Daily Market Newsletter

November 16, 2016
Non-Directional Strategies
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Semi-Directional Strategies
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Directional Strategies
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Market Commentary

No “Trump Bull” moves today as Bill Gross spooked everyone by saying that the President-elect would be bad for the markets. We are already seeing unintended consequences of potential growth as recent interest rate shifts (read: NOT hikes!) are killing mortgage applications. The dynamics will undoubtedly change since banks will be more willing to lend if they have margin to work with.

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Offensive Actions

Offensive Actions for the next trading day:

  • Please see the “Time Spreads” section below for a Weekly Diagonal spread on UPS that I’ll enter tomorrow.

Defensive Actions

Defensive actions for the next trading day:

  • Any vertical debit spreads that we set up are risk-managed from day one, and no defense is really required.
  • Our new Iron Condor on the SPX is risk-managed from day one and requires no special defensive strategies.

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 less than average today. Breadth was weak with -137 advancers minus decliners.

SPX Market Timer : The Intermediate line turned up into the Upper Reversal Zone, showing a bullish bias. The Near-Term line joined it to create a strong bearish cluster, which can be 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 uptrend.

VIX: The VIX rose 2.69% to 13.73, back inside the bollinger bands. The RVX rose 3.35% to 19.11 and is back inside the bollinger bands.

Fibonacci Retracements: The SPX had retraced more than 50% of the Brexit rally, but not quite 61.8% at SPX 2061. It had also retraced more than 38.2% of the full Feb-August rally. Back up to the highs now and we might start looking at extensions.

Support/Resistance: For the SPX, support is at 2080 … with overhead resistance near 2200. The RUT has support at RUT 1090 with overhead resistance at about 1300. 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 still highly-charged with a reading of 54. The Weekly chart is now fully-charged showing an energy reading of 63, due to the recent chop. The Daily chart is showing a level of 44 which is starting to reflect the move to the upside.

Other Technicals: The SPX Stochastics indicator rose to 62, mid-scale. The RUT Stochastics indicator rose to 61, 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 2085 and resistance at the upper band at 2192 and is at the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1128 to 1310 and price is above the upper band.

If Central Banks go “all-in” to save each sovereign economy, this will not be sustainable in the long run. We will continue to monitor price action that will show us if the character of the market is moving towards a change in character to a Quiet/Trending Bull again. For now, we’re seeing necessary corrective action come in to “shock-start” markets and volatility again. Markets have become complacent to all of the central bank monetary policy and that’s not a good thing.. 

 

 

SPX chart

 

 

 

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 am VERY glad that we did not get too aggressive with the put spreads last week as we would have had some anxious moments during the Tuesday night “limit down” environment. I still do not want to set up OTM credit spreads in this low-vol environment until we see real movement to the downside.

I have the following position:

 

  • SPX 2DEC 2130/2135*2200/2205 Iron Condor (11/14) was entered for a $2.55 credit. I will look for a $2.00 debit exit.

 

I have no time spreads at the current time.

I’m going to set up a UPS 25NOV/2DEC 111/113 call diagonal tomorrow for approximately a $1.00 credit. Reward-to-risk will be about 1:1 on this trade. If the price moves I will adjust the strike prices to dial in that 1:1 reward-to-risk.

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, and will continue to write time against these shares on every rally. I will look to sell more calls in the next bounce higher in SLV.
  • SSO – Waiting for the next pullback to sell puts against the SSO, preferably at the 50 level or lower. I keep threatening to sell against something else and it might be time.

Nothing to do at this time with current positions. 

 

Position Management – Directional Trades

Thoughts on current swing strategies:

  • 8/21 EMA Crossover -We’ll look for the next crossover, which is happening now. If we see a rapid pullback that pulls the price down below the 8ema I might consider going long with a debit vertical spread.
  • RSI(2) CounterTrend – Awaiting the next signal.
  • 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.

 

Looking for the next edge. Price has been so choppy that it’s been difficult to identify the next edge.

 

 

 

 

 

 

 

No positions at this time.

 

 

 

 

 

I have no positions at the current time. I didn’t see anything worth jumping on this weekend. Many stocks are already exhausted after moving very quickly.
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.

 

 

 

To remove the current series of puts, I will look for a move down to and below the SPX 2100 level. We were there last week but the NOV position was not profitable. If we see a real “waterfall” decline with the price coming down to about the SPX 2000 level I will at least close the NOV position and hold the JAN to exit as those positions get ATM.

I never got the upside “burst” to allow me to sell call spreads above SPY 230 that I wanted; now I can concentrate on selling put spreads at some level below SPY 190.

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

  • SPY NOV 197 Long Puts – I entered this position (8/22) for a $1.56 debit.
  • SPY JAN17 193 Long Puts – I entered this position (10/24) for a $1.33 debit.