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Friday, December 14, 2018

Weekend Portfolio Analysis (December 14, 2018)

Recent Trading Activity

- No Activity.

Reminder: As explained in the October 13 article, I will stop writing Weekend Portfolio Analyses at the end of 2018. I will keep trading and keeping a track record of the positions as usual.

Market Conditions
(Click on image to enlarge)
Stochastics: 23 (Neutral. Down from 29)
McClellan: -122 (Neutral. Down from -53)
Stocks above their 20 DMA: 18% (Oversold. Down from 23%)

No man's land

Once again technically it is no man's land but the oscillators are now much closer to oversold extreme. 2600 was finally penetrated. Decisively so. After seeing the rejection of those lows on Monday, I thought the rebound would be under way the rest of the week. But, apparently the work on the downside is not finished yet. There's a Fed meeting this week, and it is perhaps the only factor left to give a spark of life to this market. A weaker stance on the plans regarding interest rate increases in 2019 could help the equity markets into year end. It is anyone's guess how low the market can go, but All I care about now is the rest of 2018 and if 2600 is broken again, my opinion is that it probably won't go much lower than that into year end. We are getting just to close to extreme pessimism. So, maybe 2,560 or so would be a good point to stop.

As a long-term investor myself, I have also been accumulating cash to deploy in traditional dividend aristocrats that are starting to become more attractive and may be really interesting in 2019. I think it is going to be a very interesting year.

VIX at 21. So, lower than last week despite the markets being weaker this time. In any case it is an above historical average VIX. For my first February 2019 position, I'm planning a possible RUT Credit Put spread around 1200. RUT has fallen almost 20% from its peak:

The Russell Index:
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Support definitely broken and with that last bar, decent size, closing near the lows, I think we see new lows on Monday, if only on an intra-day basis.

Current Portfolio:
The SPY Calls and SVXY Calls expire in December and January of next year. All bullish bets on a market rebound.

Let's now look at the rest of the positions

Dec RUT 1350/1340 Credit Put spread
Net Credit: $1400. One week to expiration
(Click on image to enlarge)
Defense line: 1375. Profitable despite RUT weakness, just because we are now so close to expiration. RUT needs to go down 2.5% in the week to threaten this position.

Dec SPX/SPY - 2490/2500/2910/2920 - 257/292 Elephant
Net Credit: $1513. One week to expiration.
(Click on image to enlarge)
Defense lines: 2,540 to the downside (adjust Put side). SPX would need to fall about 2.3% to reach the defense line. Curious note: Last week I mentioned the defense line was around 2590. SPX actually went below that. However, a defense was not needed because the due to the passage of the weekend and being so close to expiration the 2500 short Put did not reach 30 deltas, which is the real trigger.

Action Plan for the Week

- I don't want to find myself adjusting two Put spreads the week of expiration. So, I will be taking one of them off, possible the RUT one.

- Other than this, keep an eye on whichever one is left on for possible defense.

- And I will deploy the first Feb 2019 position: RUT Credit Put spread around 1200.

Economic Calendar
The Federal Reserve meeting on Wednesday could be key in somewhat diminishing the overall negative sentiment around US equity markets at the moment. A dovish stance would probably help a little bit in that regard.

Monday: Europe CPI
Tuesday: US Building Permits and Housing Starts.
Wednesday: Existing Home Sales. FOMC Statement and Interest Rate decision.
Thursday: Philly Fed.
Friday: Fed Chair Powell testifies. Core Durable Goods Orders. GDP

Good luck this week folks,

Check out 2018 Track Record

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