Daily Market Newsletter
February 13, 2019Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
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February Expiration
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Market Commentary
Most of the major indices approached exhaustion on the daily charts today, with some pretty strong price action before selling down in the last 15 minutes, creating a “shooting star” type of candlestick. The SPX index closed above the 200 sma but the S&P futures closed just below it; the futures have overtaken the CBOE index as the “underlying” index for the market, so I give more weight to the futures for now.
We should anticipate a short consolidation to the trend, or perhaps an actual pullback in price – before the trend resumes, or at least prints a lower high.
Here is the current scorecard – up and down – for the correction from the September 2018 highs:
- S&P was down ~594 points or 20.20%, now up 415 points or 17.7% from the bottom.
- Dow was down 5239 points or 19.44%, now up 3913 points or 18.02% from the bottom.
- /NQ is down 1908 points or 24.69%, now up 1249 points or 21.46% from the bottom.
- RUT is down 475 points or 27.27%, now up 279 points or 22.02% from the bottom.
The majority of the market-moving earnings heavyweights have already reported (FB, AAPL, AMZN, GOOGL). The FOMC meeting and most of the important economic numbers have been printed. The Market’s on its own from this point, perhaps with the help of a little FedSpeak. Anything can happen, but as long as the FOMC is operating with the “implied put” to backstop this market (even though there is LITTLE that they can do!) then I believe that the price is showing us higher in the near term. The Bear will not re-appear as long as the Fed is market-friendly.
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Offensive Actions
Offensive Actions for the next trading day:
- No new 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.
- Closing orders have been entered for all new spreads.
- Watch the upper delta limit on the SPX call 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 today and breadth ended the day modestly strong yet diverging at +178 advancers minus decliners, with the high-water mark at +339 right at the opening bell.
SPX Market Timer : The Intermediate line flattened into the Upper Reversal Zone, still showing a bullish bias. The Near-Term line joined it again to form a Strong Bearish cluster for the second day in a row after five straight days last week. This can be a leading signal for a pause.
DOW Theory: The SPX is in a long term uptrend, an intermediate downtrend, and a short-term uptrend. The RUT is in a long-term uptrend, an intermediate downtrend, and a short-term uptrend. The Dow is in an intermediate downtrend and short-term uptrend.
VIX: The VIX rose to 15.65 after peaking at 50.3 a year ago, inside the bollinger bands. The RVX rose to 17.15 and is back 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.
Support/Resistance: For the SPX, support is at 2350 and 2600 … with overhead resistance at 2800 and 2941. The RUT has support at RUT 1267 with overhead resistance at 1553. The S&P500, Russell 2000, Dow, and Nasdaq 100 have all printed 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.
Fractal Energies: The major timeframe (Monthly) is charged again, with a reading of 59. The Weekly chart has an energy reading of 46, starting to reflect the uptrend. The Daily chart is showing a level of 39 which is almost in exhaustion. This chart is just about ready for the next major swing as soon as the daily chart recharges.
Other Technicals: The SPX Stochastics indicator rose to 87, overbought. The RUT Stochastics indicator rose to 89, overbought. SPX MACD histogram rose above the signal line, showing a return of upside momentum but also showing negative divergence recently. The SPX is inside the Bollinger Bands with Bollinger Band support at 2601 and resistance at the upper band at 2769 with price is below the upper band. The RUT is inside the Bollinger Bands with its boundaries at 1439 to 1547 and price is at the upper band.
Position Management – NonDirectional Trades
I have the following positions in play:
- SPX 15MAR 2820/2830 call credit spread (1/17) entered for $.80 credit. I will look for the next retracement to remove this position for a profit; my goal would be at least a $.40 debit or lower. If the price continues to advance higher, my exit point is at a .35 delta on the short call option. It’s currently at a delta of .21. Gamma makes delta move very quickly as the price gets near, so I don’t want to fall asleep on this one.
- SPY 27FEB 225/256*275/276 Long Iron Condor (1/25) entered for $.18 debit on the put spreads and $.20 debit on the call spreads for a total $.38 overall debit. I closed the call spreads (2/12) for a $.51 credit; this gave me a net profit on the call spreads of $27/contract and I still hold the puts.
If we see a very sharp move lower in the near future, then we’ll start to scope out a downside put spread entry for MAR. There might be a “higher low” that shows up first.
I have no positions in play.
Waiting for the next condition to sell options again; realized vol is out-pacing implied vol again. The rebound off of the bottom has been violent and traders are chasing after the move.
I have no remaining positions. Calendar spreads are good for markets in quiet/trending character, so we’ll want to wait for that type of price action to show again. 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.
With all of the four major indices in a death cross, I am suspending additional short put selling until those signals clear, unless a stock is clear of the death cross. I have the following positions in play:
- SLV Stock – I have 1000 shares of the SLV that was assigned at the $15 level. I closed the 15FEB cycle at SLV $15 calls for $.03 (2/11), and rolled them to the SLV 18APR $15.5 calls (2/11) for a $.17 credit.
- AMD MAR19 $19 puts (2/11) were opened for a $.24 credit.
I am open to adding a little bit of inventory on stocks that are not in a death cross at this time. Seeing a pullback first would be a good thing.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – Looking for the next signal, which at this point would be the test of the 21ema.
- RSI(2) CounterTrend – Looking for the next setup.
- Daily S&P Advancers – Looking for the next signal to go long when we have single-digit advancers on the ADSPD.
- Swing – I have the following position:
- BAC 26.5/27.5 debit put spread (2/8) entered for $.24 debit per last Thursday’s advisory. I will look for 100% return.
Crypto markets have been strong when equities are weak; it appears like they might be negatively correlated and could create some important opportunities for us in 2019 if the equities market takes a dump.
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 Friday closing price at 270.47, there is a +/-4.206 EM into this coming Friday. This is just about the same as last week’s EM. The EM targets for this Friday’s close are 274.68 to the upside, and 266.26 to the downside.
The upper EM was tagged today and almost immediately rejected; unfortunately I was away and did not take the EM fade using the front-day put options. Great setup. This level might come into play again over the next two days, so we are still “green light” on this fade should we see the price re-test the upper EM and reject again.
I will start playing directional bear spreads once we see upside exhaustion on more than one timeframe.
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 had the following positions in play:
- V 1MAR 140/141 debit call spread (2/4) entered for $.52 debit and closed today (2/13) for a $.80 debit. This gave me a net profit after commissions of $24/contract, or a 46.2% return on capital. I missed the fact that this stock was going ex-dividend tomorrow, so my exit today was timely, however in case your exit did not fire I sent out a trade alert today advising to close.
- NFLX 1MAR 347.5/350 debit call spread (2/4) entered for $1.28 debit. I will look for a 50% return.
- MSFT 1MAR 106/107 debit call spread (2/5) entered for $.52 debit, I will look for a 50% return
Probably enough inventory for right now until I’m able to take some of these off for a profit. .
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. The three-month puts are still somewhat expensive. (3 months out/90% of current price).