Daily Newsletter

October 12, 2019

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October Expiration

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Market Commentary

A partial trade deal ends an extremely volatile week, which makes two weeks in a row with >100 weekly point range. You have to salute the bulls who were able to come out on top from a nasty end to September and a scary start to October. This time of year never disappoints with titanic volatility. Sentiment still favors the Bulls because the negativity is still high in markets as we push into the third quarter: 

Markets are still pricing in a rate cut on October 30th: 

Unless this turns into a majestic lower high below SPX 3000, we will ignore the prevailing negative sentiment and stick with the trend. 

Bank earnings kick off the 3Q2019 reporting season starting this week on Tuesday. 

Short-Term Outlook: We’ve been in a massive consolidation pattern since early 2018, or almost another “horizontal bear market” like we had in 2015-2016. All that energy that’s been coiled up has to go somewhere, the policy and odds favor it to go higher, but we’ll know which price levels to respect to warn us if that energy’s going lower instead. 

Please sign up for our free daily crypto report here.

Offensive Actions

Offensive Actions for the next trading day:

  • I do not have any offensive orders for Monday morning; upcoming earnings have foiled the good setups. I’ll look to see if I can find a decent ETF setup by Tuesday. 

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.
  • Please note that I closed the COST debit spread on Friday; 30% in the first week is good enough and not worth the time risk to hold in today’s choppy market. 

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 above-average Friday with advancers minus decliners showing a very positive number of +340 at the closing bell. 

SPX Market Timer : The Intermediate line has flattened below the Upper Reversal Zone and is now “Neutral.” No leading signals at this time.

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 sideways trend, and a short-term uptrend. The Dow is in an intermediate uptrend and short-term uptrend.  

VIX: The VIX fell to 15.58, inside the Bollinger bands. The RVX fell to 20.05, and is back inside the Bollinger bands.

Fibonacci Retracements: The S&P has now undercut the 61.8% retracement from the recent August pullback, increasing the odds of “filling in the triangle” which it might have accomplished last week. 

Support/Resistance: For the SPX, support is at 2825 and overhead resistance at 3028. The DOW has support at 25500 and overhead resistance at 28399. The RUT has support at 1450 and resistance at 1600. 

Fractal Energies: The major timeframe (Monthly) is charged again with a reading of 52. The Weekly chart has an energy reading of 67, now fully-charged. The Daily chart is showing 51, almost recharged from the downdraft . Larger timeframe energies are waiting on a very big move, which will start with the smallest timeframes.

Other Technicals: SPX Stochastics rose to 37, below mid-scale. RUT Stochastics rose to 20, oversold. The SPX MACD rose below the signal line, showing an increase in positive momentum. The SPX is below the upper bollinger band with the range 2888 to 3034. The RUT is inside the bollinger bands with the range 1453 and 1595. 

SPX chart

Position Management – NonDirectional Trades

I have the following positions in play at this time:

  • SPY 18OCT 289/290*308/309 Long Iron Condor (9/16) was entered for a $.16 debit on the put spreads and an $.18 debit on the call spreads. The put spreads fired at our target (10/2) of $.48 which means that we made a net profit after commissions of $28/contract on the put spreads, and still hold the call spreads. I will see if any rally higher in the near term allows us to harvest some value from the call spreads.. 
  • SPY 15NOV 281/282*310/311 Long Iron Condor (9/30) was entered for a $.16 debit on the puts and $.18 debit on the calls. I will look for a 200% return on either side. Not enough gamma to get the put side to fire on the recent downdraft. 

No additional orders at this point. 

I have no positions in play:

This is not the right character of market for this strategy at this point. 

I have no current positions:

Calendar spreads are good for markets in quiet/trending character. If the market reverts back to quiet/trending, then I’ll look to continue this method; if we see the daily chart go into exhaustion I’ll set up a back week calendar. 

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:

  • SLV Stock – I have 1000 shares of the SLV that was assigned at the $15 level.  I sold the SEP $17.50 calls (8/13) for $.18 credit and closed down this position (9/5) for a $.44 debit. I will let this price chart trend as much as it wants to in the near future before writing against it again.
  • CSCO – My cost basis is now $48.80/share prior to the latest trade. I sold the JAN20 $50 calls for $1.94/contract so our cost basis could be as low as $46.86 depending on the outcome of those JAN calls. Our shares also went ex-dividend on Thursday so that’s another $35/contract so our cost basis could now be as low as $46.51. I don’t want to see this trade below $46/share on a closing basis

No other trades at this time.  

Position Management – Directional Trades

Thoughts on current swing strategies:

  • 8/21 EMA Crossover –  The short signal has fired; I do not take these in an overall positive market. I will look for the next positive cross. 
  • RSI(2) CounterTrend –   I’ll look for the next setup. 
  • Daily S&P Advancers – Looking for the next signal to go long with single-digit advancers to close the day.
  • Swing –   None at this time.. 

Crypto got absolutely hammered last week and is testing to see how low that it can probe; support seems to be around $8k on bitcoin and $6500 below that. 

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.”

From Friday’s close at SPY 296.28, there is a +/-5.223EM into this coming Friday; this is about the same as last week’s 5.442 EM. The EM targets for this Friday’s close are 301.50 to the upside, and 291.06 to the downside

The price blew through the lower Weekly EM last week, and almost tagged the upper EM marker in the same week. We did have an EM fade trade this past week but it was not the classic “test and stay in the range” type. 

 

I will start playing directional bear spreads once we see upside exhaustion on more than one timeframe. 

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 in play at this time:

  • WMT 25OCT 118/119 Debit Call Spread (9/23) entered for $.50 debit and closed (10/11) for $.75 credit. This gave us a $21/contract profit or a 42% return on capital. 
  • COST 15NOV 290/295 Debit Call Spread (10/8) was entered for $2.50 debit and I decided to close this position into strength on Friday (10/11) for $3.40 credit, which gave me a $86/contract profit or 34.4% return on capital.  

 

No additional orders today. 

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. 

I have no open positions at this time. Skew is making OTM puts really expensive now. 

If we see a decent bounce back up I might consider reloading.