Daily Market Newsletter

Markets are in the middle of a runaway move; the S&P by itself has gained 2% in the last week alone. We could be at a rare inflection point in a week or two where we have an “exhaustion” signal on the monthly, weekly, AND daily charts. The last time that we saw this condition (on a runaway upside move into late February) the S&P500 was stuck in the mud for about six/seven weeks in a large weekly flag pattern.

I continue to believe that we are at risk of a quick “shock” to the markets to reset the charts, but no more. Markets are overheated and need a rest, but fundamentally conditions are good for a continued rise UNTIL there are investment alternatives. Fixed rate instruments will not gain popularity until rates rise. Most other asset classes are in their own form of bubble. Almost nine straight years of upside movement gives one pause, until you look back at similar moves in history, which I’ll do in today’s video.

Q3 earnings season starts later this week with bank stocks; this has been a recent (2017) shake-up to the traditional Alcoa earnings which used to start the earnings season.

The scan for the “Cheap Stocks with Weeklys” that I’ll discuss this weekend is available here.

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

The latest crypto video (Bitcoin to $6000?) is available here

If the above video does not play, try this version.

Offensive Actions

Offensive Actions for the next trading day:

Weekly EM levels have been set; see “weekly EM” section below.
Please see the “whale” section below for an AAPL spread setup.
I will add CHK NOV short puts on Monday; please see the “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 above average Friday. Breadth was mixed with -65 advancers minus decliners.

SPX Market Timer : The Intermediate line flattened in the Upper Reversal Zone, still showing a bullish bias. This chart is showing another strong bearish cluster for the seventh day in a row 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 uptrend.

VIX: The VIX rose to 9.65, back inside the bollinger bands. This is after a twenty-year low on the VIX. The RVX rose to 14.55 and is back inside the lower bollinger band.

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 2430 … with overhead resistance at 2552. 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 30. The Weekly chart is now losing energy with an energy reading of 46, due to the recent trend. The Daily chart is showing a level of 29 which is now in serious technical exhaustion and might not support the uptrend much longer. 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.

Other Technicals: The SPX Stochastics indicator flattened at 83, overbought. The RUT Stochastics indicator flattened at 95, overbought. The SPX MACD histogram rose above the signal line, showing a return of upside momentum. The SPX is back outside the Bollinger Bands with Bollinger Band support at 2475 and resistance at the upper band at 2548 and is above the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1396 to 1531 and price is below the upper band.

We are seeing the market reacting to any fear catalyst right now, and we’ll be watching to see if the price is able to make new highs or not. The overall trend is still higher and short-term energy is building quickly on this non-linear chop.

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. We can finally sell positions for SEP below SPY 230 but my sense is that still isn’t worth the risk just yet. A 10% correction would put the price at SPY 224 and we’d want to be well below that level with short puts.

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.

If I see price drop to the SPX 2300 level, this might be our first opportunity to sell premium against that level.

I have no positions in play. It makes no sense to pursue an order with this strategy until we see (at the very least) a daily exhaustion signal.

I have no remaining positions:

This is just a difficult market to sell non-directional premium in with implied vol levels of 6%; we are just playing with too little premium to make the sale of an option worth it unless we target much higher IV underlyings.

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 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 will sell against the next pullback.
CHK 20OCT $4 puts (9/20) were sold for a $.19 credit. I will look to add the NOV $4 puts on Monday; they are currently selling for about a $.20 credit.
NUGT 13OCT $31 put (10/4) was entered for a $.51 credit; I will look to close these out for a $.10 debit. They are currently showing a $.19 mark.

I will add CHK NOV puts Monday morning as discussed above.

If the price of SLV continues to drop, I will sell the 17NOV $15 SLV puts for a minimum of $.15 credit. We are getting close to this

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 – I will continue looking for additional setups as long as markets are trending higher. No signals this weekend.
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.

Most major Crypto coins continued their coiling price action which makes sense as their Monthly charts try to recharge.

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 “Bitcoin to $6000?”

Viewing the SPY from the current Friday closing price at 254.37, there is a +/- 2.11 EM into this Friday. This has been a very “normal” EM lately of about 20 SPX points per week. Last week’s

The EM targets for this Friday’s close is 256.48 to the upside, and 252.26 to the downside.

with markets at exhaustion, I would anticipate a consolidation week for the first few days prior to the Q3 earnings cycle which kicks off later this week with large banks.

Last week, I took the upper EM fade as the price hit that target early in the week, which was obliterated by Thursday’s move higher. That created a loss of $.35 debit. The expected move was 2.1 points last week, and the move ended up being 3.47 SPY points. Point taken that we should expect larger moves when the week starts with full energy on the daily chart.

I am relabeling this section the Ratio Butterfly strategy. I have no candidates today. My test trade LYB is still in play for another three weeks and has come down from its highs; if it is able to drop below $98 then I have a good chance at profits still.

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 the following positions:

IBB 27OCT 345/347.5 Vertical Call Spread (10/2) was entered for a $.60 debit. My goal is 100% return on this trade; at the present time it’s showing a $.77 exit.

Probably a little late to pound on the Whale trade with daily index charts at exhaustion.

I did not enter the AAPL trade on Friday due to the Jobs report negative reaction. Monday I will enter the AAPL 3NOV 155/157.5 debit call spread for around $1.25 or better, but only if the price rises above 155.5. If the price gaps lower I will wait.

USB looks pretty good on a break above 54.40. .

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.

Quite honestly, 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

I will place the next Hindenburg trade if/when we see FULL EXHAUSTION on the monthly/weekly/daily charts. This strategy gave us some nice moments of profitability in 2105 and early 2016, but since that point the backdrop of central bank printing and ZIRP has created an ineffective hedging strategy. My experience is that the day that we stop looking at this strategy will be the day that we experience the downside “reset.”

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

SPY OCT17 222 long puts (7/24) – I entered this position for an $.85 debit. This position was up 50% at one point and the temptation to remove it for a profit was strong, however the point of these trades is to hedge the downside for existing longs, AND try for those home runs on corrections that come out of nowhere.