Daily Market Newsletter
June 30, 2018Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
July Expiration
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Market Commentary
A slightly positive day on Friday, which is generous considering that this should have been a typical “window dressing” event…and perhaps it started the day in that manner, but the long topping tail on the S&P candle is a warning for us all that lower support levels might have to be tested again before this 2018 correction can consider its work finished.
This is somewhat astounding, because the energy levels are more than enough to support the next rally. But it’s more than just “energy,” it’s about “certainty.” There is very little to go around these days. In 2017 traders saw a booming economy that was de-schackled of regulation with still-low rates, and that’s why the only negative events generally came from the North Korean regime. But now traders are sensing that we’re at a crossroads between rates and earnings growth, and that’s under further pressure due to potential new tariffs.
I think that we are in for a summer of huge “chop” and a general grind lower in prices. I think that swing trading will be very difficult to accomplish, for hold times of 1-4 weeks. Short-term swings (intraday, intraweek) will be spectacular. We will also have some ability to sell premium but we’re going to have to be absolutely precise about it. I’ll discuss our “offensive” alternatives in today’s video.
The scan for the “Cheap Stocks with Weeklys” is available here.
The RSI(2) FE scan is available here.
The current MAIN “high liquidity” watchlist that I’m scanning against in thinkorswim is available here.
The latest crypto video (Cryptocurrency Market Visualized) is available here
Please sign up for our free daily crypto report here.
If you need a video link with an embedded player you can use this link.
Offensive Actions
Offensive Actions for the next trading day:
- No offensive entries for Monday; markets are potentially changing character and it’s best to let the change reveal itself first rather than try to force the move.
- Weekly EM fades are in play this week.
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.
- We will need to carefully watch the delta on the duration SPX Iron Condor’s short put; see HP Condors section below.
- A test of the 200 day SPX moving average would cause an exit from the Hindenburg strategy; see below.
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 mixed with +54 advancers minus decliners
SPX Market Timer : The Intermediate fell further below the Upper Reversal Zone, now showing a bearish bias. Wednesday’s Weak Bullish Cluster has bounced out of the lower reversal zone.
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 downtrend and short-term downtrend.
VIX: The VIX fell to 16.09 after peaking at 50.3 four months ago, back inside the bollinger bands. The RVX fell to 17.69 and is inside the bollinger bands.
Fibonacci Retracements: The price has retraced 38.2% of the election rally; so far this has been a garden-variety correction.
Support/Resistance: For the SPX, support is at 2600 … with overhead resistance at 2878. The RUT has support at RUT 1530 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 above exhaustion, with a reading of 45, and recharging quickly. The Weekly chart is just below fully charged with an energy reading of 50. The Daily chart is showing a level of 47 which is actually recharging due to the non-linear action of the price. Markets are doing PRECISELY what they must in order to restore energy that has been incredibly depleted. Extreme Range Expansion leads to extreme range contraction (big swings).
Other Technicals: The SPX Stochastics indicator fell to 35, below mid-scale. The RUT Stochastics indicator fell to 55, mid-scale. The SPX MACD histogram rose slightly below the signal line, showing a slight return of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2703 and resistance at the upper band at 2808 and price is above the lower band. The RUT is back inside the Bollinger Bands with its boundaries at 1638 to 1708 and price is at the lower band. We recently saw the market reaching into a full “runaway” condition, where “fear of missing out” means abandoning any former patience and “wait for the dip” strategy. This usually occurs near the top of the intermediate move. Markets are about to release from the sideways/volatile correction.
Position Management – NonDirectional Trades
I have the following positions in play:
- SPX 10AUG 2650/2660*2910/2920 Iron Condor (6/13) entered for $1.85 credit. I have placed a $.90 GTC debit limit order to close the trade down. We will consider closing the trade if the delta hits .45 on the short puts, and .35 on the short calls. We will also close this trade out no later than 30 days prior to expiration.
I estimate that the price would have to reach the 2665 level before I’d see the delta alert at -.45. If we see the price pop higher to fill the upside gap, that might be a good place to remove the position for a profit. Almost there on Friday as the entire position went return-positive but faded in the afternoon.
If we do see a good shake-out to the downside, I would wait until seeing daily exhaustion as well as support confluence, and I would start by selling AUG SPX put spreads at .10 delta. We would wait for the snapback to sell call spreads after that point.
I have no positions at the current time.
No setup at this point; we need to be very selective. I would not sell LP Condors if we go back into corrective mode.
I have no remaining positions. Calendar spreads are good for markets with some volatility but they are long vega so we can’t enter them during IV spikes or periods of elevated volatility. If the price resolves back to quiet/trending then we can place these 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.
I am targeting stocks using short puts/covered calls that offer a much lower absolute risk point, where in event of crash we can almost define our total risk by the price of the underlying. While this is not how I intend to manage risk in these positions, I view this as fundamentally more solid than trying to actively manage risk on assets that are going for $$$hundreds which have also gone parabolic. I have the following positions in play:
- 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 currently have 17AUG $16.50 SLV calls (6/8) for $24 credit. .
- NUGT stock – I was assigned on NUGT at the $31.5 price level.I currently own the 13JUL $30.5 calls for $.32 on 6/12. While we continue to collect premium against this stock, I bail out on the next rally higher due to the drag on this leveraged ETF. I will stay in this position as long as we’re printing green H-A candles on the daily chart but will likely try to bail at $25 or higher if possible.
- BAC – I sold the 17AUG $27 puts (6/18) for $.34 credit. I will look to close these for $.05. If the price continues lower without me being able to secure an early exit, I will accept assignment.
No entries at this time.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – No current positions.
- RSI(2) CounterTrend – Looking for the next setup. I do not want to play these trades during overall weakness in the market.
- 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.
- Swing – I entered a GLD 20JUL 128/129 call spread for $.40 (4/12) and will hold this for the eventual breakout.
The crypto market has come under a lot of pressure lately and I attribute this to the market still being under the influence of a bear. Until a major “higher low” is printed these rallies will persist and be faded. We saw a re-test of the February lows this weekend.
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 271.28, there is a +/- 4.236 EM into next Friday. This is larger than last week’s 3.702 EM and the trend lately has been towards an increasing EM.
The EM targets for this Friday’s close is 275.52 to the upside, and 267.04 to the downside.
I like the idea of an upper or lower EM fade this week; debit spreads on Monday or Tuesday, and long options on Thursday or Friday.
I have the following positions in play per last weekend’s advisory:
- 06JUL SPY 268/269*277.5/278.5 Long Iron Condor – filled (6/25) for $.18 on the puts and $.18 on the calls. Will look for 200% return on the put spreads to exit those.
I have no current positions. I will consider setting up another ratio fly as price approaches resistance:
Entry criteria are:
- Using calls
- 17 to 50 calendar days
- center strike .25 to .40 delta
- ratio is 1/3/2 quantity, from the bottom, calls are long/short/long
We will exit the spread at a 60-70% level of credit received. The max risk on the trade is defined on the graph if the price goes much higher. There are no early exits, only exiting the week of expiry to avoid assignment. Also avoid dividend periods. I am currently trialing some trades and will discuss them in the newsletter; after a few cycles, I will start adding these trades to circulation. TOS scan code: http://tos.mx/hvWmMl
I have the following positions:
- INTC 29JUN 55/57 debit call spread (5/29) was entered for a $.97 debit; this position expired OTM .
- ABT 6JUL 62/64 debit call spread (6/4) was entered for a $.93 debit. I will look for a 50% return from this position.
- XLV 6JUL 84.5/85.5 debit call spread (6/6) was entered for a $.49 debit. I will look for a 50% return from this position
- IBB 20JUL 112/114 debit call spread (6/20) was entered for a $1.00 debit. I will look for a 50% return from this position .
No other trades at this point. Market action is not supporting long 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. Frankly, 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
- I entered the 17AUG SPY 245 puts (5/14) for a $1.41 debit. I will hold these through the next test of the 200 dma.