— The God of Trading (@TheGodOfTrading) April 28, 2020
As market sold off it gaped-up gains Tuesday, the NYMO and NYSI did not turn down.
Today showed why traders always want to be on the same side as those two breadth indicators.
It’s been a great bounce and so far there’s not sign it’s done, except we’re running into a holiday in a bear market. I haven’t studied those occurrences but I would not be surprised if there’s a stall tomorrow.
No telling what more three days of news can bring during a world-wide pandemic.
Anyway, some highlights in this spectacular bounce suggested to start on on the open of March 23rd in this post: Reading history on the #MarginDebt chart. Since then UPRO, the SPX leveraged ETF, is up a whopping 60%, TQQQ is up 52%, TNA 45%; among the leveraged sector ETF’s I follow, ERX is up 82% and SOXL 74%.
So spectacular in fact that going into the weekend traders might want to move up to the edge of their seats to insure nothing goes wrong with the profits grabbed in this fierce bear-market rally. Investors can go on praying there’s more to come after the harrow plunge they’ve just seen. I hear a lot of happiness among those who did not buy and hold and bought sometime in the past two weeks and a lot of hoping from those blistered by what the hope is a “black swan” interruption of last year’s bull market.
I still believe this is a bounce to be slaughtered because of the unraveling of margin debt discussed in that link above but I guess we’ll see in the fullness of time.
In the meantime, this was my play for today, the SPY 267 in-the-money call expiring today, stopped out once but finished up 149% for the day trade.
Like I said above, another day, another dollar or two…in a spectacular week.
In Sunday’s post below it was said:
“Monday will be important but I’m going guess… The market is going to pop and take a leg up for at least a couple days this week.”
Got the pop. Got the couple of days up. Anyone sell the open today?
The market gaped on the overnight futures again but a turn-around-Tuesday did not another Monday make. Unlike Monday there was no follow through on the gap today. Although the bull-market-hope-to-be buyers made a game try to bring it back mid-day after the first slip and slide down, but the bear gave a little push with his paw to bring on a true turn-around Tuesday.
There were reversals all over the board.
That mid-day sway was rather nerve wracking for the 274 put that triggered on my SPY day-trading system but, all’s well that ends well. It finished with a 33% gain.
As for the day itself…
Hmm…. That big black thing on the daily chart does not…well, that does not look good, but the NYMO and the NYSI continue to rise so there is still some hope for the bulls.
This is a results update for this post yesterday:
— The God of Trading (@TheGodOfTrading) April 6, 2020
Day trading weekly short strangles on TSLA, even as the market swung wildly both up and down, has turned out a steady 62% gain for March.
The total cash gain per options contract for the month was $10,969, using a maximum margin of just under $18k. Every week had a double-digit gain.
See the green-colored weekly totals and the final yellow-colored cumulative total for the month on the table below.
Each short strangle had a hard %200 stop loss. If stopped out the strangle is rewritten for new strikes calculated on the stop’s price level. Each trade is closed at the market at the end of the day to eliminate overnight risk.
The same short strangle strategy can be applied to any volatile stock with liquid weekly options – TSLA here, but other prospective stocks would include AAPL, NVDA, BA, ROKU, GS, FB, WYNN and NFLX. No doubt others from time to time depending on market conditions and an individual stock’s story (for instance, BA of late).
The reference for this strategy is this link: $TSLA – Day trading short strangles for simplicity’s sake.
There are many complicated options strategies but this blog strives to apply the idea that simple is best, or at least better…
Remember this information is presented here, and throughout this blog, for entertainment purposes and as my personal journal for trading and tracking strategies, and should not in any way be construed as investment advice.
Nearly every night for past two weeks, the overnight index futures have been trying to mount another leg up for the market from the March 23rd bottom, and nearly every day the bears try to knock it back down.
Actually that’s typical – as J.P. is reputed to have said famously: “The market will fluctuate.”
As a day and swing trader I’m just sitting on the edge of my desk chair waiting to see which way to go.
Technically speaking, the SPY chart is showing an island reversal for the recent spectacular bounce off the market low.
That is bearish.
In addition the chart patterns I watch most closely — the NYSI and NYMO — are decidedly bearish. After getting wildly and rapidly overbought on the bounce, they have retreated with both highs below highs on the NYMO and a drop below the zero line on the NYSI. In bullish times it usually take three or four NYMO highs below highs to stop a rally. In bearish times it may take but one and several lows above lows to mount one. So far that has been true again (see the NYMO/NYSI line in the middle of the first chart below).
Long term investors, if they are in this market below current price levels, are losing time (at least a year, maybe as much as Trump’s entire term). If they are in at higher price levels they are truly trapped, losing time and losing money.
Regardless, I keep hearing both groups wishing and hoping — and pleading for — more bounce, either to cut paper losses or to get out.
So what’s next?
Having said all the bearish stuff, let’s take a look at the a couple short-term rally possibilities.
The NYMO, despite the current bearish pattern, just did something that is normal in bullish times and is at least a glimmer for a another leg up. It has dipped to the zero line three weeks (15 trading days) from its low. Three to four weeks into is normal for a twelve to fourteen week McClellan Oscillator cycle; it happens all the time in bull markets. Could this be a hint this is the week to try for more upside? A bit of relief, a surge of hope for the bulls? Maybe.
In addition, every day I tabulate all the stocks on my nifty-fifty stock list as to whether they are on buys, buys-overbought, sells, sells-oversold. Have been doing that for years, and it is a list that talks.
See the histogram on the second chart below for reference.
I’ve said before any time 40 or more of those stocks are on sells that is either the bottom of a swing or the beginning of the bottom of the swing. On the chart below, that tallies as 30 or more (stocks on buys minus stocks on sells). The red box mark each time this has happened.
During bull markets, when the nifty-fifty start up again, they either lead or confirm the next up swing. But since February that has not been case. No need to guess why that is so. Whenever a reliable indicator has a change in behavior, it screams there is SOMETHING BIGGER GOING ON HERE! My stock list is one among several technical indicators that have just announced the bear is out of his cave (and he’s given the world a vicious virus besides).
But…like the glimmer on the NYMO, there is a glimmer here also. The stocks on sells has been under forty for three days (there is no four days on this chart), and for the past two of those days it’s been slowing slogging its way higher.
Monday will be important but I’m going guess… The market is going to pop and take a leg up for at least a couple days this week.
Needless to say, I could be totally wrong about this since I am arguing against the NYMO and NYSI at the moment, the two most important measures of market psychology there is.
If so…well…it will be a short…again.