hate crossover strategies while markets are in corrective mode. I will try hard to hold this trade until it re-tests the recent highs .
- RSI(2) CounterTrend – Looking for the next setup. LOW and WMT were the latest setups to show and I am glad that I took neither of them.
- 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. I want to be looking for this signal every day from this point forward, because a wash-out low will show this signal.
The crypto market is still wringing out the excess of late 2017. The other shoe may have started the drop today; this is necessary to pound out a decent bottom in Crypto.
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.”
Viewing the SPY from the current Friday closing price at 269.08, there is a +/- 5.605 EM into this coming Friday. This is larger than normal and larger than the EM that we saw last week.
The EM targets for this Friday’s close is 274.69 to the upside, and 263.48 to the downside.
I don’t really have any interest in fading the EM this week, because the market is in transition, and we are more likely to see expanded range movements during this type of character. Last week’s EM of +/- 4.351 was nailed on both sides, by Thursday with wild movement both ways. We’ll probably continue to see the same going forward.
I have no current positions. I will consider setting up another ratio fly as price approaches resistance:
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:
- PYPL 29MAR 79.5/80.5 Debit Call Spread (2/26) entered for $.52 debit.
- SPY 20APR 260/259 Debit Put Spread (2/26) entered for $.11 debit. We’ll hold for deeper moves.
- KEY 23MAR 21/22 Debit Call Spread (2/27) entered for $.46 debit. I will look for a 50% return or a $.74 exit.
- KRE 29MAR 62/63 Debit Call Spread (3/5) entered for $.48 debit and closed (3/8) for a $.77 exit. This gave me a $25/contract profit and a 50% return on capital.
- TWTR 29MAR 33/34 Debit Call Spread (3/5) entered for $.51 debit and I will look for an $.82 exit.
No further trades at this point. I’ll attempt to secure a 50% return on all of the call spreads.
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
I have no positions at this time and need to see the price rally to recent highs again to reload. It’s not just the price, it’s also the implied vol which needs to drop.