Daily Market Newsletter

While today’s news media crows on about the Dow running into all-time highs, the true battle still remains at SPX 2500. The last few days have been abnormally choppy and range-bound, I believe in anticipation of this. Even the NASDAQ has been very choppy and range-bound as well, holding around 6000. Perhaps there is some risk into next week’s FOMC policy release and chairman conference.

This weekend I will summarize the SEP options cycle; once again we were profitable but trading has been kept to a dull roar as risk is high while reward and movement is very low. Alpha is extremely scarce and the perception of risk has been pulled out of the market. This will change.

The latest crypto video (Wallets Part 3) is available here

If the above video does not play, try this version.

Offensive Actions

Offensive Actions for the next trading day:

Weekly EM levels have been set; see “weekly EM” section below. Watch for the upper level fade play.
No other trades for tomorrow.

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. Breadth was mixed and diverging with +7 advancers minus decliners.

SPX Market Timer : The Intermediate line rose into the Upper Reversal Zone, now showing a bullish bias. This chart is showing a strong bearish cluster for the second day in a row, which is a leading signal for a pause.

DOW Theory: The SPX is in a long term uptrend, an intermediate uptrend, and a short-term sideways trend. 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 fell to 10.44, back inside the bollinger bands. This is after a twenty-year low on the VIX. The RVX fell to 12.69 and dropped BELOW the lower bollinger band to near all-time lows.

Fibonacci Retracements: If we see the pullback continue then I’ll start to determine fib levels that might act as potential support.

Support/Resistance: For the SPX, support is at 2430 … with overhead resistance at 2500. The RUT has support at RUT 1350 with overhead resistance at about 1452. 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 34. The Weekly chart is now recharging quickly with an energy reading of 64, due to the recent chop. The Daily chart is showing a level of 39 which is now bleeding energy with this strong micro-trend and is almost at exhaustion from the upside run. 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.

Other Technicals: The SPX Stochastics indicator rose to 82, overbought. The RUT Stochastics indicator rose to 86, overbought. The SPX MACD histogram fell slightly above the signal line, showing a loss of upside momentum. The SPX is back inside the Bollinger Bands with Bollinger Band support at 2415 and resistance at the upper band at 2504 and is at the upper band. The RUT is back inside the Bollinger Bands with its boundaries at 1347 to 1436 and price is at the upper band.

We are seeing the market reacting to any fear catalyst right now, and we’ll be watching to see if the price is able to make new highs or not. The overall trend is still higher and short-term energy is building quickly on this non-linear chop.

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. We can finally sell positions for SEP below SPY 230 but my sense is that still isn’t worth the risk just yet. A 10% correction would put the price at SPY 224 and we’d want to be well below that level with short puts.

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.

If I see price drop to the SPX 2300 level, this might be our first opportunity to sell premium against that level.

I have no positions in play. It makes no sense to pursue an order with this strategy until we see (at the very least) a daily exhaustion signal.

I have no current positions.

The SPX appears to be getting ready for a consolidation based on the daily energy; I’ll start to work out a trade to set this up with a calendar spread. We have to wait on the exhaustion signal and I believe that a poke above SPX 2500 will do it. I’ll work out the trade this weekend if it shows.

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 15SEP $16.5 calls (7/24) for $.17 credit, and closed those down this week for a $.39 debit, rolling them forward to the NOV cycle with $18 calls that I sold for $.22
X – I was assigned at the $25 price level. I then rolled the position forward to SEP17 $25 calls for $.68 credit. I bought back the $25 calls today (after my update) for $.50, and subsequently sold the shares for $25.48. I’ll wrap up the details behind this position this weekend.
AMD – I sold the 15SEP $12 puts (7/31) for $.40 credit. I will let these puts expire tomorrow OTM, or I will roll them down in strike price to the OCT monthly cycle if it looks as though the $12 level will not hold. .

Not looking to add anything at these levels at this time. I’d like to keep my powder dry and wait on a more severe correction.

Position Management – Directional Trades

Thoughts on current swing strategies:

8/21 EMA Crossover – Looking for the next 8/21 ema entry.
RSI(2) CounterTrend – I will continue looking for additional setups as long as markets are trending higher
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.

This is a new section that I’m starting in the summer of 2017; all Cryptocurrency trades are by definition going to be “directional” trades due to the fact that there are no premium-selling strategies available.

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 “Wallets Part III.”

Viewing the SPY from the current Friday closing price at 246.58, there is a +/- 3.4 EM into this Friday. This is larger than last week’s EM, and well above previous week’s EM values of about 2 points during most of the summer.

The EM targets for this Friday’s close is 249.98 to the upside, and 243.18 to the downside.

Either target is in play for this week. The upper target at nearly SPX 2500 is certainly a “fade.” I tried to enter this trade this week but the vertical put spread was massively skewed due to the just-OTM puts being less expensive than the ATM puts at SPY 250.

if there is one more test of 2500 tomorrow I will fade that with a long put 15SEP SPY ATM.

I have no positions at this time. Nothing else to enter at this time.

I have the following positions:

SPY 15SEP 249/250 Call Spread (8/28) was entered for an $.11 debit, and as I said earlier I wanted to sell this position into strength. I closed the position today (9/11) for a $.30 credit. That gave me a profit of $15/contract, or a 136% return on invested capital.
AMAT 13OCT 45.5/46.5 Call Spread (9/12) was entered for a $.50 debit. I’ll look for a 50% return on this trade, or 40% if we see it over the next few days. Right now it’s up 26%.

No other trades right now.

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.

Quite honestly, 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

With a new all-time low VIX, the opportunity to buy inexpensive short deltas was too great, so I added some OCT puts recently.

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

SPY OCT17 222 long puts (7/24) – I entered this position for an $.85 debit. This position was up 50% and the temptation to remove it for a profit is strong, however the point of these trades is to hedge the downside for existing longs, AND try for those home runs on corrections that come out of nowhere.