Daily Market Newsletter

November 29, 2016

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Market Commentary

Energy took a hit today as Crude Oil dropped about 4%; this gave the rest of the market an excuse to take a rest, with very low-volume, drifting price action. As I discuss in tonight’s video, I’m expecting consolidations across the board, but how and when they occur is of the most interest right now. .

If the video above does not play or display, please use this link

Offensive Actions

Offensive Actions for the next trading day:

I’m going to sell some puts on TWTR tomorrow; see “stock” section below.

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.
I will need to close out the MS Diagonal position on Friday morning. I will look for early exits from the other positions as well. .

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” today. Breadth was mixed with 76 advancers minus decliners.

SPX Market Timer : The Intermediate line turned further up into the Upper Reversal Zone, showing a bullish bias. After three straight strong bearish clusters, the SPX took a break over the past two days with no leading signals.

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 1.90% to 12.90, back inside the bollinger bands. The RVX rose .36% to 19.25 and is back inside the bollinger bands.

Fibonacci Retracements: The RUT 161.8% extension is up at the 1375 level; that might represent some token level of resistance.

Support/Resistance: For the SPX, support is at 2193 … with no overhead resistance . 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 53. The Weekly chart is now fully-charged showing an energy reading of 56, due to the recent chop. The Daily chart is showing a level of 35 which is strongly reflecting the linearity of 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 94, overbought. The RUT Stochastics indicator flattened at 96, overbought. The SPX MACD histogram fell above the signal line, showing a fade of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2084 and resistance at the upper band at 2243 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1134 to 1401 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 have to wait for the next consolidation zone and the SPX 2200 level has been breached. This strategy will likely be “on the shelf” for some time until the SPX determines the next range.

I have the following positions:

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, and I will need to exit by Friday.
M 9DEC/16DEC 42.5/44.5 short call diagonal (11/28) – entered for a $.98 credit. Would like to exit for $.44..
AAL 9DEC/16DEC 45/47 short call diagonal (11/28) – entered for a $.94 credit. Would like to exit for $.40

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.

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, 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 – The SSO is “gone” and I don’t want it at these levels.
GE JAN17 30 puts (11/28) – I sold five contracts of $30 puts for $.39 credit .

A somewhat risky underlying to sell puts against is TWTR. For those of you that like to live dangerously, I’m going to sell $15 JAN17 puts against TWTR tomorrow; this should produce at least a 1% return on capital.

Nothing to do at this time with current positions. I will be continuing to “bottom fish” in the subsequent weeks to identify stock candidates that I would want to own long-term.

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. This one is very likely “gone” based on past experience with these types of rallies.
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 if we see a reason to. So far I don’t see a reason to add them. At this point I’d rather let the market play out another few days before adding a FEB position..

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.