Daily Market Newsletter

October 25, 2016

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Market Commentary

AAPL got taken out behind the woodshed tonight and pummeled as it missed top-line revenue estimates again, for the third straight quarter. And this is after its largest competitor had to take one of their phones off the market, the smokin’ hot Note 7 which I was looking forward to buy. Perhaps the recent tech rally has gotten a little ahead of itself?

Step back and look at what is going on around you. We now have self-driving cars and a self-driving truck was featured today in a report. How long will it be before everything that we do is automated? How will this affect what you do for a living? How will this affect how you will invest? How will this affect GDP is no one is working?

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Offensive Actions

Offensive Actions for the next trading day:

No trades for tomorrow.

Defensive Actions

Defensive actions for the next trading day:

Any vertical debit spreads that we set up are risk-managed from day one, and no defense is really required.
I have earnings trades on BA that I will remove for a profit tomorrow if the price pops higher after the report, during the cash 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

Technical Analysis Section

Market Internals: Volume was fairly low today. Breadth was weak with -187 advancers minus decliners.

SPX Market Timer : The Intermediate line turned up above the Lower Reversal Zone, showing a bullish bias. 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 downtrend, an intermediate uptrend, and a short-term uptrend. The Dow is in an intermediate uptrend and short-term downtrend.

VIX: The VIX rose 3.38% to 13.46, inside the bollinger bands. The RVX gained 4.07% to 18.67 and is back inside the bollinger bands.

Fibonacci Retracements: No retracements in play at this time..

Support/Resistance: For the SPX, support is at 2100 … with overhead resistance near 2200. 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 55. The Weekly chart is now fully-charged showing an energy reading of 66, due to the recent chop. The Daily chart is showing a level of 54 which is fully-recharged after the recent drop. We are showing the rare condition of Full Energy again! We should see a relatively large move very soon.

Other Technicals: The SPX Stochastics indicator rose to 41, mid-scale. The RUT Stochastics indicator fell to 20, oversold. The SPX MACD histogram rose slightly above the signal line, showing a return of upside momentum. The SPX is inside the Bollinger Bands with Bollinger Band support at 2124 and resistance at the upper band at 2173 and is above the lower band. The RUT is back inside the Bollinger Bands with its boundaries at 1202 to 1260 and price is above the lower band.

If Central Banks go “all-in” to save each sovereign economy, this will not be sustainable in the long run. We will continue to monitor price action that will show us if the character of the market is moving towards a change in character to a Quiet/Trending Bull again. For now, we’re seeing necessary corrective action come in to “shock-start” markets and volatility again. Markets have become complacent to all of the central bank monetary policy and that’s not a good thing..

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: If this dip in price hits the 2050-2100 level on the S&P, we are game on for back month put spreads.

I have the following position:

SPX 11NOV 2080/2085*2185/2190 LP Iron Condor (10/17)- I entered this position for a $2.50 credit, and per my recent advisory I closed this position with limit order for $2.00 debit GTC (10/21). This created a 16.8% return in the space of 5 days.

I don’t want to go back to the well with another position until “the move” shows up, whenever that is.

I have no time spreads at the current time. My preference is to take these on DAILY exhaustion and not WEEKLY exhaustion signals, since the weekly exhaustion creates unwanted price volatility. Similar to the LP Condors above, I will likely have to expand my view to include equity candidates that are showing a likely short-term consolidation. This is never my first choice due to the additional variables that we encounter.

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 – Waiting for the next pullback to sell puts against the SSO, preferably at the 50 level or lower. .

Nothing to do at this time with current positions.

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover -I entered the 8/21 ema long setup (10/5) with an ATM SPY vertical spread, using the 26OCT 216/218 call spread, paying $1.12 debit. Looks like this dead soldier will expire worthless tomorrow.
RSI(2) CounterTrend – Looking for 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.

I have the following positions in play:

QQQ 11NOV 116/118 debit put spread (10/17) – I entered this trade by buying the 118 put and simultaneously selling the 116 put, for an .84 debit, and I will look for about a 50% return from this trade.

I have the following positions:

BA 28OCT 141/142 call spread (10/24) – entered for $.23 debit.
BA 28OCT 136/137 call spread (10/24) – entered for $.61 debit.

Per Saturday’s advisory I set up a couple of earnings trades for BA, which will be released on 10/26 before market hours, which is tomorrow. If the earnings disappoint and the price drops, then I will do nothing tomorrow. If the earnings are good and the price pops higher, then I will take both trades off for a profit, I will seek at least a 50% return on the 136/137 spread if possible. If it does not hit that target I will leave it one more day to evaluate.

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 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 200.

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

SPY NOV 197 Long Puts – I entered this position (8/22) for a $1.56 debit.
SPY JAN17 193 Long Puts – I entered this position (10/24) for a $1.33 debit.