Daily Market Newsletter

March 16, 2017

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Market Commentary

Today’s price action generated a “key reversal bar” with a higher high and a lower close than yesterday….not a great way to “confirm” a big day to the upside like yesterday, but perhaps more revealing than that as it plays into building a deeper range in the near term. Charts desperately need to build a larger range to work off this epic move, but have stubbornly held to the highs.

In the near term I will look to be playing “range-bound” strategies similar to the Time Spread/Calendar that fired today for a 10% gain.

In this weekend’s report, I’ll tabulate all of the trades from the March options cycle so that we can determine what’s working, what’s not, and what adjustments that I need to make for the next cycle…please join me.

Subscriber Update: Please note that I have commitments all day on Saturday so the Weekend Edition will be published on Sunday morning. Thanks for your patience.

If the video above does not play, please try this version of the video with embedded player.

Offensive Actions

Offensive Actions for the next trading day:

Please note the Hindenburg entry slated for tomorrow; see “Hindenburg” 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.

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

Technical Analysis Section

Market Internals: Volume was about average today. Breadth was mediocre with -115 advancers minus decliners.

SPX Market Timer : The Intermediate line turned up into the Upper Reversal Zone, now showing a bullish bias. This chart is once again very close to showing a Full Bearish Cluster.

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 3.61% to 11.21, inside the bollinger bands. The RVX fell 3.94% to 14.64 and is back outside the bollinger bands.

Fibonacci Retracements: Fibs are not in play right now.

Support/Resistance: For the SPX, support is at 2188 … with no overhead resistance. The RUT has support at RUT 1300 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 now into exhaustion with a reading of 29. The Weekly chart is now technically exhausted with an energy reading of 36, due to the recent breakout. The Daily chart is showing a level of 56 which is recovering quickly. It’s rare when we have all three major timeframes in exhaustion as we had for two weeks.

Other Technicals: The SPX Stochastics indicator fell to 45, mid-scale. The RUT Stochastics indicator flattened at 23. above oversold. The SPX MACD histogram rose below the signal line, showing a return of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2348 and resistance at the upper band at 2393 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1355 to 1420 and price is above the lower band.

We are seeing the market pricing in a shift in character out of the recent lifeless Fed-driven economy, and into an unrestrained one. I think this will bring about a big shift in how the market behaves, but a pullback to stoke up the negativity and move into a larger trading range would be a good thing to see first.

Position Management – NonDirectional Trades

I have no positions in play; I will wait on the first significant pullback to allow me to secure put spreads below support.

Offense: I still do not want to set up OTM credit spreads in this low-vol environment until we see real movement to the downside. If and when we get this movement we’ll need to identify levels that we want our credit spreads to be “below.” This is the same type of price action that was so perilous to HP condors back in 2013, so let’s not fight it.

If I see price drop to the SPX 2200 level, this might be our first opportunity to sell premium against that level.

I have the following positions:

AMGN 24MAR 167.5/170*180/182.5 Iron Condor (2/24) was entered for a $1.27 credit. I’m going to shoot for a $1 debit exit GTC. The price is near the top of the range but is showing exhaustion on Weekly timeframes. As long as this chart settles into a range it’ll be fine.

With all index charts at maximum exhaustion, now is the highest-probability window of opportunity for range-bound trades….however it feels positively suicidal doing so. This is usually the measure of a good setup. .

I have no positions at this time:

SPY 24MAR/21APR 237 Put Calendar (3/6) was entered for a $1.36 debit. I closed this position (3/16) for $1.54 credit. This gave me a net profit of $14/contract or a 10% return on capital. .

My GTC exit limit order fired today and I am out of the SPY time spread with my target profit objective.We’ll see if another opportunity presents itself soon.

. The 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:

SDS Stock – I still own 100 shares of this stock from 2011 and will continue to write calls against this position with every correction/pullback.
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 will look for the next daily exhaustion signal to sell further OTM calls against this position.
TWTR I will look for the next cycle of puts to sell against TWTR. .
RIG I added the $12 MAR17 puts (1/30) for $.19 credit. .So far the $13 support is holding and I’d like to see if I can secure lower, deeper puts.
X – I added the MAR17 $25 puts (1/30) for $.47 credit. I also added the 19MAY $25 puts (3/13) for $.37 credit.
AMD – I sold the APR $11 puts (2/27) on AMD for $.19 credit.
NVDA – I sold the 19MAY $80 puts (3/13) for $.90 credit.

If we get more of a pullback then I can be a little more aggressive with this strategy.

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover -This one is gone. Looking for the next crossover, however it will be to the downside, and the first downside crossover is usually a poor signal. .
RSI(2) CounterTrend – I’ll look for more of these in the near future as a new range approaches.
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.

I have no positions at this time. The next earnings season will begin in April.

I have the following positions:

QQQ 19MAY 116 Puts (2/16) were bought for $.70 debit.

I have the following positions:

BIDU APR17 190/195 Debit Call Spread (1/30) entered for a $.98 debit.Understand that I do not have a “stop” in this trade. I closed down half of the contracts (2/17)for a $1.82 credit, or a net profit of $80/contract. I will hold the rest of the contracts longer-term and wait on the breakout.
TWTR 16JUN 21/22 Debit Call Spread (2/6) was entered for a $.20 debit.
VLO 31MAR 67.5/69.5 Debit Call Spread (2/28) was entered for a $1.00 debit. I will look for a 50% gain from this position.

I like AT&T for a Whale setup right now, but I’m not convinced that the overall market will support higher prices right now.

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.

Quite honestly, 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 skipped a cycle and it has not hurt us, however I need to get the next cycle in play and that will be a JUN put 10% out of the money and there is no better time than right now to get that position in place. Those would currently be the 16JUN 215 puts, which I’ll add tomorrow and are currently going for about $1.20.

We currently have the following positions in play with this strategy:

SPY MAR17 203 long puts – I entered this position (12/28) for a $1.07 debit.
SPY APR17 206 long puts – I entered this position (1/27) for a $.92 debit.