I SPY a dip

Just before the close, I got some SPY Jan 20th 223/220 Put Spreads for $.94 each. Here's why:

- After the recent swing high, there was a period of consolidation (12/16/16 - 12/27/16) followed by a break out to the downside.

- Two days ago, the daily candle formed a bearish engulfing signal after a doji, and closed below the daily 8 EMA.

- Todays candle closed even lower and formed a Doji Sandwich, using today's candle and the previous two days. This pattern suggests more downside.

- Today we closed below the 20 day SMA (green).

- The DI- crossed up over the DI+ (see the ADX/DMI subchart).

- I don't pay too much attention to volume as an indicator but you can see there was the most volume in the last 9 trading days (see volume subchart). This is another confirmation the other bearish signals are for real.

I see possible support at the 50% Fib, which is close to the 50 daily SMA (red), which is close to the bottom Bollinger Band (light blue), which also is close to previous resistance/support between 11/25/16 - 12/6/16. 220 is a conservative target.

The risk is the cost of the spread, $94 each. The reward is most of the width of the spread 223-220 = 3. So, the risk:reward is approximately 1:3, which is fine. And of course, my total risk is limited to the cost of the spreads, which I can keep to 2% of my account or less. If you want to risk 2% of your account, you just multiply .02 by your account balance, then divide the answer by the cost of one spread. For example, if you have $30,000 in your trading account, then .02 x $30K = $600. And $600/$94 = 6 option spreads.

I entered 2 exit orders. One at $2.90 limit order if the value of the spread gets that high. The other is when SPY share price drops to 220. I think price will go down to at least the 50% Fib at 218.36 but possibly after a bounce off the 50 day SMA (red), which could create a significant time delay while price rolls back over. So, I'll go with a more conservative target of 220 for SPY.

VIX possible bounce Update 3

Well, things are looking better for this trade. The VIX went as high as 14.68 today (according to my IB chart). Two days ago was a bullish engulfing candle, a bullish signal. Yesterday's candle closed above the 8 daily EMA. Today's candle confirmed that bullish signal by closing higher. But, we closed right on the 20 SMA. As you can see, looking back over a few months, the 20 SMA (green) has been a resistance level. Other bullish signs include the 3 day EMA (pink) crossing up over the 8 EMA (orange),  and the DI+ crossed up over the DI- (see the ADX/DMI subchart). You'll also notice the stochastics still have plenty of room to run.

On the other hand, in addition to the possible 20 SMA resistance, there may be a couple more trading days to the Santa Claus Rally, depending on how you define it.

My Jan 27/32 VXX Call spreads are still negative, but I will stay in longer to see what happens from here.

VIX possible bounce Update 2

Well, VXX is looking ugly for this trade, but we have a defined risk (cost of the Put Spread) and expiration isn't until Jan 17, which is just late enough into Jan to maybe catch a reversal. Since a change in sentiment could happen overnight due to news, and the Santa Rally is defined to end the second trading day of Jan., and we saw a significant sell off of equities last Jan 2016, I'm going to hold this position. Also, it is not a large position.

The VIX is at 11.50 as I write this 11:45am ET 12/22/16 and is higher than the open. We're still very near summer 2016 lows. I would exit any position if my thesis (reason for entry) is proven wrong, but I don't think we're there yet.

VIX possible bounce Update 1

As you can see in the VXX chart above, the Morning Star candle pattern didn't form. The 12/8/16 candle fell back and closed as a Doji. Then 12/9/16 gapped up at the open but also fell back and closed below the 12/8 low but above the 12/7 low.

One lesson here is to not rely on how a candle will close based on its action while still forming.

If this was a scalp trade I'd be out because the actual behavior didn't match the expected behavior. However, this is a swing trade with a controlled maximum risk, and there is an FOMC rate decision on 12/14/16. I've heard on financial news the futures market assigns a 100% chance the Fed will raise rates. I still need to learn how that calculation is done, but I've heard enough different sources that I believe it. 100% sounds extreme. VIX and VXX are both still off their recent lows. The VIX is still very low and resting on the lower Bollinger Band. The VIX daily chart is in a BB/KC squeeze (see VIX chart below) (BB/KC squeeze is when the Bollinger Bands[20,2,ema] come inside the Keltner Channel[20,1.5]). A break out from a squeeze can yield a sizable move.

So, I'm going to hold on to the position and see what the reaction is to the FOMC decision on 12/14/16. And if its a fizzle, then the end of the Santa Clause Rally is within the life of the option spread, so I'll probably hold on for that as well. I made sure the position is not greater than 2% of my account, so I can lose the full position and not threaten my account.

VIX possible bounce

This is chart of VXX 12/8/16 at 12:17pm ET. After looking at volume and assets under management of the top volatility ETF's I decided to use VXX because it has the highest volume and assets under management, even though it has a built-in value decay over time.

I got some VXX Jan 20th 27/32 Call Spreads for $1.10 each. Max risk is the premium I paid for them (cost). My target is around 31-33 either mid-Dec 2016 or early Jan 2017. The VIX was 12.49 and the VXX was 26.63 at the time I bought the spreads.

Here's what I was thinking:

VIX hit 11.30 this morning pre-market and bounced.
VIX low since 2008 is 10.28. We're pretty close.
VXX weekly chart easily hits the 20 SMA when it pops. The weekly 20 SMA will be approximately 33 in my opinion if volatility pops.
VXX daily chart easily hits the 50 SMA on a good pop. It will be approximately 31 if it pops soon, in my opinion.
The Risk:Reward for this trade is about 1:5.
At the time of the trade, you can see on the chart above:

• Stochastics (14,3,3) and Stochastics (35,10,3) are under 20 and rising.
• Price bounced off the bottom Bollinger Band yesterday.
• There is a possible Morning Star candlestick pattern forming.

Also, according to recent tweets from the Stock Trader's Almanac (www.stocktradersalmanac.com), there is a seasonal dip in equities in mid-Dec and the Santa Clause Rally ends the second trading day of Jan.

And, the market is crazy to be complacent in the current crazy new world.

LVBS

I'd like to coin a new acronym, LVBS. Low Volume Bull S...

I've been trying to master a setup I have for the YM Futures. It includes 2 rules to avoid LVBS.

1) No more scalping trade entries after 11:30am ET.

2) No entries anytime the SMA(21) of the 1 minute chart volume < 500 contracts/minute.

I trade the YM Futures (E-mini Dow Jones Industrial Average) from 9:45am to 11:30am ET, if I see a good setup. The chart above is from 11/1/2016. The light blue lines are the standard (20,2) Bollinger Bands. The dark blue lines are Keltner Channel boundaries (20,1.5).

Notice from 11:15 to 11:28 the BB's are inside the Keltner Channel. This is a type of "squeeze". You can "normally" expect a break out from this squeeze and a nice vertical move for about 5-7 candles or so. Everyone who knows this setup is watching for it. At 11:27 you get a nice little pop and a close for a green candle. Then 11:28 you get a nice continuation (or follow through). This will suck in a lot of impatient traders with hair triggers. Before the candle closes at 11:29 it comes all the way back down to create a Gravestone Doji. If you waited for the candle to close, like you should, you'd have been spared the heartache of this low volume BS. Because the next thing that happens is a slam back down, a break below the BB and the Keltner Channel and a close near the low. Then 11:31 you see a bright red candle continuing the down move. And you know bearish moves can move fast, so you gotta get in short pretty fast or lose out on a significant part of the move. This is surely the "real" move right? So the longs exit for a loss, and maybe go short, while others enter short.

But what happens then? Oh no, the candle closes with a Hanging Man Doji. Didn't we just learn to wait for the candle to close? Now it floats back up with closes above the 8 EMA, 20 SMA, and even the 50 SMA. Its also past the 50% Fib, 61.8% Fib, 76.4% Fib (a bogus Fib but mistakenly used so much you have to consider it), and just clears the 78.6% Fib (the real Fib). This had to have taken out a lot of stops and caused losses.

I call this a BS move. If its not manipulation to make some big players money from running stops, it sure looks like it. These kinds of moves seem to happen more readily starting around 11:30am ET or anytime there is low volume.

Look at the volume subchart. See the purple line. That's a 21 candle simple moving average of the minute by minute volume bars. I have found that when it drops below 500 contracts per minute, BS moves become more likely. A logical explanation is that its easier to manipulate the market on lower volume. Or, the more conservative explanation is that low volume breeds more random price action.

So the moral is, don't make money in the morning and give it back in the afternoon like I did before I woke up and realized I don't have to scalp in the afternoon.

Ford long term short 0 cost option play update

As you can see the position I discussed, for which I had a limit order to buy at $0.10, is trading for about $1.80 on 1/15/16 near the close. That's a 18x or 1,800% increase.

Only one problem I had with this. On 12/31/15, the day after I came up with this trade and posted it, the market opened with a value of $0.15 and climbed from there. So my $0.10 limit order never triggered and I missed the whole thing. I congratulate myself for my discipline in keeping with my plan, and I kick myself in the tush for not having a more generous buy limit. If I had gotten in at $0.15 that would still be a 1,500% return.

I'm embarrassed by how many times I had the right idea, or even a lucky idea, but lost out from the execution. The good news is execution is something that can be repeated, reviewed, and practiced and therefore improved.

If I was in this trade, I'd probably take profits, or take off at least 50% of the position, very soon because, as you can see on the chart, we're approaching the bottom of the channel, on very low stochastics, far from the 8ema, and after what might be a cathartic down volume move a couple days ago, which you can also see on the chart.

This was supposed to be a long term trade but we had this large fast move and a likely bounce is imminent. It seems like a good idea to take profits or partial profits now and get back in later.