Daily Market Newsletter

Here we are a year later with the Dow up about 31% higher and the S&P500 up 23% since last year’s election. We can speculate on reasons why this rally has persisted but here are some thoughts:

Skepticism has been enormously high for the better part of the year
Rates have remained very low
There are few investment alternatives
Negative Interest rates in various parts of the world persist
The Fed has been dovish
The Fed has also shouldered market expectations instead of avoiding them
The new administration’s perceived pro-business stance
Economic numbers starting to strengthen

And only now are we seeing sentiment surveys turn bullish, right as the index charts go truly parabolic. In fact, I’m starting to see many articles speak to this rally “just getting started.” My overall opinion is that we are in a new cyclical bull market which was “reset” by the correction from mid-2015 to early 2016, and its genesis was the Brexit reaction in June 2016. With that macro thought in mind, we might have a few years left to go, however the next “reset” is well overdue. Even the 2013/2014 move was marked by several quick, short “pauses” and we have seen nothing of the sort over the past year. We could even see the entire year of 2018 turn into another 2012 where the S&P ended within ticks of where it started…a yearly doji….and that would still not fully recharge the current exhausted monthly charts.

I will patiently wait on this reset, fully knowing that it might be extremely violent in the manner that it unwinds. We’ll get months of opportunity in what might unfold in minutes or (hopefully) days. It will not feel good. In the meantime I will take what the market gives me, which are few directional setups right now.

This coming week looks devoid of market-moving catalysts. Markets might drift in search of a catalyst. Don’t get bored and restless.

The market remains at extreme risk of an “exogenous event” which is news coming into the market that has not already been priced in. We could easily see a 3-5% single day event if the wrong news hit the wire. Make sure that your treatment of risk in your account can account for that potential move. We should continue to trade with the uptrend but in this Musical Chairs market, the music can stop very quickly. Any dip regardless of depth should create higher prices to follow.

The scan for the “Cheap Stocks with Weeklys” is available here.

The current MAIN “high liquidity” watchlist that I’m scanning against in thinkorswim is available here.

The latest crypto video (WaltonChain!) is available here

If you cannot view today’s video, please click here to view an embedded flash video.

Offensive Actions

Offensive Actions for the next trading day:

Weekly EM levels have been set; see “weekly EM” section below.
I will look for my next entry on DUST; see “stocks” section today as well as today’s video.
I will sell the next set of calls on NUGT; see “stocks” 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 average Friday and breadth was mixed with +51 advancers minus decliners.

SPX Market Timer : The Intermediate line flattened in the Upper Reversal Zone, still showing a bullish bias. This chart is now showing a Full Bearish Cluster, which is a leading signal for a pause.

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 sideways trend.

VIX: The VIX fell to 9.14, below the bollinger bands. This is after a twenty-year low on the VIX. The RVX fell to 14.97 and is inside the bollinger bands.

Fibonacci Retracements: If we see an actual pullback then I’ll start to determine fib levels that might act as potential support.

Support/Resistance: For the SPX, support is at 2509 … with overhead resistance at 2575. The RUT has support at RUT 1350 with overhead resistance at about 1515. 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 down into exhaustion again with a reading of 26. The Weekly chart is now in exhaustion with an energy reading of 38, due to the recent trend. The Daily chart is showing a level of 52 which is now recharging quickly and above technical exhaustion. We are seeing the movement that we expected, however with an exhausted monthly chart, I don’t think any breakout will be able to reach its potential. The DOW is in triple exhaustion which is a rare exhaustion signal.

Other Technicals: The SPX Stochastics indicator fell to 73, below overbought. The RUT Stochastics indicator rose to 50, mid-scale. 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 2542 and resistance at the upper band at 2588 and is at the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1490 to 1512 and price is below the lower band with the bands starting to squeeze strongly.

We are seeing 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.

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.

I would need to see a SIGNIFICANT pullback to make me want to initiate this strategy again. Those selling call spreads are screaming in pain once again.

I have no positions in play. It makes no sense to pursue an order with this strategy until we see normalization in the price action.

I have no remaining positions. This is normally a perfect time to be selling calendar spreads against the RUT or SPX due to the exhaustion levels, however with my most recent experience with them in September, the effort was barely worth the hassle since we’re selling 6% vol and buying 7.5% vol against it. I might target higher IV underlyings to overcome this, at the risk of seeing greater movement.

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 personally believe that while markets are in “runaway” mode, easy gains may be had however there is always a huge amount of risk to “buying at the top.” To combat this risk, 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:

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 sold the NOV $18 calls for $.22
F NOV17 $11 Puts (9/18) were entered for a $.19 credit. I also have the F 15DEC $11 puts that were sold for $.12 (10/16). These positions look to be doing well.
CHK DEC17 $3.5 puts were sold for $.19 credit. I also own the CHK 17NOV $4 puts (10/9) for a $.20 credit. I would rather roll positions than take the assignment, given the choice.
NUGT stock – I own 500 shares at the $31 assignment price, although due to selling for the past several weeks, my cost basis is now $28.56 including commissions. The NOV3 $31 calls expired on Friday for full profit. Please see below for new trade.
DUST – per last weekend’s advisory I sold the 3NOV $25.5 puts for $.40 credit. This position was closed for a $.10 exit. Please see below for new trade.
AMD – per the weekend advisory I sold the 14DEC AMD $10 puts for $.23. (10/30).

I will sell puts against DUST on Monday; assuming that prices open flat on Monday, I will sell the 10NOV DUST 26.5 puts for at least a 1% return, but will drop to the $26 puts if a 1% return is possible…it would have to pay at least $.30. Be aware that the options are $.05 wide.

I will sell calls against NUGT on Monday. The most conservative way to do this would be to sell the 10NOV $31 calls for whatever I can get for them, currently showing about a $.16 credit. A more aggressive way to do this would be to sell a call representing a 1% return (currently 10NOV $30 calls) but being prepared to roll the position further up in price/time should a rally erupt.

I want to use any continued pullback in SLV to sell 15DEC $15 puts for a minimum of $.15 credit.

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover – Looking for the next 8/21 ema entry. The last entry was at the end of August.
RSI(2) CounterTrend – Looking for the next signal; there are a few signals showing right now but I don’t like any of them.
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.

Bitcoin and Ethereum are still the ones to accumulate. The strategy for these two coins remains to be “buying the dip” and there was lots of bad news in September to buy. BTC gained again this week on the news that the CME will start offering futures contracts against Bitcoin, as well as the upcoming Segwit2x hard fork.

Please refer to the left sidebar section if you’d like to get caught up on “FAQ” -style intro videos.

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.”

Here is the most recent video which is “WaltonChain in Seven Minutes”

Viewing the SPY from the current Friday closing price at 258.45, there is a +/- 2.131 EM into this Friday. This is slightly smaller than last week’s EM, but about the same as the usual EM of 20 SPX points per week.

The EM targets for this Friday’s close is 260.58 to the upside, and 256.32 to the downside.

I will fade either EM target with the appropriate vertical debit spread ATM using front week options, or I will use ATM long options if the target is hit on Friday.

Last week’s EM had an upper target of SPY 260.07, and was about 15 SPX handles from hitting that. Now that there is more energy on the daily chart, perhaps we’ll see a stronger move this week.

I have no current positions.

I cannot find any candidates that show up on the scan that allow me to “anchor” against a price at this time.

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/ZsIjgu

I have no current positions.

Probably a little late to pound on the Whale trade with weekly index charts at exhaustion, unless we pick on Tech.

No trades for this week 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

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

SPY JAN18 229 long puts (10/11) – i entered this position for a $1.19 debit.