Daily Market Newsletter

April 11, 2017

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Market Commentary

Volatility continues to be bought in the VIX futures, and prices refuse to sell off as they continue climbing the “wall of worry.” I think that any attempt to escape the current price range will be met with more profit-taking, until a deeper bid is discovered; this is not based on my own bias, but rather that of the chart showing that similar conditions like this in the past have had at least some form of deeper corrective action. Since we can’t predict the future nor try to do so, all we can do is to box in the price range and look for an escape in either direction.

Once the price does start to move, however, it will probably do so in a way that ensures that few will be able to take the ride….that’s just the nature of markets to “shake off” the weak hands before the real move is uncovered.

Don’t forget that markets are closed this Friday!

If the video above does not play, please try this version of the video with embedded player.

Offensive Actions

Offensive Actions for the next trading day:

I have an earnings trade outlined for JPM tomorrow, see “earnings” 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 note the closing levels for current positions.I will need to close both the JPM earnings trade as well as the RSI(2) call spread on MAR this Thursday.

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 slightly above average today. Breadth was mixed with -7 advancers minus decliners.

SPX Market Timer : The Intermediate line flattened below the Upper Reversal Zone, now showing a neutral bias. No leading signals at this time however .

DOW Theory: The SPX is in a long term uptrend, an intermediate uptrend, and a short-term sideways trend. The RUT is in a long-term uptrend, an intermediate downtrend, and a short-term downtrend. The Dow is in an intermediate uptrend and short-term sideways trend.

VIX: The VIX gained 7.26% to 15.07, outside the bollinger bands. The RVX fell .74% to 18.73 and is back inside the bollinger bands.

Fibonacci Retracements: Fibs are not in play right now.

Support/Resistance: For the SPX, support is at 2320 … with overhead resistance at about 2400. The RUT has support at RUT 1335 with overhead resistance at about 1415. 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 into exhaustion with a reading of 36. The Weekly chart is now just above technical exhaustion with an energy reading of 44, due to the recent chop. The Daily chart is showing a level of 55 which is now recharged. Charts are doing precisely what they need to do to work off the enormous move off of the election bottom.

Other Technicals: The SPX Stochastics indicator rose to 61, mid-scale. The RUT Stochastics indicator rose to 60. mid-scale. The SPX MACD histogram rose below the signal line, showing a return of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2335 and resistance at the upper band at 2384 and is above the lower band. The RUT is back inside the Bollinger Bands with its boundaries at 1341 to 1396 and price is above the lower band.

We are seeing the market pricing in a shift in character out of the recent lifeless Fed-driven economy, and into an unrestrained one. I think this will bring about a big shift in how the market behaves, but a pullback to stoke up the negativity and move into a larger trading range would be a good thing to see first.

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.

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 the following positions:

SPX 24APR 2285/2290*2375/2380 LP Iron Condor (3/27) was entered for a $2.50 credit, and I will look for a $2.00 exit debit. no positions at the current time.
SPY 21APR 238/239 debit call spreads (3/28) were entered (3/28) for a $.21 debit to help hedge the upside on the LP Condor.

No other entries at this time..

I have no positions at this time.

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 19MAY $18 calls (3/27) against this position for a $.22 credit.
RIG I’m going to add more puts once we determine that the ” range” is printed on US markets. .
X – I added the 19MAY $25 puts (3/13) for $.37 credit.
AMD – I sold the APR $11 puts (2/27) on AMD for $.19 credit, and I sold 19MAY $10 puts (3/27) for a $.25 credit.
NVDA – I sold the 19MAY $80 puts (3/13) for $.90 credit. We need to look for the next pullback before selling again.
XLF – I sold the 16JUN $22 puts (4/10) for $.25 credit and will accept assignment if the price pulls back.

If we get more of a pullback then I can be a little more aggressive with this strategy. I have a feeling that a lot of things will be on sale before long.

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover – The 8/21 ema is starting to cross over to the downside now. I am taking the QQQ put spread on this signal .
RSI(2) CounterTrend – I entered a 13APR MAR 91/92 debit call spread(4/10) for $.50. I will place a $.75 GTC credit limit exit to see if I can secure an early exit. I will need to clear this position by Thursday.
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.

Per today’s video, I will enter a $1-wide debit spread using 13APR calls on JPM tomorrow, in the last hour of the session. I’ll look to close down the position on Thursday before the close; more about the closure of the position tomorrow after we enter .

I have the following positions:

QQQ 19MAY 116 Puts (2/16) were bought for $.70 debit. Still need more downside movement to light these up.
QQQ 28APR 130/132 debit put spread (3/28) was entered for $.85 debit. I will look for a 50% return on my position.

I think that if we see any significant dips we should clear these positions. Markets have had every opportunity to “distribute” over the course of the last two weeks and we have seen every dip bought.

I have the following positions:

BIDU APR17 190/195 Debit Call Spread (1/30) entered for a $.98 debit.Understand that I do not have a “stop” in this trade. I closed down half of the contracts (2/17)for a $1.82 credit, or a net profit of $80/contract. I will hold the rest of the contracts longer-term and wait on the breakout.
TWTR 16JUN 21/22 Debit Call Spread (2/6) was entered for a $.20 debit.
MSFT 5MAY 68.5/69.5 debit call spread (4/3) was entered for a $.21 debit
KO 5MAY 42/44 debit call spread (4/5) was entered for an $.85 debit.

I have a couple of entries on CELG, IWM, and MET in mind. I think we can wait until Tuesday to see whether the market will support them.

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.

Quite honestly, 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 will likely clear all put options if the price drops 5% from the recent highs at SPX 2400. Not sure that I can expect much more than that given the current climate.

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

SPY JUN17 215 long puts – I entered this position (3/17) for a $1.19 debit.
SPY APR17 206 long puts – I entered this position (1/27) for a $.92 debit.