Daily Market Newsletter

October 31, 2016

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Market Commentary

Still waiting for the next round of emails or taped interviews to torpedo one candidate or another? Guess again. Most people have already figured out who they want to vote for, and have for months. The biggest question is “who will get off of their can to tackle the crowds and vote?” This is where it’s important to have a fired-up base that gets out and votes.

And if you’re sick and tired of the drama and infighting like I am, at least there’s baseball and an excellent World Series that’s hit game 6. Baseball is still timeless, pure, and uncorrupted between the chalk stripes.

The big risk this week is Friday’s payroll report, which is currently showing a consensus number of 178k. This week might be a snoozer, and likely the last quiet week in a while. Be careful what you wish for.

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Offensive Actions

Offensive Actions for the next trading day:

I’m going to set up a non-directional earnings trade for GILD; see “LP Condor” section below..

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.

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 below average today. Breadth was mediocre with +107 advancers minus decliners.

SPX Market Timer : The Intermediate line turned down above the Lower Reversal Zone, showing a bearish bias. No leading signals at this time, however all timeframes are very close to showing a bullish cluster.

DOW Theory: The SPX is in a long term uptrend, an intermediate uptrend, and a short-term downtrend. The RUT is in a long-term downtrend, an intermediate downtrend, and a short-term downtrend. The Dow is in an intermediate uptrend and short-term downtrend.

VIX: The VIX rose 5.37% to 17.06, inside the bollinger bands. The RVX gained 1.03% to 21.66 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 67, due to the recent chop. The Daily chart is showing a level of 61 which is fully-recharged again. 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 fell to 48, mid-scale. The RUT Stochastics indicator fell to 18, oversold. The SPX MACD histogram fell below the signal line, showing a loss of upside momentum. The SPX is inside the Bollinger Bands with Bollinger Band support at 2120 and resistance at the upper band at 2164 and is above the lower band. The RUT is back inside the Bollinger Bands with its boundaries at 1184 to 1256 and price is at 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 no positions:

I’m going to set up an earnings condor tomorrow in GILD; I want to use $1-wide credit spreads on both sides of the price to create an Iron Condor that is risking $.50/contract using the 4NOV options. Right now that trade would be set up using the 70/71*76/77 strikes, but I will wait until the last hour or so tomorrow to enter this position for about a $.50 credit. Again, keep it small.

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 -We’ll look for the next crossover.
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:

GILD 4NOV 73/74 long put spread (10/31) entered for $.50 debit. I will look to exit this position possibly by Wednesday as an earnings trade.

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.