Daily Market Newsletter

February 21, 2017

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Market Commentary

In today’s video I’ll discuss three statements that I’m hearing traders make with respect to this market, and my job is to get everyone to settle down and think through this logically. YES it would be great to get some two-way tape again but we can only trade the market that we have, not the one we want. We’ve seen this movie before.

Please make sure that you watch today’s video for a tool that you can use to manage your calendar spreads, if you trade alongside me with the SPY spread that I feature in the “time spreads” section below.

If the above video does not work, please try this link.

Offensive Actions

Offensive Actions for the next trading day:

No new positions 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.
I am very close to an exit on the XLU position as well. I don’t want to give up the profits that I am showing on the position.

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 higher than average today. Breadth was strong with +306 advancers minus decliners.

SPX Market Timer : The Intermediate line turned up into the Upper Reversal Zone, showing a bullish bias. This chart is now showing a “Full Bearish Cluster” with all three timeframes in the upper reversal zone after seeing six days in a row with the two strongest timeframes in the Upper Reversal Zone; this sometimes foreshadows a pause in the trend..

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 .7% to 11.57, inside the bollinger bands. The RVX rose 1.98% to 16.49 and is inside the bollinger bands.

Fibonacci Retracements: Fibs are not in play right now.

Support/Resistance: For the SPX, support is at 2188 … with no overhead resistance. The RUT has support at RUT 1300 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 into exhaustion with a reading of 37. The Weekly chart is now technically exhausted with an energy reading of 35, due to the recent breakout. The Daily chart is showing a level of 26 which is super-exhausted now. It’s rare when we have all three major timeframes in exhaustion.

Other Technicals: The SPX Stochastics indicator rose to 91, overbought. The RUT Stochastics indicator rose to 81. overbought. The SPX MACD histogram rose above the signal line, showing a return of upside momentum. The SPX is back outside the Bollinger Bands with Bollinger Band support at 2254 and resistance at the upper band at 2363 and is above the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1344 to 1413 and price is at the upper 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 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 2200 level, this might be our first opportunity to sell premium against that level.

I have the following positions:

AAPL 3MAR 129/131*135/137 Iron Condor (2/13) was entered for a $.91 credit. We will look for about a 20% return on this trade, and is risk-managed from day one.
SPX 10MAR 2315/2320*2370/2375 (2/17) entered for $2.50 credit. I have already entered my $2.00 GTC debit order.

No other trades to place however there are many setups.

I have the following positions:

AAPL 24FEB/3MAR 131/133 Short Call Diagonal (2/14) was entered for $.98 credit. I will look for the first red candle down over the next week to look for at least a 20% return on risk.
.SPY 17MAR/21APR 235 Put Calendar (2/21) was entered for $1.44 debit. My action point to the upside to add a MAR/APR 241 call calendar would be if the price hits the $237.87 point on the SPY

The tracking sheet is available for your download here

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 had to close out my SLV FEB calls on Friday as they slipped ITM by a few pennies. I will look for the next daily exhaustion signal to sell further OTM calls against this position.
GE Did not give us much of a pullback to sell puts against.
TWTR I will look for the next cycle of puts to sell against TWTR. .
RIG I added the $12 MAR17 puts (1/30) for $.19 credit. .So far the $13 support is holding and I’d like to see if I can secure lower, deeper puts.
X – I added the MAR17 $25 puts (1/30) for $.47 credit. .We’ll look for the next dip in price to sell again.

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover -This one is gone. Looking for the next crossover, however it will be to the downside, and the first downside crossover is usually a poor signal. .
RSI(2) CounterTrend – I’ll look for more of these in the near future; I need to tighten up the rule set first..
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 have no positions at this time.

I have the following position:

DIA 10MAR 199/201 Debit Put Spread (1/30) was entered for a $.94 debit. I will look for a 50% return from this position. I show this as a $1.46 credit limit.
QQQ 19MAY 116 Puts (2/16) were bought for $.70 debit.

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. Right now I’m showing almost a 100% return on this trade and if the expected weekly breakout occurs we could see much higher yields from this position. Per Thursday’s report I closed down half of the contracts (2/17)for a $1.82 credit, or a net profit of $80/contract. I will continue holding the remaining contracts through earnings which is Thursday PM.
TWTR 16JUN 21/22 Debit Call Spread (2/6) was entered for a $.20 debit.
XLU 10MAR 48.5/50.5 Call Vertical (2/13) was entered for $.99 debit. This one is also close to an exit.
TIF 31MAR 81/83 Call Vertical (2/13) was entered for $.97 debit; I closed this position (2/21) for $1.51 credit. This gave me a net $50/contract profit after commissions, or a 52% return on capital. .

There are many, many charts currently showing a very large amount of energy on the daily chart, but are still in exhaustion on the weekly or even monthly charts. We might be on borrowed time with directional upside plays.

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

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

SPY MAR17 203 long puts – I entered this position (12/28) for a $1.07 debit.
SPY APR17 206 long puts – I entered this position (1/27) for a $.92 debit.