Daily Newsletter
January 9, 2020Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
January Expiration
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Market Commentary
I wrote yesterday: “In the meantime, it’s this simple: “Certainty” will lead to short-covering and higher prices. “Uncertainty” will lead to those gap fills.” Today was nothing but an all-day grind higher as the shorts (once again) were forced to cover after over-estimating the Iran conflict.
Tomorrow we have the NFP Jobs report coming out at 0830a ET, where the consensus is 158k after last month’s blowout report.
Over the course of the next month, I’m going to start to integrate some of the strategies that will be released with the new advisory-based service that you all will be grandfathered into. The XLP/XLV trades are an example.
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. The first weekly trend from that consolidation is already into exhaustion and looks to be ready to consolidate.
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Offensive Actions
Offensive Actions for the next trading day:
- No further 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 will look to close any remaining long “whale” trades.
- I will look to close the XLP swing tomorrow if prices are higher.
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, with the advancers minus decliners showing a decently strong number of +246..
SPX Market Timer : The Intermediate line has flattened in the Upper Reversal Zone and is still “Bullish.” Once again the Strong Bearish Cluster showed up, and almost the 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 12.54, inside the Bollinger bands. The RVX fell to 15.11 and is inside the Bollinger bands.
Fibonacci Retracements: The price is near new highs again and no point in looking at retracements yet.
Support/Resistance: For the SPX, support is at 2825 with no overhead resistance. The DOW has support at 25500 and no overhead resistance. The RUT has support at 1450 and resistance around 1742.
Fractal Energies: The major timeframe (Monthly) is into exhaustion now at a value of 38, and is starting to reflect energy bleed from the very linear trend from late 2018. The Weekly chart has an energy reading of 24, deeper into exhaustion. The Daily chart is showing 46, recovering from exhaustion again. We’re seeing a runaway bull once again but now both parent charts into exhaustion. Very few daily trends continue when the energy level is at 25 or lower.
Other Technicals: SPX Stochastics fell to 79, below overbought. RUT Stochastics fell to 60, mid-scale. The SPX MACD rose above the signal line, showing an increase in positive momentum. The SPX is below the upper bollinger band with the range 3152 to 328. The RUT is below the upper bollinger band with the range 1638 and 1686. The RUT Bollingers are starting to squeeze
Position Management – NonDirectional Trades
I have the following positions in play at this time:
- SPY 27JAN 320/321*330/331 long condor (12/27) entered for $.25 debit on the put spreads and $.23 debit on the call spreads, for a total $.48 debit. I will seek a total 25% return on the entire trade, or a $.60 credit with a GTC limit order. At the time of entry, the price was about SPY 323.4 with a +/-9.25 EM.
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 no positions in play.
No further trades with this strategy until this parabolic runaway move terminates and volatility gets out of the gutter. This is a great strategy while the price is in quiet/trending character with “stair-stepping” price movement, but a poor strategy when price is in a runaway “tail” move.
I have no current positions:
Calendar spreads would be good trades in expected chop, however we’re still suffering from a lack of short-term vol.
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.
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 to close the day.
- Swing – I have the following positions in play:
- XLV 17JAN 101/102 debit call spread (1/6) Connors Powerzone setup entered for $.50 debit, and closed (1/8) for $.65 credit. This gave us a $12.40/contract gain after commissions, or a net 24.8% return on capital.
- XLP 17JAN 62/63 debit call spread (1/6) Connors Powerzone setup entered for $.52 debit. If tomorrow is positive, I will remove the position to go flat into the weekend.
BTC and other top-ten coins are once again in a downtrend; could this be the final capitulation after slipping into a Bear almost two years ago?
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 322.41 there is a +/-4.491 EM into this coming Friday; this is larger than the 3.589 EM from last week but we’re back to 5 days/week now. The EM targets for this Friday’s close are 326.90 to the upside, and 317.92 to the downside.
Volatility is increasing; the price almost hit the upper weekly EM of the SPY on Thursday, and then got close to the lower marker on Friday. The upper marker might be good for a fade entry this week.
I have the following positions in play:
- SPY 31JAN 312/313 debit put spread (12/30) entered for $.14 debit. I am looking for a 100% return from this trade. This should be an inexpensive speculative “flier” for capturing profits should we see a sharp downdraft in prices during the month.
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:
- WMT 24JAN 121/122 debit call spread (12/16) was entered for $.50 debit. I will seek 50%.
- COST 24JAN 295/297.5 debit call spread (12/23) was entered for $1.25 debit, and closed (1/9) for $1.58 credit. This earned us a $30.40/contract profit after commissions, or a 24.3% return on capital. Per my text below about closing positions, today’s pop higher was a gift.
No further trades at this time. My job at this point is to harvest some kind of profit on as many of these trades as possible in the short term, prior to what we believe will be a higher level of volatility coming soon.
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.
If we see a continued rally into January, I will double up on my puts to add another position, at 10% OTM using APR puts.
I have the following open positions at this time:
- SPY 21FEB 279 long puts (11/15) entered for $2.21 debit. I will look to clear half of the position on any test of the 200 sma, and the other half upon a 10% haircut in price.