Daily Market Newsletter

October 26, 2016

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November Expiration

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Market Commentary

I think that something around 1/3 of the S&P500 will be reporting this week. Direction? Not so much. The market appears to be truly paralyzed by the risks inherent to next month’s election, as well as which way the Fed will lean in December. Yes, we do have a Fed meeting in early November but it’s VERY unlikely that we’ll see a hike at that point. I think there’s a good chance (67%) that we’ll see a hike in December, for no other reason than to satisfy the Hawks….but then again that flies right in the face of Yellen’s supposed “high pressure market” that she recently spoke of. No wonder traders are confused and there’s no direction.

If we get past the election and prices end up higher, I’ll be immediately implementing some Time spreads to sell premium, what little there is, in a long vega format.

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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 will close my final earnings trade on BA tomorrow.

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 mixed with +18 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 5.79% to 14.24, inside the bollinger bands. The RVX gained 5.14% to 19.63 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 45, mid-scale. The RUT Stochastics indicator fell to 19, oversold. The SPX MACD histogram fell slightly above the signal line, showing a loss of upside momentum. The SPX is inside the Bollinger Bands with Bollinger Band support at 2124 and resistance at the upper band at 2170 and is above the lower band. The RUT is inside the Bollinger Bands with its boundaries at 1200 to 1258 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 and closed for an $.89 credit; this gave me a net profit of $62 per contract.
BA 28OCT 136/137 call spread (10/24) – entered for $.61 debit. I’ll close it out tomorrow for as close to a $1.00 credit as possible.

Per Saturday’s advisory I set up a couple of earnings trades for BA. Earnings were released today before market hours, and was disappointed to see that an initially positive reaction was faded on the cash open. An hour later and things were rocking again! I closed down the OTM spreads for close to max profit as they were now ITM, and will close the conservative ATM trade tomorrow.

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.