The S&P500 went from 1970.01 down to 1906.13 for a 3.24% decline. That's pretty significant and unusual.
RUT was even weaker and went from 1107.36 to 1053.32. A 4.88% loss. So weak that I had to adjust my 1020/1030 October Put spread. In my previous Weekend Portfolio Analysis I said "All three positions look pretty good to me and they shouldn't be a problem in the next few days". Which is right. They were looking good, and unlikely to be in trouble. A 4.88% correction in the span of a week is an unlikely event. Adjusting sucks. But it's part of the game. Perhaps the most crucial one.
Market conditions
The uptrend channel that I had been drawing for so long was definitely broken, no matter how you draw it. SPX looks poised to close below its 200 DMA for the first time since November 16, 2012. It was a remarkable rally that seems to be coming to an end if we measure it against the 200 DMA.
(Click on image to enlarge)
Stochastics: 26 (neutral)
McClellan: -192 (oversold)
15% of stocks are trading above their 20 Day Moving Average (oversold)
Very close to a short-term oversold extreme. With the VIX above 21 selling Puts is attractive here as you can go really far out with your strike prices. You can sell the November SPX 1685/1690 Put spread for 0.30 credit and 90% probability of success, or you can sell the November RUT 920/910 Put spread for 0.65 credit and also 90% probability of success. Both positions with 40 days to expiration should be winners.
As much as I love balancing my risks on both sides of the market, right now I just can't sell Call spreads, as some sort of rebound is bound to take place.
There is a bullish divergence between the oscillators and price action, which I signaled in yellow. Price is making lower lows while oscillators are making higher lows. Nothing works 100% of the time in the markets, but divergences are generally effective in the short term.
October positions
RUT 1230/1240 Bear Call Spread
Expires in 6 days. This one's going to be a winner.
November positions
RUT 970/980 Credit Put Spread
Went from 94% probability of success last week to just 80% right now. 40 days to expiration. I may need to adjust it in the future. Right now this is my most concerning position.
SPX 1755/1760 Credit Put Spread
86% probability of success, 6 weeks to expiration. Still looking good.
RUT 910/920 Credit Put Spread
This is the new position entered yesterday, so obviously there's nothing new to say about it.
Action plan for the week
I'm not a big fan of having 3 Credit Put spreads on at the same time. So, getting rid of one of them is my top priority.
If RUT rebounds this week and I can close the RUT 970/980 Credit Put Spread as a break even trade I won't hesitate.
If we go sideways this week I'll do nothing.
If we keep going down, I'll probably have to adjust the RUT 970/980 Credit Put Spread once RUT hits 1030 or so. As for SPX, if the index falls down to the 1850's I'll have to adjust my SPX 1755/1760 Credit Put Spread. Those adjustment points look far from my positions, and many credit spread traders would wait more before making adjustments. I'm just doing it based on probabilities. It is true that those points are not touching nor near touching my spreads, but with 40 days to expiration they would be around the 30% probability of being in the money, and that's my trigger. It allows me to minimize the size of the losing positions.
Forex
The EURUSD downtrend that the LT Trend Sniper System had been riding since July 17 finally came to an end on Wednesday when the EURUSD currency pair made an 8 day closing high at 1.27329.
To sum up, the entry was on July 17 at 1.3524. Exit on October 8 at 1.27349 (2 pips above what the chart shows, as you have to buy the Ask). A 789.1 pip gain after riding a trend for 84 days. The kind of patience most Forex retail traders unfortunately don't have. The stop loss had been set 83.2 pips away and the position size was calculated so that 3% of the portfolio was at risk. The profit in the end was almost 9.5 times the original risk, and the trade brought a +28.5% portfolio growth. The portfolio is now up 25.30% year to date as there had been some earlier losses in the year.
The system will enter a new short position any day this week if EURUSD closes below 1.2514.
Long term Investing
I was pretty active this week as the Canadian TSX index kept tumbling. I purchased shares of Potash Corp of Saskatchewan and Finning International on Monday. I also bought 40 additional shares of Crescent Point Energy at $37.50 on Wednesday but didn't find the time to blog about it. This is the third time I buy shares on CPG. The first time was on September 4 this year, then a few more on September 24. I now own 114 shares at an average cost of $39.91. CPG is currently paying 7.50% per year in dividends.
With this purchase on CPG.TO, my projected yearly dividend income is now 1586.78 Canadian dollars plus 409.28 US dollars.
Economic Calendar
Saturday: European Central Bank president Mario Draghi speaks.
Sunday: Chinese Trade Balance
Tuesday: German ZEW Economic sentiment. Chinese CPI and PPI.
Wednesday: US Retail and Core Retails Sales. Federal Budget Balance. NY Empire State Manufacturing Index. Business Inventories.
Thursday: European CPI. US Philly Fed Manufacturing Index, Industrial Production, Initial Jobless claims.
Friday: US Building Permits, Housing Starts, Michigan Consumer Sentiment.
Good luck this week folks!
Check out 2014 Track Record
RUT was even weaker and went from 1107.36 to 1053.32. A 4.88% loss. So weak that I had to adjust my 1020/1030 October Put spread. In my previous Weekend Portfolio Analysis I said "All three positions look pretty good to me and they shouldn't be a problem in the next few days". Which is right. They were looking good, and unlikely to be in trouble. A 4.88% correction in the span of a week is an unlikely event. Adjusting sucks. But it's part of the game. Perhaps the most crucial one.
Market conditions
The uptrend channel that I had been drawing for so long was definitely broken, no matter how you draw it. SPX looks poised to close below its 200 DMA for the first time since November 16, 2012. It was a remarkable rally that seems to be coming to an end if we measure it against the 200 DMA.
(Click on image to enlarge)
McClellan: -192 (oversold)
15% of stocks are trading above their 20 Day Moving Average (oversold)
Very close to a short-term oversold extreme. With the VIX above 21 selling Puts is attractive here as you can go really far out with your strike prices. You can sell the November SPX 1685/1690 Put spread for 0.30 credit and 90% probability of success, or you can sell the November RUT 920/910 Put spread for 0.65 credit and also 90% probability of success. Both positions with 40 days to expiration should be winners.
As much as I love balancing my risks on both sides of the market, right now I just can't sell Call spreads, as some sort of rebound is bound to take place.
There is a bullish divergence between the oscillators and price action, which I signaled in yellow. Price is making lower lows while oscillators are making higher lows. Nothing works 100% of the time in the markets, but divergences are generally effective in the short term.
October positions
RUT 1230/1240 Bear Call Spread
Expires in 6 days. This one's going to be a winner.
November positions
RUT 970/980 Credit Put Spread
Went from 94% probability of success last week to just 80% right now. 40 days to expiration. I may need to adjust it in the future. Right now this is my most concerning position.
SPX 1755/1760 Credit Put Spread
86% probability of success, 6 weeks to expiration. Still looking good.
RUT 910/920 Credit Put Spread
This is the new position entered yesterday, so obviously there's nothing new to say about it.
Action plan for the week
I'm not a big fan of having 3 Credit Put spreads on at the same time. So, getting rid of one of them is my top priority.
If RUT rebounds this week and I can close the RUT 970/980 Credit Put Spread as a break even trade I won't hesitate.
If we go sideways this week I'll do nothing.
If we keep going down, I'll probably have to adjust the RUT 970/980 Credit Put Spread once RUT hits 1030 or so. As for SPX, if the index falls down to the 1850's I'll have to adjust my SPX 1755/1760 Credit Put Spread. Those adjustment points look far from my positions, and many credit spread traders would wait more before making adjustments. I'm just doing it based on probabilities. It is true that those points are not touching nor near touching my spreads, but with 40 days to expiration they would be around the 30% probability of being in the money, and that's my trigger. It allows me to minimize the size of the losing positions.
Forex
The EURUSD downtrend that the LT Trend Sniper System had been riding since July 17 finally came to an end on Wednesday when the EURUSD currency pair made an 8 day closing high at 1.27329.
To sum up, the entry was on July 17 at 1.3524. Exit on October 8 at 1.27349 (2 pips above what the chart shows, as you have to buy the Ask). A 789.1 pip gain after riding a trend for 84 days. The kind of patience most Forex retail traders unfortunately don't have. The stop loss had been set 83.2 pips away and the position size was calculated so that 3% of the portfolio was at risk. The profit in the end was almost 9.5 times the original risk, and the trade brought a +28.5% portfolio growth. The portfolio is now up 25.30% year to date as there had been some earlier losses in the year.
The system will enter a new short position any day this week if EURUSD closes below 1.2514.
Long term Investing
I was pretty active this week as the Canadian TSX index kept tumbling. I purchased shares of Potash Corp of Saskatchewan and Finning International on Monday. I also bought 40 additional shares of Crescent Point Energy at $37.50 on Wednesday but didn't find the time to blog about it. This is the third time I buy shares on CPG. The first time was on September 4 this year, then a few more on September 24. I now own 114 shares at an average cost of $39.91. CPG is currently paying 7.50% per year in dividends.
With this purchase on CPG.TO, my projected yearly dividend income is now 1586.78 Canadian dollars plus 409.28 US dollars.
Economic Calendar
Saturday: European Central Bank president Mario Draghi speaks.
Sunday: Chinese Trade Balance
Tuesday: German ZEW Economic sentiment. Chinese CPI and PPI.
Wednesday: US Retail and Core Retails Sales. Federal Budget Balance. NY Empire State Manufacturing Index. Business Inventories.
Thursday: European CPI. US Philly Fed Manufacturing Index, Industrial Production, Initial Jobless claims.
Friday: US Building Permits, Housing Starts, Michigan Consumer Sentiment.
Good luck this week folks!
Check out 2014 Track Record
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