Daily Market Newsletter
May 27, 2018Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
June Expiration
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Market Commentary
Let me recap what I’ve been saying with respect to the markets lately, and the data points that I was looking for:
- Consolidation into Late May – Check. Based on the breakout in early may that went straight up, I stated that “if the price consolidated in a tight range at this level, that it was ultimately bullish.”
- Intraday Character of the Price – Also supports the bullish side, because we’ve seen a big drop in daily range and volume lately. While that might just be “summer tape,” the difference has been dramatic over the last two weeks.
- Markets Have Absorbed the Salvos – during corrective price action, the very “worst” news will come out, normally very concerning items that further propagate the whole notion of lower prices and uncertainty. The markets have absorbed all of those hits and are just a few percentage points off of the February highs.
From all of this evidence I’m left with the thesis that markets will grind higher into the summer with low volatility.
There is one alternative thesis that I’ll discuss in today’s video which starts off with a very sharp pullback, which only sets the hook for a slingshot higher.
I hope everyone has a good rest-of-the-holiday weekend, and please remember what this weekend was meant to honor. See you back here on Tuesday, as Markets are closed on Monday.
Subscriber Notice: Note that Monday is a market holiday and there will be no newsletter sent that day as the market is closed.
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 (Top Ten That Will Be Top Ten) 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:
- I will enter an RSI(2) setup on XLE; see “swing trades” section below.
- I will enter a Whale setup on INTC; see “whale” 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
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Technical Analysis Section
Market Internals: Volume was below-average Friday and breadth ended the day mixed with -30 advancers minus decliners
SPX Market Timer : The Intermediate flattened in the Upper Reversal Zone, now showing a bullish bias. No leading signals at this time however charts are very close to another bearish cluster, with the short-term signals close to the Upper Reversal Zone.
DOW Theory: The SPX is in a long term uptrend, an intermediate uptrend, and a short-term sideways trend. 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 sideways trend.
VIX: The VIX rose to 13.22 after peaking at 50.3 three months ago, inside the bollinger bands. The RVX rose to 14.64 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 43, and recharging quickly. The Weekly chart is now fully charged with an energy reading of 59. The Daily chart is showing a level of 46 which is above exhaustion and recharging very quickly. 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 flattened at 80, overbought. The RUT Stochastics indicator fell to 87, overbought. The SPX MACD histogram fell above the signal line, showing a loss of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2629 and resistance at the upper band at 2767 and price is below the upper band after starting to squeeze again. The RUT is back inside the Bollinger Bands with its boundaries at 1537 to 1658 and price is below the upper 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. We should be in sideways/volatile behavior for months, but unlikely to stay in this consolidation for much longer.
Position Management – NonDirectional Trades
I have no positions in play.
The next extrapolation trade is a long, long way away from being filled. The price would have to drop more than 100 SPX points before we’d be in a position to even begin to look for a fill. Realized volatility continues to out-run the implied volatility; this is a dangerous time to be complacent, selling options. I will continue to look for long-gamma (directional) trades and wait until we see an appropriate fear-based move to sell spreads into.
I have the following positions in play:
- SPX 25MAY 2675/2680*2740/2745 Iron Condor (5/16) entered for a $2.50 credit. I closed this position (5/18) for a $1.80 debit, which gave me a net $124 profit and a 24.8% return on risk after commissions.
It feels good to have a near-perfect short condor setup go off like this. This might be an effective weapon on an upside recovery but the signals will be rare. We’ll look for the next setup but it won’t be for some time.
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. The IV is starting to resolve lower so we might be back in business if the price resolves back into quiet/trending.
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 sold 15JUN SLV $17.5 strikes for an $.18 credit. (4/19).
- NUGT stock – I was assigned on NUGT at the $31.5 price level. I rolled to the 25MAY $31.5 calls for $.35 credit. (4/27) and I closed these (5/18) for a $.02 debit. I rolled these to the NUGT 22JUN $31 calls for $.30 credit (5/18).
- SSO – I sold the 15JUN $70 puts (4/4) for $.70 credit.
No other setups at this time; I want to look for the next “scary” drop in the markets to sell puts again.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – I added the SPY 8JUN 277/278 Call Debit Spread (5/21) for $.30 debit, I will look for about 100% return from this trade. I also added an IWM 15JUN 160/162 debit put spread (5/23) entered for an $.82 debit. I will look for a 50% return from this trade.
- RSI(2) CounterTrend – The XLE is showing an RSI(2) signal; I will enter an 8JUN 74.5/75.5 debit call spread, or equivalent ATM spread on Tuesday morning .
- 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.
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 272.15, there is a +/- 3.322 EM into this Friday. This is smaller than last week’s EM of 3.387, yet keep in mind that there is one fewer trading day this week.
The EM targets for this Friday’s close is 275.47 to the upside, and 268.83 to the downside.
We might be back to fading the EM soon, assuming that the character moves back to quiet/trending.
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 no positions at the current time.
I will enter an INTC 29JUN 55/56 debit call spread or equivalent on Tuesday morning; my preference is to pay no more than $.52 for an ATM spread. If necessary I will widen the spread to $2 and ensure that I pay no more than $1 debit.
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.