Markets finally get hit

The RUT, which had been weak since December 8th, fell 1.16% today on higher volume. It's still above the 1350 level, but the market is weakening.

The SPX fell almost 0.85% today, and the tech sector also got hit with the NDX down 0.8% also.

Volatility continues to rise, but the SKEw remains low. Further downside this weak maybe limited, but January could get nasty as this final week of the year is a good barometer for the rest of January.



I had to move the SPX Dec28 put spread at 2260/2255 out to Friday for a debit of $2.00. Everything else is ok, and it would be ideal if the market treads water at these levels for the rest of this week.

This has been a difficult month to trade with volatility so low and the market refusing to retreat. January should be much better and I will look to increase bear call spreads on any bullishness this week.

Lackluster bull...

The market opened strong today, but all of the gains came in the first half hour. After that the major averages worked their way lower for the rest of the session. The NDX finished with a gain of .52% while the SPX rallied .22%. The indexes closed on their lows. 

The SKEW is still marking mid-range and the P/C ratios still dwindle in the bottom of the range. Until these numbers pick up, a sell-off is unlikely. 

Volatility did move up today. This is yet to be meaningful, but potentially a bottom in the volatility has been achieved. 



The last few days of December - except for Dec 30 - and the first two days of trading in January are generally the most consistently bullish of the year.

I added a small put spread expiring tomorrow on the SPX at 2260/2255 for 40 cents.

I also added a small put spread for Friday at 2245/2235 for 70 cents. These will help offset the cost of moving the 2260/2270 call spread that I have expiring Friday. I tried to move that up and out to January at 2315, while widening the strikes to 15-wide for a large credit. So far that has not been filled.

Bullish time, but not so bullish

Last week we had a day where the SKEW was above 130, this put a damper on the rally. The VIX is extremely low as with the VXST.

This time of the year is supposed to be very bullish, but signs of weakness are mounting. First, the P/C ratio is now rolling over and moving higher. Market breadth is weakening, also.

The SPX is still very bullish. Until it trades below 2200, the market trend is up.

We are headed into the most bullish part of the year. If the market is not going to rally over the next 5 trading days, January can be a troubled month.

Flat Friday and Monday

So far the market is just going sideways and consolidating recent gains. The NDX is leading the markets bullishness.

This week tends to be flat - leading up to the usual rally after Christmas.

Currently we only have one trade on - SPX 2060/2070 call spread that expires on Dec30. I will need to move this out or close this week most likely.

Intraday reversal on NDX

Today, everything started good, but ended not so well. The markets tried to push higher, but ended off their highs. The NDX retreated to its opening level.

The SKEW almost hit 130, market breadth was mixed and the P/C ratio fell further. Volatility fell and will likely fall by days end tomorrow even further as its Quadruple witching Friday.

With the SKEW up, it hard to sell premium on the call side. I will be looking for any strong up days to sell premium on the NDX particularly, and may even engage in some long put spreads if the market shows signs of deterioration.

NDX holds up best, RUT getting hit

Again the RUT was weakest today. The index currently sits right on its five-day moving average. This index needs to lead higher if this rally will continue. Usually, the RUT leads in the second half of December, but with this year's huge rally in November and December it will take a lot of optimism to propel it further.

Today's FOMC meeting was initially met mildly, but Yellen's post meeting news conference that focused on low growth and high interest rates sent the market lower. The market internals showed signs of the weakness with market breadth negative and the number of stocks above their 20 day moving average falling substantially.

The SKEW jumped back to 125 - a moderate reading still. VIX and VXST both rose also, but not substantially.

As this is options expiration week, it should be bullish. So far, it has not been, so the next two days could save this week from negativity.

Finally NDX leads, breaks out.

The NDX took the lead today, roaring out of the gate, but all gains made after the first 30 mins were given back by the day's end. It still ended up 1.26%. The RUT was down and the SPX split the difference with a 0.83% gain.

The SKEW again fell to 119 today, while volatility rose. Everything is overbought but still bullish. In fact, bullish signals have triggered for AAPL and FB recently. Gains in these stocks helped the NDX and SPX make gains today.

Tomorrow's FOMC meeting is tomorrow. Volatility could fall dramatically after that event.

RUT continues to lead, NDX lags

Its more of the same story really. The RUT was up nearly 2% again today. We have an extremely bullish market with most indexes (not NDX though) making new highs. The RSI lines are climbing for all the indexes, even though most are in extreme overbought territory.

Strangely, volatility is rising and SKEW is falling - now down to 119! This could mean that everyone is buying out of the money calls thereby increasing volatility. At least, that is what it looks like to me.

Next week's option's expiration week is historically the most bullish options expiration week of the year. After that, the RUT goes into the most bullish time of the year! How can we get any more bullish???

I am trying to reach for selling some way out of the money premium on the NDX but today I could not get filled.

I wait for any signs the market may halt its endless roar upwards, because a responsible person does not sell put premium at these levels. It may take some time for the market to actually start trading sideways....

Markets build on strength, Volatility up!

Today, the market wobbled for the first half hour of trade and then launched higher - never looking back. All main indexes except the NDX made new highs. Volume increased on the exchanges and market breadth was positive. All this is very bullish - so much so to produce the biggest rally day since the day after the US election.

This type of strong action put many of my colleagues trading verticals in a very tough situation, as the call spreads originally placed above recent highs are now threatened.

I traded out of the RUT call spreads early this morning at a profit, closing them for a debit of $2.90. This provided us a profit of 75 cents for a two day trade. The Dec30 SPX calls at 2860/2870 are the only trade left in the portfolio. I need to take them off when we finally get a some pullback.

Our objective is to put on some put spreads this month, but we need some pullback from this overbought situation. Some interesting items to note that explain how overbought parts of the market have become. In yesterday's blog, we highlighted the RSI reading on the RUT. A similar situation now exists with the SPX. Additionally, today's the SPX will close outside of the two standard deviation Bollinger Band. This is a rare event. In the last year, it happened (maybe - just barely!) once before. Also this is the third time this year that the RSI on the SPX is in an extreme overbought area.

Another rare event occurred today with the VIX. As the SPX rose, so did the VIX. Increases in volatility occur right after the SKEW goes above 130. Today was a good example of this phenomenon. The VXST rose more than 8% today actually. 

Moving up!

A huge increase in the US deficit was reported this morning which put a dent in the bullishness for most of the day. The RUT didn't care much and reached a new high today, however! The NDX was the weakest, but still up.

I thought about putting a RUT bear call spread on today, but refrained and will likely do it tomorrow on any early follow thru strength. The RUT registered a bearish cluster on the MarketForecast indicator, which usually means that the uptrend will slow for a bit. Its RSI is also in the overbought area, for a second time.

Looking back over the last 5 years on the RUT, the RSI overbought has led to downside in the RUT index many times - see graphs below.

 

But, there was one more complex move that did not work as expected. Back in 2012, after a 10% loss over two months, the RUT bolted higher and kept going as the RSI actually left the overbought area. It wasn't until the RSI entered the overbought area a couple more times, did the pullback finally come. I am cautious during this generally bullish period, as we may see similar action again. 

The SKEW rose above 130 today - a mark it has not seen in a long time. This can be a predictor of more volatility in the days ahead. Short term volatility is below 11 again.

December looks to be an interesting month. It will be a difficult to follow-thru to the upside after such an amazing November. It will be equally difficult to start an sort of a meaningful downtrend. This looks like a good time for Iron Condors.

Back to bullish

Today's first post Italian referendum trading day turned into a bullish celebration for the Euro! Go figure.... The Dow closed at an all-time high. Seasonally, today is generally a very bullish day. Accounting for that, on Friday, I took off the Dec09 RUT 1345/1355 call spread for a debit of $1.15 affording us about 50% of the total profit.

Put/Call ratios are falling and the total Put/Call ratio fell below 0.90 again recently, so market are again bullish in terms of sentiment. Volatility fell today, but the SKEW did not move much. The RUT bounced back the most today, and the NDX was up 0.87% also. The NDX looks the weakest of all the indexes, as it never made a new high and has strong resistance around 4900.

Seasonally, the next two trading days are weak, after today's bullish day, so I put on a 20 point wide Dec16 NDX 4865/4885 call spread for $3.65. My plan is to cut this off after a couple days of weakness.

November Monthly Market Review

November saw very strong US equity markets, weakening in non-US and Emerging market equities, strength in natural resource stocks and commodities, a rout in the world’s bond markets and a strengthening dollar.

All US equity markets started off weak in November, then changed direction and went up viciously until the last few days of the month. 

 Developed country equities outside the US did not fare so well in November. They actually saw a mild bump up after the US election, but slid to lower levels soon after.

Emerging markets fell hard both prior to and after then again after the US election bounce.

World real estate markets have suffered on fears of interest rate increases in the US. Since the US election, markets have stabilized somewhat.

Natural Resource companies rose since the election. Steel, copper and other industrial metals and mining stocks did particularly well. Gold and silver lagged on USD strength.

Commodities sold off on higher interest rates and fears of OPEC not coming to an agreement. As expectations of the OPEC came to full the index rebounded and settled only slightly lower for the month.

US bonds swooned after the election as an interest rate hike during the December Fed meeting became an almost certainty. The job reports in the US are on streak better than any time since the 1970s.

US Inflation indexed bonds also fell during November. The chart looks a little bit better, however, as some strong trading ended the month.

Non-US bonds also suffered after the US elections, but have traded flat ever since.

The USD did well versus other currencies in November. Again, the big news is an almost guaranteed interest rate hike in December.

In conclusion, November was great month for US equities – especially certain natural resource companies and interest rate sensitive sectors like financials. There was no participation in the bullishness from non-US developed markets or emerging markets. Bonds and real estate suffered. The USD strengthened significantly. 

Today was supposed to be an up day!

NDX lead again to the down side - losing nearly 1.6%. The NDX never made a new high and the chart looks very dangerously close to falling much, much further. We should get a bounce tomorrow, but that may be it for awhile.

The SPX is riding the rally with only a slight pullback. RUT also has not really broken down.

Again, VXST was higher than VIX throughout the trading day, but closed lower at days end. The SKEW has not registered above 130, but is close at 128.

Last day of November is always weak...

November 30th is usually a weak day for the markets. Today was no different. The RUT and SPX started strong, related most likely to news of the OPEC deal and the fact that they were technically due for a bounce. NDX had not shown recent weakness and got caught up today as it lead everything lower. In the end the NDX landed near 4810, a pretty incredible fall of 1.28% on the day! It now trades below its 50 day moving average after never making a new high as all the other major indexes did.

A couple of indicators really stood out today. First, short-term volatility (VXST) marked higher than VIX almost all day. It closed below it, however, unable to provide a bearish stance for the market. Second, the TRIN was extremely bullish today, trading below 0.5 and as low as 0.37, only to spike up on the last minutes of selling in the market. Such bullishness is impressive - and at some level worrisome for the bulls when it occurs on a down day. Finally, much like the TRIN, the TICK never hit low levels today either only twice marking below -600 during the whole trading day. All this shows that the NYSE stocks were strong while the tech sector got hammered.

Tomorrow being the first of the month, and a bullish month at that, should be a day for a rebound. However, the rebound maybe short-lived as many of the longer term indicators mark a peak in the market.

Today's trading was complicated due to the weakness in the NDX, where most all of my bull put spreads exist. I mentioned Monday that I added some put spreads to butterfly the 4810/4825 calls I have expiring Dec1. In addition to that butterfly, yesterday I added a 4820/4790 NDX Dec1 put spread. I had to close that today for a debit of $6.85 before it got ran over. Luckily so, as the market ended down at 4810 - right at the apex of my butterfly!

I sold some additional NDX 4880/4900 call spreads for a credit of $2.75. By day's end they were worth 55 cents. I also added some put spreads at 4780/4770 expiring Dec1 for 95 cents. They were worth $1.20 by day's end. All in all, it was an eventful day with the NDX, but overall profitable. We will see what tomorrow brings!

I will give a full monthly wrap up as overall the portfolios were off about 2% this month.

Same roles for the indexes

Today, again the RUT was the weakest, and the NDX was the strongest. It seems the roles have turned since this uptrend started. Before it was the RUT leading, and the NDx playing catch-up.

McMillan noticed that there has been some heavy put buying (the SKEW actually rose today to above 128) yesterday and today, and that has pushed the P/C ratio higher nad back on a sell signal. We noticed that the VIX is starting to move higher and the short term measures of volatility are coming close to crossing higher than the longer term VIX. With tomorrow being the last day of the month, I would expect to see some selling. This would set us up for a positive first of the month.

In any case, I moved the Nov30 3120/3130 RUT call spread up and out to the Dec09 1345/1355 calls for a debit of $3.20.

I also added a bull put spread on the NDX for Dec01 at 4810/4790 making a butterfly out of the call spreads we have on at 4810/4825. With this trade, we are actually neutral to bullish on the NDX over the next few days.

RUT leads down

Today, the RUT almost closed below the low of last Wednesday. It led to the downside, while the SPX pulled back below the high of last Wednesday, while the NDX was off only a bit.

The RSI and Double Smoothed Stochastics (DSS) - something I never mentioned before on this blog - have rolled over for both the RUT the SPX. This does not mean the price of these indexes will fall immediately, but it provides a basis to start trading more sideways price action in the future.

The pull back has helped our P&L and at the same time, gave me chance to add another put spread on the NDX. This time I just added a 4820/4790 for $3.10 credit that expires in two days. We still have the 4810/4825 call spread on that we have been rolling. The trade is neutralized now with the current put spread.

As we close out the month in the next two days the market might fit into its usual late November - early December weakness. This should be seen as a buying opportunity and set up for a strong finish into the end of the year.

McMillan's indicators are all on bullish signals, and the total Put/Call ratio has given a price target of nearly 2300 on the SPX. However, VIX has been trending higher, and today the VXST almost closed higher than the VIX. So some more weakness is possible.

Yesterday, Today, and Happy Thanksgiving

The SPX opened strongly yesterday, had an intraday sell-off and then closed at new highs. The RUT was again the most bullish for the last two days, while the NDX actually fell today about 0.4%. With volatility so low (VIX around 12) and the market only moving in one direction (RUT up 14 consecutive trading days!), trading has been difficult. I keep having to put on bull puts as the market moves up to counter the call spreads we have on. I will go through all trades below.

Yesterday, I added a SPX 2195/2190 bull put spread that would have expired today for a credit of $1.90. Early this morning, I bought it back for 90 cents. I used this to protect the 2200/2210 spread that we had on already from November 17 which we sold originally for $1.35. I closed that spread out for 1.45 debit early today also. In addition, I also added a SPX 2260/2270 Dec30 call spread for a $1.40 credit. 

I also entered some trades on the NDX yesterday. I had to add a Friday settling 4810/4780 put spread for $1.10. I need some protection against the losses in the NDX 2810/2825 call spread that we have expiring at the same time. I sold twice the number of puts as I have calls. 

Today, I rolled those 2810/2825 calls to next Friday for a debit of $2.90. I am going to sell more puts against this spread in the next few days. 

As for the market, its bullish - obviously. However, many indicators are stretched to the point of very overbought in the short-term. We will see how this bullish period of the next few days acts. 

Call it a dozen for the RUT, nevermind the others

Today was another (massively) bullish day! I was thinking it would open higher and give back the gains... it actually looked like that was going to happen. But the market marched higher and really never looked back. The SPX closed at an all-time high and above 2190 where the max gain on our 2180/2190 call spread was achieved. However, I got out as the market opened higher at only a credit of 7.25 (still doubling our money).

The RUT marked its 12th consecutive higher close. After hours, the markets are up again strongly. This creates lots of stress on our remaining bear call spreads, which we have on all the indexes.

One precarious item today was the VXST move. It actually bolted 13% higher, while all other volatility indexes fell. This may give us an opportunity to make some adjustments and add some bull put spreads tomorrow if we can get an intraday pullback.

The real question is when will the RUT register a down day?

Market gets a little soft

Finally, the market weakened today, but only after a higher open. We are bullish the SPX with our bull call spread at 2180/2190. At the same time, we are bearish the NDX and RUT with our bear call spreads.

In all, we are just managing winners, so anytime these trades can make us money, we will close them.

I added a NDX bull put spread at 4760/4750 on friday around mid-day. This spread will expire on Nov25. It will be interesting to see if we have to adjust it this week, if weakness come into the NDX in a bigger way than expected.

All indicators are bullish so any weakness will be met with more put selling.

Options expiration week - bullish!

Again today the market was bullish, led once more by the tech stocks. NDX almost closed up 1% again. The RUT and the SPX were up about half a percent each. Monthly options expired today, so we have two sets of bull puts on the NDX expiring worthless on tomorrow's open.

The VIX fell, SKEW was flat, and the Put/Call ratios are falling. Everything is bullish, except the SPX chart has not yet made a new high. Its previous high is about 7 points from where it stands now, so we may get the new high tomorrow.

I had to roll our NDX 4810/4820 expiring today to Nov23 for $2.40 credit. Most likely the market will pullback at the beginning of next.

Also, I add to our small bear call on the RUT by adding one further out of the money. Now we have the original one expiring on Nov30 at 1310/1320 and another I added today at 1335/1345 expiring Dec02 for $2,65. The RUT is up now 10 days in a row, any slow down will be welcome and will drop the price of these options.

Finally, we have an SPX bull call spread at 2180/2190 that we purchased for $3.60 a while back. It's worth almost $6.00 now. It expires on Nov21, so I put a 2200/2210 bear call spread expiring Nov23 on for $1.35 to give a little more premium to the trade if the market stalls out at these levels.

All in all, the market grinds higher. With one directional moves like we have seen since the Trump election, its hard to find moments to trade both sides of the market. I expect the extreme bullish move to be finished this week, and more two-way action to start soon.

NDX catching up, RUT also up

Nine days of consecutive gains for the RUT - NINE! Today it rose a mere 0.06 points, but still it was up. The big winner today was the NDX however, while the SPX fell abit. It seems that investors are rotating back into technology with XLK (the main technology ETF) rising nearly 1%.

We should have a slight pullback in the indexes tomorrow. At least, it seems timely. Short-term volatility fell drastically today, and actually is now back at the lowest levels we have seen in the last 6 months. VIX still has plenty of room to fall further, though.

I also notice that the number of stocks trading above their 50-day moving averages is stabilizing, like happens when market internals reach an extended bullish level. This does not mean the market is going to fall wildly, but rather further gains will be muted. 

As the NDX continued its uptrend today, I sold an additional put spread to expire tomorrow at the very low level of 4690/4670 (20-wide) for 60 cents. This is just really free money right now, as the NDX has to fall about 2.5% tomorrow for this spread to be in danger. I am hoping the NDX does not go higher tomorrow, as we have the call spread on at 4810/4820 also. 

NDX leads, but RUT does not fall

Today was a generally bullish day, with the NDX up 1.3% and closing just off its highs. The RUT landed its 8th up day in a row, with a small hanging man candle pattern. I suspect this could lead to at least a short-term halt of the massive bullish move in this index. Also both lines on the stochastics are at their max value - a rare moment - and the RSI line has extended into the overbought zone. With this in mind, I placed a bear call spread on the RUT (details below).

The SPX moved to 2180 today, mostly after trading sideways in the morning. It closed at its highs. All this is bullish after three days of sideways action.

I mentioned before that the P/C ratios were a bit stubborn in changing to a more bullish stance. Well, today that changed. All are in line with new bullishness. the SKEW fell below 120 today, which again is more bullish. VXST is below 11. This has been an area from which it usually rallies, but it can also just float around at these levels while the market drifts higher.

I had to add a few trades today as the market is coming into a favorable range for our previous trades. We have sold various put spreads over the last few days, and those are all just about worthless now (creating maximum gains). Also, I removed the large sized bear call spread on the SPX on Friday, so we could take advantage of this bullishness.

With the RUT up 8 days in a row, I figured its time to put a bear call spread on it for a few days. I sold the 1320/1330 call spread expiring Nov30 for $3.15.

I still have the NDX 4720/4710 put spread on that expires Nov17. With the big move in the NDX today, that spread is now worth about $1.70 - down from the $2.80 at the time it was rolled. This spread brought in a total of $2.12 over two additional roles, so I really would like to close it this week. To counter any potential weakness in the NDX, I sold a 4810/4825 call spread expiring also on Nov17 for a credit of $2.50.

So, in summary, I added RUT and NDX bear call spreads to the portfolio.

RUT killing it...

The RUT registered its 7th day up, while the USD jumped 1% against a mixed basket of currencies. The NDX continues to remain under pressure. The SPX is flat for a third-day. Financials are leading the market higher based on interest rate increases being priced in.

The SKEW remains low, providing support for the bulls. Volatility rose in the later dated months, but VXST fell.

The NDX put spread we have on at 4720/4710 is under a water, so we may need to move that out again tomorrow.  Meanwhile, I traded another SPX put spread expiring Nov21 at 2100/2090 for 65 cents. Our put spread expiring on Nov16 is already only worth 16 cents, so I needed to replace it.

This market is very bifurcated still, and when things start to even out, the market should be able to move higher.

Almost all clear for the bulls

After the big bullish move at the beginning of the week, the market has nicely consolidated its gains. The NDX and DOW closed with gains on Friday, while the SPX was only slightly down. The RUT is the real headliner almost hitting an all-time high on a weekly-closing basis.

Volatility fell and so did the SKEW - down to 121. These are more inline with a bullish market. The last standing pillar of negativity remains in the Put/Call ratios. However, that is changing quickly and they are rolling over to buy signals.

With all that happening, I was looking for some we morning weakness to close out the big bearish credit spread I put on Monday. Friday there was weakness for a few hours in the morning, so I bought back the Dec2 SPX 2200/2210 call spread for $1.70 - calling it a break even. Now I am less worried if the market continues to rise. In fact, I expect that we have another 10-15 trading days before we would really see weakness. Any short-term sell offs are chances to add put spreads.

With that in mind, I added another put spread on the weakness in the AM also, as we had one expire for max gain Friday. This time I sold the 2110/2100 SPX put spread that expires on Nov16 for 75 cents.

Bifurication

Today we saw a massive sell off in the tech-weighted NASDAQ , with the NDX down over 2% at one point. It closed down about 1.6% while the DOW registered an all time high, the RUT was up again (+1.5%), and the SPX rose! Investors seem to be re-positioning portfolios after the Trump victory. Defense companies and certain commodities are really moving higher. Someone tweeted that the Relative Strength Index on copper hit 99 today - the highest in 36 years. Meanwhile, technology is suffering as M&A deals (like AT&T/Time Warner) may get more scrutiny under Trump.

VXST finally closed below the VIX today, and was the only vol index down on the day. VIX can fall much further from here after its VIX spike buy signal. We may have a slow down in the uptrend on the SPX, but the market looks like it will go higher.

Put/Call Ratios have been high recently, as has the SKEW. When they fall, more bullishness in the stock indexes will follow. The RUT has been the most bullish and that is a good sign.

Some option traders are throwing on bear call spreads at this point, but I am not following that yet. I have the one 2210/2220 Dec2 SPX call spread on, and I may have to roll it over to a bull put spread if the market looks to go higher.

Meanwhile, I moved the NDX 4720/4710 put spread set to expire today out to Nov17 for an additional credit of 40 cents. I also added a put spread at 2155/2145 Nov14 SPX for 75 cents today. These are both rather small positions to hedge the one big call spread I mentioned above.

Still reaching for puts...

The SKEW still remains elevated. And VXST is still above VIX. Strange for such a bullish couple of days! Everything else seems rather bullish.

Today was a rodeo ride if you take into account the overnight market from the election. I don't need to rehash it here, but it was wild...

I closed the SPX 2060/2050 put spread expiring today for 30 cents (sold originally for 80 cents) in the first moments of trade this morning. I didn't want to take any risk after last night's follies.

I also sold a normal size position on the SPX Dec2 2200/2210 calls for $1.70. And because the market is very strong, I bought a 2180/2190 call spread for $3.20 that expires on Nov21.

I still have the small call spread at 2155/2165 that expires Nov30 - I moved this out Monday for 20 cents.

We still have the NDX 4720/4710 and the SPX 2100/2090 put spreads to expire this week, also.

With all these positions, we should be able to play just about any movement for some profit. We just need a bit of back and forth action.

SKEW still high...

Markets had a good day again today, and with mostly bull puts spreads left in the portfolio, so did our P&L.

Yesterdays trades were just small amounts to help offset the rally through the 2115/2125 call spread that expired yesterday. First, I sold a SPX 2115/2105 put spread for $1.90. Then I added an overlapping trade with the SPX 2125/2115 puts for another $1.20. Soon after, the market started pulling back, so I closed the now 2125/2105 for $1.60 debit - netting $1.50 out of the trades.

I let the call spread expire fully in the money.

Today, the market went up and tested the 2145 area, but fell back to 2140 at the close. We have a normal size bull put spread on at 2060/2050 which will expire tomorrow. With Trump ahead in the polls this could be a trade that needs some adjust at the open.

Too much of a good thing...

Today, the SPX had its best day since last March. It totally blew through my 2115/2125 call spread. I put on some small trades to defend it (I will detail them tomorrow in full), but the damage was severe enough to make the day only a breakeven! All this on my Birthday!!!

The market is still in a strange state - mainly because of the election, I suppose - the SKEW actually increased to 134 today, and although VIX fell more than 3 points, the term structure remains bearish.

I will wait to post-election to add any more trades, unless I need to defend the ones that expire this week.

Nine days down.... Monday marks the end!

Friday the SPX did a head fake again, but this time it was meaningful. The market ended up providing a nice bottoming candle... a gravestone doji. In addition, the MarketForecast for both the SPX and the NDX remain with a strong bullish cluster. Everything is in order for a bullish Monday. It should be easy after 9 down days and a VIX hitting 23 intraday. Futures support this now, with the E-minis up about 1.35% currently.

Less than 25% of stocks are currently above their 20-day moving average. This has been the case for the last 3 days without going lower. It looks like a bottom is very close here.

The VIX needs to close below 20 before we can get bullish. I also want to see the SKEW come in very low - below 115. 

On Friday, I rolled out the SPX 2100/2090 that was expiring Nov7 out to Nov11 for 20 cents. I also added a small SPX 2115/2125 exprining Nov7 for $1.25. The market can jump 1.5% tomorrow and that still would not lose money. We need to monitor how big the rebound will be. 

If the VIX does fall, and VXST closes lower than VIX, then we will get more bullish. With the election looming, it will be tough to get a huge jump unless the market feels the election is already decided in favor of Clinton. 

More of the same

Another sell off 'slow motion style', with an increasing VIX (upto 22.57 intraday). This is beginning to look like Christmas soon!

The big issue today was the SKEW hit 141.18! That is a huge jump showing every was reaching for out-of-the-money put options. This could signal an intense move in the near future, usually to the negative side. At least real blood shed may trigger a turn around.

I sold more call spreads.

First, about two hours into the trading day, I sold the SPX 2150/2160 call spread expiring Nov9 for $2.15.

Then, I shorted a small position on the NDX expiring today with a 4730/4750 call spread for $1.30 around about 2 hours before the close.

At about the same time, I sold the Nov4 SPX 2110/2120 for $1.20. I needed this to cover the 70 cent cost of rolling the Nov4 2100/2190 put spread to next Monday (Nov7), which I did at about the low of the day. I may need to roll this one again.

Now, everything we look at is getting ready to get bullish. Its just a matter of when!

The MarketForecast finally is buried in a bullish cluster on both the SPX and the NDX, and again on the RUT.

Put/call ratios are at extreme levels both short term and according to a longer term moving average. They can stay that way, but when the fall, it will mark the beginning of a trend we can trade.

With an inverted volatility term structure, and VIX spiking, we just wait for the VIX to fall to 19.57 and the term structure to straighten out, before we can get bullish.

I have time to wait for this on the NDX 4720/4710 put spread  (now in the money), as it expires on November 10th. I am not so lucky with the 2130 /2120 (mini-sized - thank you!) that expires tomorrow. I am tempted to roll that UP and out, for less of a debit, so that when the market does spring back, I can recapture most of the $10 wide spread. I will see tomorrow.

In the meantime, I will continue to collect premium on the call spreads until this market is ready to get over its long slow bearish spell.

Continued negativity for the markets

We are now below support at 2100 on the SPX. After hours, the futures are down even more substantially, trading 0.35% down from the close right now.

Today, I moved the SPX 2100/2090 put spread out until Friday, and got an extra credit of $2.30.

Looks like we will have to keep rolling things out, and putting on call spreads until this market rallies back. This could take a few more days, but the markets are already oversold on a number of measures.

First the short term volatility is very far above the longer term measures, which usually does not last long.

Second, the number of stocks below their 20 day moving averages is already at extreme levels. Usually, the rebound from these levels is sharp and quick.

However, until we see signs of a full rampant sell off and reversal, downside is possible. With 7 days of negativity already behind the market, a rebound could be very soon.

VIX Spikes and market sits on support

What happened today was not supposed to happen. We had all the signals for a bounce, yet we got a nasty breakdown. Now the SPX sits right on support after creating a long tail below it. MarketForecast rose out of the lower reversal zone, and the Stochastics seem to be starting to curl up. Will we get a rally tomorrow, now after six days of being down?

Without any doubt this time, VIX spiked today. It was up 3 points intraday at one point, but it fell from its highs by the days end. If the VIX closes below 17.43, we will have a VIX buy signal on the SPX.

The NDX fell today by 0.75% - but it also was down much further with less than 1 hour to trade. Our NDX puts are still about 1% lower than current prices.

Both the SPX and the NDX came close to touching their 4 standard deviation 20 period Bollinger Bands today. There is not much room to the downside before those get hit.

I added some call spreads on in the morning mainly to make Iron Condors our of our bull put spreads. The first was a SPX Nov4 2130/2140 for $2.85. This makes a butterfly with the 2130/2120 put spreads due to expire the same day. The second was a SPX Nov2 2125/2135 for $1.80 to complement the 2100/2090 put spread expiring tomorrow. Finally, I added a NDX Nov3 4820/4830 bear call spread for a credit of $2.00.

At the same time I moved the NDX Nov3 4720/4710 put spread out to Nov10 for a credit of $0.50. I want to take this off  before the election of course.

All in all, it was a stressful bad day for our trades as we were all in put spreads as we started the day. Everything now depends on if we can hold support and get a bounce in the next couple days. After all, this is supposed to be a bullish period!

Fear in the undercurrents

From an open-to-close basis, markets are doing nothing. Today was no different on the surface, yet a look at VIX and you see fear is ramping up. VXST is above 20, and VIX is nearly in spiking mode - although it just missed a true spike signal today. 

Market breadth is awful and the market closesd slightly down for its 5th down day. On top of a long losing streak, reasons for being bullish abound. First, tomorrow is the 1st of November - historically an up day on the market. Also, there was a a huge spike in put buying on Friday. McMillan and others noted it as a usually short-term buy signal for the SPX. So far that has not played out. 

Our bear call spread closed (way) out of the money today. That has left us with no bear calls to defend our put spreads. I am OK with that going into tomorrow, and will aim to put them on if the market does spike higher during the day. 

I moved the SPX Oct31 2130/2120 put spread out to Nov4 for an additional credit of 90 cents! So, we have an opportunity to make some more money as we continue to simply roll this out. 

To get more bullish, I added a small SPX Nov2 2100/2190 put spread for $1.05 credit and a small NDX Nov3 4720/4710 put spread for $1.22 credit. 

I view these as relatively low risk, high probability trades as the Market Forecast is set up for upside potential in the short-term . If the market doesn't cooperate, at least downside should be limited. 

 

The FBI steps in

The FBI ruined a great rally. More importantly, the VXST is now trading higher than the VIX signalling more downside is likely unless we get a quick reversal of volatility.

Luckily, we had the extra 2150/2160 SPX call spread expire worthless on Friday. We have another expiring tomorrow.

However, now our 2130/2120 expiring tomorrow is in the money, and if we don't get a bounce early tomorrow, I need to move it out. I will have to add some call spreads close to the money also.

Generally, the week before the elections is bullish. It looked like everything was going well on Friday to start that process off, but we have huge political risk with the FBI investigations now.

I need to be very aggressive in protecting our positions if this turns into a large sell off.

Back to the head fake

Today seemed a lot like Tuesday. A nice powerful open (the SPX actually hit 2147 in the first few minutes) only to be sold as it left the gates. Then a 4 hour come back only to be sold in to the close. The market cannot get a footing right now, but the sell offs are wimpy.

The real news started after the close. It seems AMZN botched something and lost 6% in the after hours market. This shut down a nice 4% immediate jump in GOOG which ended up about 2% anyway. We have XOM reporting tomorrow before the open. Everyone will see how big oil is handling sub-$50 oil prices.  

VIX keeps climbing and now its above 15, but VXST is still lower and the terms structure still marks bullish for the market. SKEW fell a bit. $TRIN was bullish - hitting lows around 0.5 today! But nothing matters... The SPX is just in a range. In fact it is creating a small ascending triangle that could last a while longer and bring the market lower a bit. I have mentioned previously, lots of commentators are saying the market is sideways until the US election is resolved. In fact, historically that is what generally occurs. Research says that following the election the market moves 5% on average in the next 30 days. That would be a big move and warrant a position with long puts or calls. 

The RUT says this triangle will break lower as the important 1200 level was lost today after putting in a textbook double top recently. The whole picture looks pretty awesome for a trade setup, especially if the 1200 was retested and failed in the next few days. The MarketForecast is pointing distinctly at that possibility as it is oversold to the point it made a bullish cluster today! I suspect tomorrow we could see some bullishness. 

Today, I rolled the 2130/2120 SPX put spread that was set to expire tomorrow out to the 31st for another 35 cent credit. 

I also added another 2150/2160 call spread on the SPX for expiration tomorrow, because it was paying a decent credit on the rebound today. I pulled in $1.20 credit while at close it was only worth 30 cents already. This was another small position, but everything helps! 

The Nov9 2060/2050 put spread is taking heat as VIX expands and the market flops lower. It is still far out of the money, so I am not taking action yet. However, I will buy puts if the market is not able to bounce from here and SPX breaks 2110. 

I have a few call spreads lined up for November and December, but I need a tick up to get decent pricing on spreads above the all time highs. 

Mirror Opposite of Yesterday

Today the SPX opened miserably down and almost touched the 2131 level before reaching its high around 2145 within an hour. After that it was a fade and a rebound to close only fractionally down. The RUT floundered and lost almost 1%, and AAPL weighed on the NDX. Still the markets are tightly range bound with the SPX flip-flopping between 2130 and 2150 this week.

I rolled out the 2150/2160 SPX call spread due to expire in two days to next Monday. For an extra trading day of expiration, I was able to get another 80 cents so now the total for that spread is a $5.15 credit.

The important after-hours movers were generally bullish, except for ORLY, so we cannot blame bad news for a soft open tomorrow. No real important companies are reporting before the bell either.

The indicators are indecisive. VIX rose insignificantly, $TRIN ended down around 0.65. SKEW is still only around 123. I dare jinx the whole market and say that this ideal 'going nowhere' could still continue for some time.

Tomorrow, I will try and roll the 2130/2120 put spread and bring in more premium.

SKEW on TastyTrade

TastyTrade reviewed the SKEW on a recent segment of Market Measures. Their view it basically as an 'old school' way of viewing volatility.

The segment is important as they show that selling -0.3 delta SPY puts with 45 days-to-expiration when SKEW is higher (above >125 or  >135) is much more profitable and less risky than selling them all the time.

This conclusion is rather incomplete, in my opinion. Although selling puts when SKEW is high leads to great results, that is largely because after extreme readings (especially above 135) the SKEW often prints at an extremely low level, say below 120, within a few days. Those low prints after an extreme often mark the bottom of the SPX in the short term.

In fact, this reversal in SKEW is similar to the VIX speak that McMillan discusses and trades. Both are confirming indicators to get bullish. For that, in the money puts can be sold profitably with great success.

SPX does a head fake

What started out impressively bullish overnight, got nasty into the open, then nudged itself back to break even, then fell and bounced around to finish near its lows around 2143.

I added a regular size SPX put spread for November 9th at the 2060/2050 level for 85 cents, right at the close. As long as the market stays above 2120, this spread will die quick. However, with the election coming anything could happen.

The $TRIN was up above 1.24 and really piled on the gains in the last hour of trade. As I mentioned yesterday, Visa was weak after its earnings announcement. GM botched its forecast for the future also, and it went down 4.5%. Oil also fell. 9 of the 11 main sector ETFs were negative today, but the damage to the SPX was minimal really.

After hours AAPL said some scary things (I suppose) as it traded lower by about 2.5%. This has put some weight on the futures already, and so tomorrow's opening could be soft.

Volatility traded higher today, but not significantly. The volatility term structure remains bullish. The SKEW traded slightly lower, and is in a good place to trade on both the bearish and bullish side of the market.

We need to watch our little Iron Condor at 2150/2160 X 2130/2120 carefully as it expires on Friday. If the lower end comes under pressure tomorrow, I will move to out or just close it. The bear calls brought in a lot of premium ($4.35), so that is important to collect if we can.

Overnight bulls

The market opened higher after weekend merger news. This pushed the SPX up into the 2150 area, and put our 2150/2160 call spreads expiring Wednesday under pressure. I rolled them at the same strikes to Friday for an additional credit of $0.65. So, we have collected $4.35 in total on this spread.

Later in the day, I sold the same number of 2130/2120 put spread that expires on Friday for a credit of $1.35 to help offset any need to roll the calls further.

The 2190/2200 call spread expiring Friday that we traded in a half size position about a week ago is already nearly worthless, but because we only brought in a 50 cent credit, I will likely hold it through expiration.

As for the main trading indicators, the momentum line on the MarketForecast and the Stochastics are already high up in their ranges, so upside should be limited from here. With Visa down slightly after hours (even though it beat estimates), we should have the SPX under some pressure tomorrow.

Rather interestingly, the $TRIN traded higher today, especially on the open. So underneath the rally, traders were selling. Also, VXST rose today by about 6% from a level that has acted as support for the past month.

Near-term volatility rose today.

More call selling

SPX is not moving. I sold another call spread (very small position) - this time using the 2150/2160 (quite aggressive) on the October 26s. I received a credit of $3.70. I plan to close this out at half of the profit, once we get a pull back.

The market closed slightly lower today and even though most companies are posting decent earnings and guidance, the market is following the price of oil.

Volatility is low and falling. The SKEW is in the middle of nowhere around 123 and the percent of stocks above their 20 day moving average is around 41%. Nothing shows signs of great gains or a rapid correction. It seems like the trading range should continue with near term resistance somewhere around 2150 on the SPX.

Selling calls on the bounce

Today the SPX bounced higher (mostly overnight) and traded sideways until a small fade into the close. After hours news from Intel and Yahoo was not great, but not awful. We can expect more upside in the next few days if earnings come in positive, but to what extent will the rally go?

I traded a half size bear call position in the October 28s, using the 2190/2200 spread for a $0.50 credit. We still need the VIX to trade definitively lower below 15 and the SKEW to print below 120 to get bullish.

Only Sideways

The SPX continues to stay above the 2120 mark on closing basis. The market is slowly rolling over and is in a short-term down trend.

Meanwhile, most stocks trade below their important 20 day moving averages. In fact, so many trade below that level that the market seems to be getting critically oversold in the short term, as seen by the areas marked with pink boxes below.

Volatility indexes are rising in a slow and slight manner. Until the VIX closes below 14.5 this market could sell off hard and fast to mark the bottom of this pullback. 

Trading here is tough unless you want to play condors on the indexes and hope this long sideways action continues. I am waiting until we get the sell off in order to take a more directional trade.

Next week set up

With Monday being the first trading day of the new month, I would expect a bullish bias. I would feel more sure about those expectations had Friday been a down day - or at least flat. It was not.

All indicators are showing lack of direction in the markets by either flipping back and forth between a bullish and bearish bias or meaningless data. Market breadth is generally bullish, except on the big down days when it slips to bearish. The SKEW is middle of the road, showing no conviction to the upside nor fear of the downside.

The number of stocks above their respective 50-day moving average is converging to its middle around 55%. The market has gone sideways when we get stuck here.

MMTW is stuck in the middle of its range

The volatility complex generally has maintained a slight bullish stance all through the recent sell off. The short term VXST has spiked higher than the longer term measures of volatility, but has not been able to hold that bias. At the same time, all volatility indexes are demonstrating an upward trend in their low points. This could be interpreted as a bearish forewarning signal.

Volatility was low and is now trending higher. 

When VIX can break and hold above 15 there would be a larger sense of bearishness that would warrant a more directional position.

Bearishness winning

Today we saw a lot of selling pressure in the morning session again. As in the last two days, the bulls were able to come in the afternoon and push the SPX to close above the lows of the day, but still the market ended down.

The market forecast was is showing that tomorrow could be another down day. As volatility erupted to the upside today again, the SKEW actually fell again. All this is just really a choppy market in the range between 2120 and 2180 on the SPX. This could last awhile actually, even though it seems like the market has been range bound for so long already.

The RUT and the NDX fell more than the SPX, and they look like they could show more weakness before they rebound. 

Bulls in the afternoons

The market is fighting off selling with afternoon bullishness. We have seen that scenario for two days straight. The bullishness comes from the energy sector on news of a OPEC output limit. A lot of the bearishness is coming from news around DB in Europe. With earnings and an Italian constitutional referendum coming in December, we should have an interesting Q4.

Volatility has fallen farther today, while the SKEW rose a bit. None of the indicators are particularly providing a definitive bias to the market. Most are bullish, in general.

Our Sep28'16 SPX bull put spread at 2110/2100 closed way out of the money today. The trade earned 8% in the two days of its lifespan.

I am likely to put some more trades on this week, especially if the SPX comes up to 2180 by Friday. I am waiting for the Put/Call ratios to give a clear bias when this happens.

Pre-Debate Risk Off

Today the SPX fell over 18 points (-0.86%) on lighter volume than Friday. VIX closed up significantly, but still only at 14.5 or so. VXST is again higher than the VIX - a forewarning of more volatility to come. In the other hand, the SKEW actually fell to 121 however.

I sold the Sep28'16 SPX 2110/2100 put spread near the close for 80 cents. This two day trade is placed below the major support level at 2120, and about 3% off Fridays close. The market has to really react negatively to the debate in order to fall that far, as only unimportant economic data is on the cards for release tomorrow. Yellen will speak on Wednesday and that could roil markets a bit.

August update

We are deep into the complacency of the summer after SPX broke out to new highs in July. For the last three days the SKEW has risen, and is now well above 130 as the market continues to make new highs. The short-term volatility indicator (VXST) also buried its head below 9 a few days ago, and has since been rising. These are cautionary tells for the bulls.

That said, most all technical indicators are bullish so the SPX may continue higher - even up to the 2200 level - before we get a wave of selling. At the same time, a short term retest of the 2135 area could occur if selling does pick up.

The second half of August can provide a volatility spike and a nice set up for the rest of the year. Now is the time to watch for the volatility spikes and sharp turns in market sentiment.

Still going!

The market is still bullish even after the Fed giving up on near term rate hikes. No rate hikes are again good news! However, the markets are getting over extended in the short term. The Market Forecast posted a bullish cluster last week and almost again today.

The SKEW has come back down to 125 or so, but volatility actually rose today when the markets climbed higher.

Put/Call ratios are bullish and not signalling an overbought state in the market. Breadth indicators are also bullish.

The bullish end-of-May through begining-of-June period is coming to an end. Lackluster trading through the dog days of summer is likely ahead. If no news is good news, then the market will likely continue to drift higher.

Maxed Out?

A few signs that the market may 'putter out' for a little while (if not reverse into a pullback) are arising. First, the Russell 2000 Index mini-futures have closed higher for 8 consecutive days. This is a rare feat. 

The Tastytrade crew did research on SPX multiple consecutive days trading in the same direction. Although the numbers presented below (taken from that research) are for the SPX, other large indexes like the NDX and RUT are likely to have similar statistics. You can see how rare 8 consecutive up days in a row are.

The SKEW is troublesome also. Yesterday the SKEW closed above 130 and today reached 134. These numbers suggest heavy put buying, and have been used to time increases in VIX rather successfully prior to the 2015 anomaly when SKEW printed high for most of the year.

Also, the number of stocks above their 20 day moving average is getting to that critical 80% level, where usually the market lets the 20 day moving average catch up to the extended stocks by either trading sideways or pulling back.

Finally, the Market Forecast today showed Bearish clusters on the major indexes. This highlights that most everybody is already long over the very short, short and medium term.

Besides these warning signs, the market is bullish and all medium term indicators point to higher prices ahead. 

Friday's Intra-day Reversal

Friday was set up for a rebound, and it happened. A long tailed hammer formed on the indexes, which is usually a sign of bullishness in the days ahead.

Volatility stayed subdued during last week's pullback. The term structure remained positive as the short term volatility measures never marked higher than longer term measures.


The SKEW actually fell during most of last week's pullback, and it never printed above 130.

The Put/Call ratios did roll over to give sell signals on the SPX, but the index never broke below 2040. This was the previous area of resistance from which the market launched its run to 2100. It seems like it is pretty solid support now.

The NDX is the most oversold and the weakest of the major indexes. Mainly this is due to the awful performance of AAPL since its earning announcement. Applying Fibonacci Retracements, the NDX is bouncing off the important 38% level. Also the Market Forecast Indicator just created a bullish cluster (when all 3 lines are below 20) and is starting to bounce up. The Stochastics are also curling up. If the Put/Call ratio was not on a sell signal, I would say this is a short term bottom. It still maybe, but a bit of caution is warranted.

Selling ITM puts on the NDX with an expected move of 100 points in the next week or two should be a decent trade.

Still Bullish

The SPX and RUT have been incredibly bullish, while the NDX and tech related ETFs are really pulling back. I imagine this doesn't bode well for the SPX and RUT, but as of now the market is not showing signs of rolling over. The SKEW is still below 130, and the down days are limited.

I rolled the RUT calls a couple times and last Friday I put on some RUT bull put spreads knowing that today is historically a very bullish day.

I continue to watch the usual indicators for signs of weakness in the market: the SKEW, the Put/Call Ratio, the VIX term structure and, market breadth. As Oil stay strong and signs of oil demand continue, the market should at least trade sideways if not continue up.

Sideways seems like the way this market could trade over the next few months, and I expect this to be a generally easy time to make money on both the bullish and bearish side.

Low Skew at Market Highs?

Friday was the first day I can remember when an extremely low SKEW  (around 113) registered on a market that is in a bullish trend. Low SKEW readings always come when a market is no longer going to fall further after a steep downfall. Today, we got an immediate rally within the first 40 minutes of trade, but after that the markets sold off and closed lower on the day.

Bearishness is creeping up as seen in the uptrend in all measures of volatility. The short term measures of volatility are still below the longer term measures, but the VXST is close to crossing over VIX.


The momentum of the uptrend has been weakening since March 7th, when the percentage of stocks trading above their 20 day moving average hit a very high level of above 90% intraday.

Our RUT trade is still on to the end of this week. The 1110/1120 call spread has been violated, but since has come back down into an area of profitability. A single good down day this week would allow us to close it out at near full profits.  If the market moves up, we will need to roll it out a couple weeks. 

The RUT chart shows that the small caps have not been able to gain significant ground in to the low area of the trading range that existed for nearly two years (the area of the blue box). Recently the RSI (bottom line graph on the chart) hit a very high number that has corresponded in the past with pullbacks to at least the lower Bollinger Band on the price chart currently around 1066, about 3% lower). 

With options expiration next week, and two days of reversals from highs in the mornings to close at the lows of the day, I suggest we can expect more weakness this week.