Daily Market Newsletter
April 13, 2019Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
April Expiration
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Market Commentary
JP Morgan blew out their numbers on Friday morning. With a 2.285 EM estimated for Friday’s close giving an upside target of 108.5, they shattered that by closing well above $111 on Friday. As a result, the laggard Financials sector might be breaking out. (Financials were one of the sectors that we identified as “underperforming” last week) The rest of the big banks report on Monday and Tuesday.
Overall, markets are still in a “goldilocks” scenario; not too hot, not too cold. Just enough to grind past their expected moves.
As you can see by this CNN graphic, sentiment is exactly where it was last week. Not overcooked, just enough skepticism and negativity to keep the pot boiling. The Fed Minutes this week reiterated that the FOMC would be ready to raise rates in case conditions strengthened again, however the Bond market and Fed Funds Futures don’t believe that for a second:
Probabilities of a hike through the end of the year remain 0%, staying pat 61%, and 39% for a rate cut. Even though the Administration is clamoring for a rate cut, I don’t see it happening unless the economy significantly weakens, and that would be felt through yet another 10% drop in equity prices. Anything can happen, but I see a higher probability of a mid-2018 style grinding rally higher in the eternal search for yield.
I ran some recent experiments on straddles lately; these are somewhat difficult to manage unless the price rallies SIGNIFICANTLY above the upper EM, due to the volatility crush. I might go back to short-term long condors. Remember, we are in a long gamma environment and we want to play strategies that favor movement. And I’m breaking that this week by adding another LP short condor, but the timing looks good for a short-term consolidation.
I will also look for pullbacks to sell puts against.
Earnings Updates – the following companies of note will be reporting over the next few days:
- Monday: C, GS
- Tuesday: BAC, IBM, JNJ, UAL, UNH, NFLX
- Wednesday: MS, PEP, USB
- Thursday: AXP
- Friday: This is a market holiday
Here are the big earnings of note this cycle:
- NFLX: April 16
- SNAP: April 23
- FB: April 24
- AMZN/MSFT: April 25
- GOOGL: April 29
- AAPL: April 30
Subscriber Update: I will be out of the country and not producing the report from Monday May 20th until Thursday June 6th; in my stead will be a very talented guy by the name of Alex who I will have do some guest videos in the near future so that you get used to his voice and style.
Please sign up for our free daily crypto report here.
The following video is from fellow contributor Alex:
Offensive Actions
Offensive Actions for the next trading day:
- I’ll enter a LP Iron Condor on the SPX Monday morning; see “LP Condors” 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.
- Closing orders have been entered for all new spreads.
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 Friday and breadth ended the day with strong upside breadth of +271 advancers minus decliners.
SPX Market Timer : The Intermediate line rose into the Upper Reversal Zone, now showing a bullish bias. Another strong bearish cluster showing Friday and almost a full bearish cluster with all three timeframes overbought.
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 12.01 after peaking at 50.3 a year ago, inside the bollinger bands. The RVX fell to 16.06 and is inside the bollinger bands.
Fibonacci Retracements: The price has moved through several important Fib levels and is not caring about any confluence levels that these present. The recent retracement did not even get to the 23.6% fib retracement on the latest pullback. We’ll see if fibs start to matter again.
Support/Resistance: For the SPX, support is at 2700 … with overhead resistance at 2941. The RUT has support at RUT 1500 with overhead resistance at 1600 and 1742. All indices that we track recently showed a Death Cross with the 50ma crossing below the 200ma; this can be a leading signal for a true Bearish move. It can also signal “false” and create a massive swing higher. We might be seeing the latter scenario as the Dow ,S&P500, and /NQ have now printed a Golden Cross. Only the Russell 2000 remains in a death cross and it will signal a Golden Cross within days.
Fractal Energies: The major timeframe (Monthly) is charged again, with a reading of 55, yet is starting to reflect the reversion to the larger uptrend again. The Weekly chart has an energy reading of 33, in exhaustion from the uptrend. The Daily chart is showing a level of 33 which is fully into exhaustion. These readings say that we should expect at least a couple of weeks of choppy price behavior but will see sharp moves during this chop.
Other Technicals: The SPX Stochastics indicator rose to 90, overbought. The RUT Stochastics indicator rose to 86, overbought. SPX MACD histogram rose above the signal line, showing a return of upside momentum. The SPX is inside the Bollinger Bands with Bollinger Band support at 2784 and resistance at the upper band at 2921 with price is below the upper band. The RUT is inside the Bollinger Bands with its boundaries at 1508 to 1600 and price is below the upper band.
Position Management – NonDirectional Trades
I have the following positions in play:
- SPY 12APR 285 Long Straddle entered (4/1) for $4.68 debit.I closed this trade (4/12) for $5.25, creating a $53 profit/contract or an 11.3% return on capital. The EM on this series was 5.678 for 12APR for an upside target of 288.16, yet the price moved to an eventual high of 290.47 and it was a struggle to profit from this trade. It’s the IV crush that kills straddles on upside moves.
- SPY 15 APR Long Straddle entered (4/11) for $1.90 debit with a 2.312 EM for Monday equaling a target of 290.6. We more than hit that by Friday, yet the best I could do was to cover this not long after the opening bell for $2.21 credit. This gave me a $27/contract profit or a 14.2% return on capital.
Per my Thursday update I used the JPM earnings pop to clear both straddles into strength. I could have held on to the 15APR straddle to see if we’d encounter another Monday morning rally but it felt like looking a gift horse in the mouth not to close it.
No additional entries at this time. I’m not in favor of setting up HP Iron Condors in this environment as we don’t have much IV edge these days.
I have the following positions in play:
- SPX 18APR 2725/2730*2860/2865 Iron Condor (3/25) entered for $2.60 credit. My goal is to remove this trade for a 25% return on risk. This would be a closing debit of $2.00 or less. The price is currently outside the profitable zone of this trade as the price has rallied over 100 points in the time since entry.
The signal is there; both Weekly and Daily exhaustion levels mean that we might a week or two of sideways drift as markets start to anticipate the big tech earnings. I’m going to try another LP Condor on the SPX, taking care that I get my upper short leg above the 2018 highs at 2941. Afterhours I show that to be the 10MAY SPX 2860/2865*2950/2955 Iron Condor for a $2.50 credit, and will immediately look for a 25% return. In today’s video I’ll show how I will tune in the strike prices on Monday to secure that credit fill.
I have no current positions:
Calendar spreads are good for markets in quiet/trending character. If the market reverts back to quiet/trending, then I’ll look to continue this method.
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:
- SLV Stock – I have 1000 shares of the SLV that was assigned at the $15 level. I currently have the SLV 18APR $15.5 calls (2/11) for a $.17 credit. I will let these expire.
- EBAY 26APR $34 puts (3/11) sold for $.73 credit, and were closed (4/4) for $.10 debit.
- PFE 17MAY $39 puts (3/18) sold for $.39 credit. I will look for a $.10 debit to remove.
No additional trades at this time. We need to be patient to wait on the next pullback. We are “green light” again because the death cross has cleared on most of the indices that we track.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – Looking for the next signal.
- RSI(2) CounterTrend – None at this time.
- Daily S&P Advancers – Looking for the next signal to go long when we have single-digit advancers on the ADSPD.
- Swing – I placed a SPY 17APR 282/283 debit put spread (3/29) for $.42 debit, and will look for a 50% return from this trade. I said at the time that this was a low-probability, highly-aggressive trade and I guess that was the correct read.
Crypto has had relative strength over the last few weeks and no one believes this rally. The Bear appears to be over and I’m looking for one last shake-out to signal this.
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.”
From Friday’s close at SPY 290.16, there is a +/-2.791 EM into this coming Friday; this is about the same as last week’s 3.11 EM because there is one fewer day this week. The EM targets for this Friday’s close are 292.95 to the upside, and 287.37 to the downside.
A test of the lower EM should be a signal to fade that test to the upside.
I will start playing directional bear spreads once we see upside exhaustion on more than one timeframe. My preference is that we also do so when we get a completely parabolic up-move as well. This strikes me as a really poor market to short at present.
The scan that I discussed in the 8/4/2018 video is available to download for thinkorswim here: http://tos.mx/OvdVnz I will also be adding a second Larry Connors scan to this section as well; here is the Connors Crash scan: http://tos.mx/BhHuKL
I have the following positions in play at this time:
- TGT 17MAY 80/82.5 debit call spread (4/9) entered for $1.25 debit. We will look for a 50% return on this trade. Earnings have already passed for TGT.
Several candidates look really good, like MCD, NFLX, and PEP but we are too close to earnings to take them.
We are also keeping an eye on the Momentum stocks in this section. MSFT looks great but again too close to earnings.
No other entries at this point.
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.
I have no positions at this time. I cleared out the most recent set of puts on the drop to the 200ma back in October. I will “reload” again soon, when i see a parabolic tail on a rally. The three-month puts are coming down in price closer to what I’d prefer to pay. (3 months out/90% of current value)