Daily Newsletter
February 25, 2020Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
March Expiration
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Market Commentary
Another huge distribution day in the markets. The S&P has chopped 275 points, or 8.1% off of last week’s all-time highs. The NASDAQ futures have dropped 953 points, or 9.76%, and the DOW has chopped 2571 points or 8.7%. Markets are very close to full-correction territory of 10%. The VIX touched the magic “30” level intraday and is the highest level that we’ve seen since the mini-crash of December 2018
From a Fractal Energy perspective, this is exactly what the markets wanted. It’s rare when we have both Parent timeframes into exhaustion, and as of last week we had ALL THREE showing exhaustion. Something had to give, and moving into an outright pullback is the fastest way to accomplish a recharge.
What’s next? I think that it would be HIGHLY unlikely that prices just rebound from these levels without some kind of double-bottom or “scary higher low” that forms. And when this much “energy” hits the tape, it’s like throwing a rock into a still pond….the ripples will go on for some time. There is still a +/- 98 point Expected Move in the full S&P’s into Friday. I’ll outline those scenarios in today’s video.
Understand that markets will first transition to loud, volatile sideways markets before they ultimately fail into a Bear. This is just the first act regardless of what the final outcome is from this move.
Watch these levels for the S&P “circuit breakers.”
Subscriber Update: I will be “grandfathering” OptionsLinebacker and DocsTradingTools customers over to a new advisory service, targeting <soon>. I intend to make this service more “actionable” with more trade alerts, and plan to include guest contributors who are experts in their specific strategies. If there are any elements of the OLD (existing) service that you want to make sure are carried into the new service, please let me know by dropping me at line at doc@docstradingtools.com
Short-Term Outlook: Prices are breaking from a massive consolidation pattern in play since early 2018, or almost another “horizontal bear market” like we had in 2015-2016. At this point we’re wondering how far this swing could go, yet it’s showing incredible resilience.
Please sign up for our free daily crypto report here.
Offensive Actions
Offensive Actions for the next trading day:
- No 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.
- I now have an SSO long position based on my A/D swing signal that I discussed on Monday. I will look to clear this position on the next bounce up.
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 huge today, with the advancers minus decliners showing a closing value of -485 by the closing bell, and a low mark of -493 in the afternoon.
SPX Market Timer : All three lines declined today. The Intermediate line has fallen out of the Upper Reversal Zone and is now “bearish.” The two weakest timeframes clustered in the lower reversal zone again causing a Weak Bullish Cluster for the second day in a row, which can be a leading signal for a bounce.
DOW Theory: The SPX is in a long term uptrend, an intermediate uptrend, and a short-term downtrend. The RUT is in a long-term uptrend, an intermediate uptrend, and a short-term downtrend. The Dow is in an intermediate uptrend and short-term downtrend.
VIX: The VIX rose to 27.85, well outside of the Bollinger bands. The RVX rose to 28.83 and is outside the Bollinger bands.
Fibonacci Retracements: The price has come down to the 50% fib retracement of the entire October swing.
Support/Resistance: For the SPX, support is at 3070 with overhead resistance at 3394. The DOW has support at 27325 and overhead resistance at 29569. The RUT has support at 1580 and resistance around 1715.
Fractal Energies: The major timeframe (Monthly) is into exhaustion now at a value of 33, and is starting to reflect energy bleed from the very linear trend from late 2018. The Weekly chart has an energy reading of 41, just above exhaustion and starting to recover. The Daily chart is showing 40, just above exhaustion again.
Other Technicals: SPX Stochastics fell to 75, below overbought. RUT Stochastics flattened at 76, below overbought. The SPX MACD fell below the signal line, showing a decrease in positive momentum. The SPX is below the lower bollinger band with the range 3181 to 3447. The RUT is below the lower bollinger band with the range 1600 and 1724.
Position Management – NonDirectional Trades
I have no positions in play at this time.
No additional trades at this time.
We are not in a good mode for the traditional “High Probability” short iron condors since the price movement has been incredibly directional, and the Implied Vol is reflective of this with a very low/complacent value. Not good odds to sell options right now, better odds to buy them and go “long gamma.”
I have the following positions in play:
- SPX 28FEB 3150/3155*3320/3325 LP Iron Condor was entered for $2.55 credit (2/3) and closed (2/24) for a $1.85 debit. This gave us a gross profit of $70/contract before commissions, or a 28.6% return on risk. .
It’s not often that I get saved by the black swan, but that’s what happened to this trade…as the Monday sell-off put the price right in the middle of the Condor range and allowed me to take this trade off at slightly better than target profit.
I have no open positions at this time.
This is the wrong type of price character to play Time Spreads; we’re seeing vol crush and a huge buying panic.The previous fear about Corona has disappeared overnight.
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. Looking for the next rally to sell calls against.
- BAC 03APR $32.5 Puts (2/18) were sold for $.33 credit.
No additional trades at this time.
We’ll look for the next pullback to potentially sell puts against our next candidate.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – Awaiting the next signal.
- RSI(2) CounterTrend – I’ll look for the next setup.
- Daily S&P Advancers – Looking for the next signal to go long with single-digit advancers; I entered the SSO long (2/25) at a price of 142.18/share. I will look for the RSI(2) to hit a value of 70 to close this position.
- Swing – I have no positions in play:
BTC and other top-ten coins have been breaking higher in 2020. The price action looks very good and is moving into linear formation.
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 333.48 there is a +/-5.476EM into this coming Friday; this is larger than the four-day 4.039 EM from last week. The EM targets for this Friday’s close are 338.96 to the upside, and 328.00 to the downside.
The lower EM got eviscerated Monday.
I have the following positions in play:
- SPY 13MAR 328/323 debit put spread (2/12) entered for $.66 debit, and closed (2/24) for a $2.07 credit. This gave me a gross profit before commissions of $141/contract, or a 214% return on capital.
No additional trades at this time.
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:
- XLF 6MAR 31/32 debit call spread (2/6) was added for a $.45 debit. I will look for a 50% return.
- FB 13MAR 212.5/215 debit call spread (2/10) was added for a $1.18 debit. I will look for a 50% return.
- INTC 20MAR 65/67.5 debit call spread (2.18) was added for a $1.25 debit. I will look for a 50% return.
- GDX 20MAR 29/31 debit call spread (2/20) was added for an $.86 debit and was closed (2/24) for a $1.29 credit. This gave us a gross profit of $43/contract or a 50% return on capital.
No additional trades at this time.
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. The timing on these credit spreads has been nearly impossible to determine with today’s declining-rate environment, and we might be in the process of one final mighty blow-off.
I will continue to buy long puts into extreme upside strength.
I have no open positions at this time.