Daily Market Newsletter

November 21, 2016

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Market Commentary

As I look around me, I’m telling myself “this looks too good to be true” but maybe it’s not. We’re seeing EVERY index and sector wake up from a long slumber and start to arc higher. There’s reason to believe we could see a 20% rally across most indices even before the January inauguration. Too much, too soon?

It’s almost a foregone conclusion that rates will rise in mid-December, so how does that play into the deficit? Could growth happen so quickly that interest payments on the debit begin to overshadow all other forms of spending? That’s where a 5% GDP will come in handy, in fact it’ll be almost necessary. This is going to be a brave new world, folks. Strap on tight, it will be very different from the last 7-8 years.

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Offensive Actions

Offensive Actions for the next trading day:

Nothing for tomorrow. I want to see if the price squeezes through the SPX 2200 level.

Defensive Actions

Defensive actions for the next trading day:

Any vertical 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 less than average today. Breadth was strong with +262 advancers minus decliners.

SPX Market Timer : The Intermediate line turned up into the Upper Reversal Zone, showing a bullish bias. After showing a strong bearish cluster for two days in a row, this study paused on Friday, but is almost clustered again today.

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 3.35% to 12.42, back inside the bollinger bands. The RVX fell .66% to 18.00 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 61, due to the recent chop. The Daily chart is showing a level of 35 which is starting to reflect the move to the upside, and is showing exhaustion. This increases the probability that we’ll see a short-term consolidation in the near future.

Other Technicals: The SPX Stochastics indicator rose to 86, overbought. The RUT Stochastics indicator rose to 88, overbought. 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 2081 and resistance at the upper band at 2210 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1118 to 1347 and price is below the upper band.

We might be 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.

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.

I have no current positions:

I will look for the next consolidation zone soon, and it might occur early this week. I would like to see if the price will stall at SPX 2200.

I have the following positions:

UPS 25NOV/2DEC 111/113 call diagonal (11/17) was entered for a $.97 credit. I will look to exit the position for about a 50% return on risk
MS 2DEC/9DEC 39/41 Call Diagonal (11/21) was entered for a $1.10 credit. I will look to exit the position for about a 50% return on risk

I set the risk for these such that I have no “stop” other than closing the position on expiry. If we see a quick downdraft the profits will come quickly; shooting to exit at about half of the credit value.

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. 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.

I will be adding the next series of FEB puts this week.

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. Quite honestly, selling the “financing” trades has been a huge challenge in this low-vol environment.

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

SPY JAN17 193 Long Puts – I entered this position (10/24) for a $1.33 debit.