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Sunday, June 1, 2014

Weekend Portfolio Analysis (June 1, 2014)

If only the Weekend Portfolio Analysis article was able to write itself the day I wanted! I helped a friend move over yesterday and I am total human waste today. But this is not LT's daily trials and tribulations. This is not a novel of my life type of blog. You're here for my weekend portfolio analysis, so here we go.

The SPX Index went from 1902.01 to 1923.57, for a +1.13% gain. We're still in the same uptrend channel that started on November 16, 2012 in spite of the thousands of 10% correction forecasts from gurus all over the world in the last year and a half. Don't pay attention to gurus, be your own guru.

This week was pretty active for me. I entered an SPY 191 Put Calendar spread and closed the 1965/1970 Call side of the June SPX 1710/1715/1965/1970 Iron Condor. You can click on those links to see the rationale behind those two trades.

Market conditions
(Click on Image to enlarge)
Stochastics: 96 (overbought)
McClellan: +75 (neutral)
66% of stocks are trading above their 20 Day Moving Average (neutral)

We're getting close to a short term overbought extreme. But the breadth indicators are showing there's still some upside room. I believe a 1% - 2% push higher is possible before any correction or sideways consolidation period takes place and that would put us around 1940-1950. Will it happen this week? No idea, but the upside room is there. I wouldn't initiate Credit Call spread positions right now. I would wait for an extra push higher.

June Positions
RUT 920/930 Bull Put Spread 99% probability of success and well out of the money.

SPX 1710/1715 Bull Put Spread 99% probability of success with 19 days to go. Pretty safe position at this point.

July Positions
SPX 1735/1740/1975/1980 Iron Condor 72% probability of success and with 47 days to go the Call side will likely need some of my attention. This position is my main focus at the moment.

SPY 191 Put Calendar Spread This positions was initiated 3 days ago, there's not much new to say.

Action plan for the week
I don't care about the existing June Put spreads. In all likelihood they will bring a +2% portfolio growth for the June expiration cycle. Now if the market sky rockets this week. For example if it moves up 25 points, I may still deploy June options. The 1980/1985 Call spread could be offering around 0.50 credit and  I would be willing to take that position with SPX around 1945 in what I consider to be a very overbought market in the short term. If SPX doesn't go up that way, then no activity in the June expiration cycle.

If what I mentioned in the previous paragraph happens (a 25 point rally by SPX this week), the Call side of the SPX 1735/1740/1975/1980 Iron Condor will probably reach a 30% probability of expiring in the money and I will have to adjust that position. Yes, we will be very overbought and due for sideways action or a correction, but with 40 something days to go until expiration, the market will still have time to digest its move, and kill me with a second leg higher after that. So, the adjustment will be in the cards. I would close the 1975/1980 Call spread for a temporary loss and I would get new credit by re-deploying capital with a new July Call spread, but this time above 2000. I may also consider a Credit Put spread in the 1790 area to accumulate additional credit. After defending so many threatened Credit spreads in the past, I don't fear them anymore. By adjusting early my draw-downs will be fairly small. I feel confident in my ability to defend this Iron Condor and that the loss, if any, will be negligible in the end.

If the market sells off this week, I will seriously consider closing the July 1975/1980 Call spread for a small profit, as I now think those numbers are within striking distance for this market come July expiration.

Economic Calendar
Pretty busy week as usual for the first week of any month. I hope we get to see decent action in the markets and a little uptick in volatility.
Monday: US Manufacturing PMI, Chinese HSBC Manufacturing PMI
Tuesday: European CPI
Wednesday: ADP Non-farm employment change. Trade Balance. ISM Non-manufacturing PMI.
Thursday: Initial jobless claims
Friday: Non-farm payrolls, Unemployment change.

Good luck this week folks!

Check out 2014 Track Record

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1 comment:

  1. Good analysis and thinking about your positions. Whether we go higher or lower this week is anyone's guess. I do think we are getting pretty close to a near-term top. Some sideways consolidation or a correction wouldn't surprise me. For that matter, another 2% push upwards would not surprise me either. Markets can do anything at anytime.

    With that said, here are my current positions:

    June IWM 98/96 bull put spreads
    July IWM 95/93 bull put spreads
    July SPX 2000/2005 bear call spreads (I initiated this position last Friday May 30th)