Daily Market Newsletter

May 30, 2017

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Market Commentary

Today’s volume in the SPY ETF was about 35MM shares, and I cannot find a lower number than that at any point over the last two years. Is the market priced to perfection, or is it simply vulnerable at these prices? One clue might be found in the Russell 2000, which had a bad day today and might be in the process of printing a lower high.

Subscriber Notice: Thursday’s report will be fairly late as I am traveling all day. The Weekend Report will not be produced until sometime on Sunday when I’m stationary again. Thanks in advance for your patience.

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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.
At this point I would welcome a break-even exit for the SPX LP Iron Condor.

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 extremely low today. Breadth was mixed with -45 advancers minus decliners.

SPX Market Timer : The Intermediate line turned up into the Upper Reversal Zone, now showing a bullish bias.. The Near Term line dropped below the URZ after two consecutive days of a strong 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 sideways trend, and a short-term downtrend. The Dow is in an intermediate uptrend and short-term uptrend.

VIX: The VIX rose 5.81% to 10.38, back inside the bollinger bands. The RVX rose to 6.83 and is back inside the bollinger bands.

Fibonacci Retracements: Fibs are out of play again.

Support/Resistance: For the SPX, support is at 2355 … with overhead resistance at about 2420. The RUT has support at RUT 1335 with overhead resistance at about 1426. 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 pulling out of exhaustion with a reading of 38. The Weekly chart is now recharging quickly with an energy reading of 59, due to the recent chop. The Daily chart is showing a level of 42 which is reflecting the move to the upside and now recent vol. Charts are doing precisely what they need to do to work off the enormous move off of the election bottom; it will take time.

Other Technicals: The SPX Stochastics indicator rose to 69, mid-scale. The RUT Stochastics indicator rose to 47, mid-scale. The SPX MACD histogram rose above the signal line, showing a return of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2367 and resistance at the upper band at 2423 and is at the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1360 to 1408 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. Markets are still showing perfect “Quiet & Trending” behavior regardless of what we “think” that they should do.

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 2300 level, this might be our first opportunity to sell premium against that level.

I have the following positions in play:

SPX 7JUN 2315/2320*2395/2400 Iron Condor was entered (5/18) for a $2.50 credit. I have entered a GTC $2.00 debit limit order as my closing order. At this point with one week remaining I will just look to break even on this position.

I have the following positions:

BBY 9JUN/16JUN 57.5/59.5 short call diagonal (5/30) was entered for $.94 credit. I will look for a 30% return on this position.

SBUX looks to be setting up as a good short call diagonal candidate.

I will be on the lookout for more short call diagonals as this is the type of market that they should work well in. There is a LOT of short-term energy in the SPX chart so I’m going to back off of the longer term SPY spreads for now.

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:

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 need to look for the next set of calls to sell against SLV; I would like to sell at the $17.5 level for JUL but need to get at least an $.18 credit.
X – I was assigned at the $25 price level.. I sold 21JUL X $25 calls against this position for a $.40 credit. I will bail out of this position if the price closes below $16/share. Ultimately I would like to bail on this position as there has been so much technical damage that it might be difficult to get this stock bid up again.
AMD – I sold 16JUN $9 puts (5/8) for $.25 credit. Bounced nicely at $10/share.
NVDA – Not really interested in this one above $100/share.
XLF – I sold the 16JUN $22 puts (4/10) for $.25 credit and will accept assignment if the price pulls back.

I will put in a GTC $.18 credit limit order for SLV JUL17 calls.

I looked again for new candidates this weekend, but really would prefer to see a larger-scale pullback first so I want to keep my powder dry for that event, when it comes. .

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover – I entered the IWM 2JUN 140/142 (4/26) for a $1.01 debit, and will look for a 50% return from this position.
RSI(2) CounterTrend – .I entered the CELG 2JUN 117/118 call spread (5/23) for $.52 debit and will look for 30% return from this trade.
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.

Earnings for 1Q2017 are just about done with; the next cycle will start in early July.

This is a new section that I’m going to start laying out trades for weekly “expected moves.” The S&P500 has done a nice job of moving pretty much to one end of the overall expected move every week. We can either speculate on that direction ahead of time using OTM spreads, or we can “fade” the price when it hits one of the EM levels.

Viewing the SPY from Friday’s close.at 241.71, there is a +/- 1.898 EM into Friday.

The EM targets for this Friday’s close is 243.61 to the upside, and 239.81 to the downside.I will watch for either of those levels to be tagged, and will fade that level with an ATM debit spread. The market is expecting a very quiet week. Unless those targets are hit tomorrow I will not be in a position to take the fade trades due to travel.

I have the following positions:

SPY 21JUL 229/230 Debit Put Spread (5/15) was entered for a $.14 debit.

Nothing else to enter at this time.

I have the following positions:

TWTR 16JUN 21/22 Debit Call Spread (2/6) was entered for a $.20 debit.
C 23JUN 63.5/64.5 debit call spread (5/15) was entered for $.27 debit. Let’s look for a 100% return from this trade.
BIDU 23JUN 202.5/205 call debit spread (5/17) entered for $.39 debit.
AAL 23JUN 48/49 call debit spread (5/26) was entered for a $.46 debit, and will look for a quick 40% return
ABBV 30JUN 65.5/57.5 debit call spread (5/30) was entered for $.95 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.

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 will likely clear all put options if the price drops 5% from the recent highs at SPX 2400. Not sure that I can expect much more than that given the current climate.

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

SPY JUN17 215 long puts – I entered this position (3/17) for a $1.19 debit.
SPY AUG17 214 long puts (5/2) – I entered this position for a $1.22 debit.