Daily Market Newsletter
November 26, 2018Non-Directional Strategies
Semi-Directional Strategies
Directional Strategies
Bitcoin/Crypto
View Doc's New Book
December Expiration
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Market Commentary
Stocks gapped higher today, led by Tech and Retail on Cyber Monday. AMZN crushed it with a 5% day to the upside but is still in primary downtrends across the board.
We might have just gotten the “all-clear” signal to go long; Jim Cramer has proclaimed this a Bear Market. I think that Jim’s emotions are getting to him because he believes that this one is “nastier” than a regular correction. The only difference between this move and the February correction is that Technology & Small Caps are leading this time. Jim is paid to make high-profile calls but as we know, they can end well or look foolish later. No one keeps score.
As I write this the S&P lost 15 points off the top in the hour after the closing bell; I don’t know the cause of it but AAPL as well as other Tech bellwethers took a nasty haircut after the bell and continues to look weak. Everyone is expecting the dip to be bought into the fourth quarter and it might not happen.
There are two huge events on the horizon that will cause markets to re-price assets:
- G20 Summit – This meeting starts officially on Friday this week and will carry through the weekend. Expect lots of volatility due to posturing prior to the meeting. Can the US work out a trade deal without cratering the markets?
- FOMC – The next Fed meeting is 19 December. Chairman Powell wants to continue raising rates and there is a 79% chance of that happening next month.
Here is the current scorecard:
- S&P is down ~337 points or 11.46%
- Dow is down 2830 points or 10.5%
- /NQ is down 1279 points or 16.55%
- RUT is down 283 points or 16.3%
What is our approach to trading this market, which has once again moved into a “Sideways/Volatile” character?
- Sell credit spreads/create iron condors on the SPX into relative extremes, beyond the current range of movement.
- Establish long iron condors when the price shows potential of moving a great distance in the near future.
- Exercise caution with long stocks/short puts as we see the 50/200 death cross hit each index
- Look to establish debit spread-based swing trades against sentiment extremes, and/or EM boundaries
Markets are at a very important tipping point going forward; be mentally nimble enough to allow the price to go either way from here.
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.
Please sign up for our free daily crypto report here.
An embedded flash video is available here.
Offensive Actions
Offensive Actions for the next trading day:
- I will look to enter the SSO (stock) long on a wash-out low based on a single-digit number of advancing stocks in the S&P. (see “Swing” section below)
- A gap fill/upper weekly EM test would cause me to add a bearish swing trade, detailed in the “swing trade” 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.
- Closing orders have been entered for all new spreads.
- I will look to close both the 7DEC SPX put spread as well as the 21DEC SPY Iron Condor tomorrow; see HP Condors section below.
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 average today and breadth ended the day very strong with +364 advancers minus decliners.
SPX Market Timer : The Intermediate line dropped to just above the Lower Reversal Zone, still showing a bearish bias. After showing a Weak Bullish Cluster in the Lower Reversal Zone for the third day in a row, which is a leading indicator for a bounce, we finally got a bounce today. .
DOW Theory: The SPX is in a long term uptrend, an intermediate downtrend, and a short-term uptrend. The RUT is in a long-term uptrend, an intermediate downtrend, and a short-term uptrend. The Dow is in an intermediate downtrend and short-term downtrend.
VIX: The VIX fell to 18.90 after peaking at 50.3 ten months ago, inside the bollinger bands. The RVX fell to 23.32 and is back inside the bollinger bands.
Fibonacci Retracements: The price broke the 61.8% fibs on the bounce back up showing that a re-test of the bottom is likely; NQ has undercut the October lows and the SPX is close.
Support/Resistance: For the SPX, support is at 2600 … with overhead resistance at 2816 and 2941. The RUT has support at RUT 1436 with overhead resistance at 1742. Three major index charts that we follow are now showing a Golden Cross with the 50 day moving average above the 200 day average (SPX/DJI/NQ). The Russell has printed a Death Cross with the 50ma crossing below the 200ma; this can be a leading signal for a true Bearish move.
Fractal Energies: The major timeframe (Monthly) is super-charged again, with a reading of 64. The Weekly chart has an energy reading of 48. The Daily chart is showing a level of 45 which is just below fully charged again. With the bounce back up, all SPX timeframes could be in position to support a massive move, regardless of direction. It’s very important that we get “on” the next trend when it shows, regardless which way that it goes.
Other Technicals: The SPX Stochastics indicator fell to 30, below mid-scale. The RUT Stochastics indicator fell to 26, below mid-scale. SPX MACD histogram rose below the signal line, showing a return of upside momentum. The SPX is inside the Bollinger Bands with Bollinger Band support at 2613 and resistance at the upper band at 2817 and price is above the lower band. The RUT is inside the Bollinger Bands with its boundaries at 1460 to 1584 and price is above the lower band.
Position Management – NonDirectional Trades
I have the following positions in play:
- SPX 7DEC 2490/2500 Short Put Spreads (10/22) entered for $.80 credit. I would close this position if the short put delta (2500) hits the .45 level. It is currently showing a .12 delta. I have also placed a $.10 debit limit order to close this one early if possible. The midpoint of this spread is currently $.38 so it’s currently profitable but it’s time to close this one.
- SPX 21DEC 2950/2960 Short Call Spreads (11/7) entered for $.80 credit. I would close this position if the short call delta hits the .35 level.
- SPX 21DEC 2490/2500 Short Put Spreads (11/12) entered for $.80 credit. I would close this position if the short put delta (2500) hits the .45 level.
- SPY 21DEC 251/252*277/278 Long Iron Condor (11/26) entered for $.16 debit on the puts and $.18 debit on the call spreads. I will look for a 200% return on either side and only close one side at a time.
No new entries at this time; we have a full 21DEC SPX Iron Condor that is 450 points wide, as well as a new Long Condor in play (per this weekend’s advisory) expecting a large move into year-end, in one direction or another .
I will look to close the entire 21DEC Condor tomorrow; it’s time to get out. If I cannot close it for less than $1 debit then I will stay in. I will also try to close the 7DEC SPX trade for $.40 or better.
Let’s wait until the price probes the edge of the current range before I set up the next credit spread.
I have no positions at this time. We’ll park this strategy until the next high-probability condition shows. We’ll want to see daily exhaustion on the SPX or RUT after a strong move, at the very least. This strategy works best with a quiet/trending market, and not with a sideways/volatile one.
I have no remaining positions. Calendar spreads are good for markets in quiet/trending character, so we’ll want to wait for that type of price action to show again. 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 a 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:
- SLV Stock – I have 1000 shares of the SLV that was assigned at the $15 level. I sold the 31DEC $15 SLV calls (10/3) for $.16.
- SSO – I sold SSO 21DEC $95 puts (11/14) for $1.02 credit. I will look to close this position for $.05 – $.10 on the next bounce up.
- CSCO – I sold CSCO 21DEC $40 puts (10/22) for $.40 credit. Looking to close this for $.05
- HPE – I sold 21DEC $14 puts (11/12) for $.23 credit and looking to close for $.05.
- BAC – I sold 18JAN $24 puts (11/19) for a $.25 credit and looking to close for $.05.
The recent trades were relatively small positions that would create a discount entry should I be assigned. I have entered $.05 GTC exit debits to close out CSCO early should we get the opportunity. If we see a death cross on the S&P, then I will cease selling puts on an ongoing basis until that signal clears.
Position Management – Directional Trades
Thoughts on current swing strategies:
- 8/21 EMA Crossover – No setups at this point; the recent 8/21EMA cross failed, and has crossed to the downside again.
- RSI(2) CounterTrend – Looking for the next setup. Lots of these showing now, best to play these during primary uptrend.
- 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 have no trades in play at this time. If the price of the S&P fills the upper gap around the price level of this week’s upper EM, then I would add a 7DEC bearish debit put spread $1-wide ATM and look for a 50% return.
The crypto market continues to get hit pretty hard recently as it finally broke below support. This could be part of the final capitulation that we’ve been waiting on.
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 263.25, there is a +/-6.196 EM into this coming Friday. This is larger than last week’s 4.762 EM and reflects that this is a full week with jockeying expected into the G20 meeting. The EM targets for this Friday’s close are 269.45 to the upside, and 257.05 to the downside.
I will look to fade either EM this week; we could see one or both of them tagged this week as we approach the G20.
We did get some recent experience with this style of trading and quite frankly it’s not as easy as it sounds. Strong bull trends do not give way easily. My conclusion is that this strategy is best reserved for stocks experiencing a snap-back rally in a primary bear trend. If the market starts to print a lower high on the weekly chart then I will become more serious about this strategy.
The scan that I discussed in the 8/4/2018 video is available to download for thinkorswim here: http://tos.mx/OvdVnz I will also be adding a second Larry Connors scan to this section as well; here is the Connors Crash scan: http://tos.mx/BhHuKL
I have no positions at this time.
No other entries at this point. I would prefer to see the market stabilize first before looking long again. We will see big volatility over the next two+ months. If we are able to secure a “higher low” off of the S&P in the short run, this might be a good environment for a couple of weeks.
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 have no positions at the current time. I have no positions at this time. I cleared out the current puts on the drop to the 200ma. I will “reload” again on the next bounce up.
I passed on the recent entry; I’m going to hold off for a little longer to see if a more complex top is created off of a higher high. Recent entries were expensive due to elevated vol.