Daily Market Newsletter

A key reversal bar on the S&P today with a higher high and a lower close. The S&P was in a “triple exhaustion” level briefly today with all three timeframes exhausted, matching the DOW. Of particular interest are the Large Cap Tech stocks like GOOGL and FB which got drubbed hard and might be signaling not just a rotation into large Tech, but actually a rotation into cash. Thursday will be a pivotal day for this market rally with earnings from AMZN, MSFT, and GOOGL.

Earnings of Importance this week are:

Tuesday: AMD, BIIB, CAT, CMG, LMT, MCD, MMM, T
Wedesday: AMGN, BA, KO, V
Thursday: AAL, AMZN, COP, F, GOOGL, INTC, MO, MSFT, UPS, WDC
Friday: CVX, MRK, XOM

Economic releases which might move the market this week are:

Durable Goods and New Home Sales this Wednesday.
Home Sales Index on Thursday
3Q GDP First read and Consumer Sentiment, Friday.

The market remains at extreme risk of an “exogenous event” which is news coming into the market that has not already been priced in. We could easily see a 3-5% single day event if the wrong news hit the wires. Make sure that your treatment of risk in your account can account for that potential move.

The scan for the “Cheap Stocks with Weeklys” that I discussed 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 (Top Five ICOs for October) is available here

If you cannot view today’s video, please click here to view an embedded flash video.

Offensive Actions

Offensive Actions for the next trading day:

Weekly EM levels have been set; see “weekly EM” section below.
I will set up a Ratio Butterfly against the DOW; see “Ratio Butterfly” 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 today and breadth was somewhat weak with -122 advancers minus decliners.

SPX Market Timer : The Intermediate line flattened in the Upper Reversal Zone, still showing a bullish bias. After another full bearish cluster on the SPX for the second day in a row last Friday, this was a leading signal for a pause which showed 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 rose to 11.07, above the bollinger bands. This is after a twenty-year low on the VIX. The RVX rose to 14.98 and is at the upper 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 2509 … with overhead resistance at 2575. 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 29. The Weekly chart is now in exhaustion with an energy reading of 38, due to the recent trend. The Daily chart is showing a level of 40 which is now recharging quickly but just above technical exhaustion. 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. The DOW is in triple exhaustion which is a rare exhaustion signal.

Other Technicals: The SPX Stochastics indicator fell to 92, overbought. The RUT Stochastics indicator fell to 55, mid-scale. The SPX MACD histogram fell above the signal line, showing a loss of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2502 and resistance at the upper band at 2585 and is below the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1476 to 1526 and price is below the upper band with the bands starting to squeeze strongly.

We are seeing the market reaching into a full “runaway” condition, where “fear of missing out” means abandoning any former patience and “wait for the dip” strategy. This usually occurs near the top of the intermediate move.

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. 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.

I would need to see a SIGNIFICANT pullback to make me want to initiate this strategy again. Those selling call spreads are screaming in pain once again.

I have no positions in play. It makes no sense to pursue an order with this strategy until we see normlization in the price action.

I have no remaining positions. This is normally a perfect time to be selling calendar spreads against the RUT or SPX due to the exhaustion levels, however with my most recent experience with them in September, the effort was barely worth the hassle since we’re selling 6% vol and buying 7.5% vol against it. I might target higher IV underlyings to overcome this, at the risk of seeing greater movement.

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 also have the F 15DEC $11 puts that were sold for $.12 (10/16).
CHK DEC17 $3.5 puts were sold for $.19 credit. I also own the CHK 17NOV $4 puts (10/9) for a $.20 credit. I would rather roll positions than take the assignment, given the choice.
27OCT NUGT $31 puts (10/23) were sold for $.51. I have entered a $.10 debit closing order.

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 right now..
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.

Bitcoin and Ethereum have had tremendous weeks. The strategy for these two coins remains to be “buying the dip” and there was lots of bad news in September to buy. Right now BTC and ETH are in a consolidation due to daily exhaustion.

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 “Top Five ICOs for October”

Viewing the SPY from the current Friday closing price at 257.11, there is a +/- 2.258 EM into this Friday. This has been a very “normal” EM lately of about 20 SPX points per week. Last week, the price closed within inches of the 257.19 upside EM target but was not “fade-able.”

The EM targets for this Friday’s close is 259.37 to the upside, and 254.85 to the downside.

With markets at exhaustion, I would anticipate a continued consolidation week. I will fade either target being tested.

I am relabeling this section the Ratio Butterfly strategy.

The DOW is about as exhausted on all timeframes as any chart that I have ever seen. Per this weekend’s report I tried to set up a DIA 17NOV 233/235/237 Call Ratio Butterfly against the DIAmonds on Monday morning but I never got a fill. Tomorrow I will try to set up a 17NOV DIA 232/234/236 Call Ratio Butterfly however I might not have access to a computer tomorrow as I have to help someone through surgery. This will be a small position and I’d like to see how well we can create a “fade” for the Dow.

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 has failed its latest flag so I might look for any value that I can harvest from this position.

Probably a little late to pound on the Whale trade with daily index charts at exhaustion, unless we pick on Tech.

The best setup from this weekend is OKE; a break above $57.15 would cause me to go long, however earnings are on 10/31. XME and TIF also look good.

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 currently have the following positions in play with this strategy:

SPY JAN18 229 long puts (10/11) – i entered this position for a $1.19 debit.