Trader’s Report Dec 5th

Good Day Traders,

Overview & Highlights:  Check out Mike’s Macro Market Musings in this edition.  He provides an in-depth discussion of divergences that we need to be aware of which could be predicting a market turn.  Price action in the Indexes may be moving into a holding pattern until after the Fed announcement on December 14th.  A case can be made that a Fed interest rate hike is already priced into the market, but we’ll standby and play small ball until Wednesday of next week.

Upcoming Webinars:  At Active Trend Trading we offer two webinars per week to provide training plus trade and market updates.  See the schedule below for the next webinars.

The How to Make Money Trading Stock ShowFree Webinar every Friday at 11:00 a.m. PDT.   This weekly live and recorded webinar helped traders find great stocks and ETF’s to trade with excellent timing and helped them stay out of the market during times of weakness.

How to Make Money Trading Stocks on Friday, Dec 9th
 Register now for the next live webinar at the link below:
 Register Here:  https://attendee.gotowebinar.com/register/3195696840396152833
Time 11:00 a.m. PDT

Next Training Webinar:  Dec 7th    
For Premium Members, our Wednesday evening training is developing some fantastic traders!
 Topic:  5 Objective Profit Exits


Managing Current Trades:   Positions open for 2 strategies.

Strategy I Portfolio Building: 1 Position Open

On 11-28: Bought 330 shares of SQQQ at 13.19
SL = 4%–Adjusted to Break Even
T1 = 5%-10% –  Closed ½ position at 7.05% or a profit of 153.45
T2 = 15%-20%

Looking to add to SQQQ on a proper pullback.  Total capital investment allowed for this trade is $17,500.   

Strategy II Basic Options:  No Open Positions

For members wanting to better understand this Strategy there is a very good training video at:  http://activetrendtrading.com/basic-option-strategy/

Strategy III Wealth & Income:  3 Open Position

Closed the first TSLA LEAPS Strangle which was opened on 9/28/15 for a 100% profit on 9/2/16.

Strategy III Weekly Results Week ending 12/2:
SPY:  Gain of $418.00
TSLAGain of $492.00
NUGTGain of $220.00

 Trade 1:  Foundation Position is 4 contracts of SPY Jan17 205C and 4 contracts of SPY Jan17 200P Current Trade—Currently Up 36.67%; Premium Collected since opening trade on 1/4/16 = $8,212

 Sold 4 contracts 9Dec 220.5C at 1.09; potential profit of $436

 (With the current return on the SPY position up at 31.59% it will soon be time to decide if it is time to roll to a 2018.  The current long positions will expire in January.  Low volatility for most of this year has limited the upside on this trade.  I will institute a 3-week time stop on this trade.  If during that time the residual value of the long options and the collected weekly premium reaches a return of 40%-50% I will close the position.  If this is not achieved in 3 weeks I will close the position and roll to 2018.  Close NLT Dec 9.)

Trade 2: (Long TSLA Jan17 250C & Long Jan17 220—Closed on 9/2 for 100% gain since 9/29) + New Positions Jan17 210C and 220P: Current Position Total Invested $14,900.  Currently Up 84.4%: Premium Collected since opening trade on 9/28/15 = $15,688.50 + New Positions at $6,451.50 = Total Collected $22,140

Sold 1 contract 9Dec 182.5C at 4.10; potential profit of $410

Trade 3:  Long NUGT Jan18 18.4C + NUGT Jan18 18.4P opened 9/.  4 contracts each side of the straddle for total investment of $6,720.  The required weekly premium to collect each week to achieve a 100% return by Jan 2018 is $191.43 per week.

Sold 4 contracts of 9Dec 8P at 0.55; potential profit $220

Tip for Experienced Option Traders: Occasionally after a weekly trade goes against me but the trend appears to be changing I will add one naked contract over and above my foundation position and close this out after it gains at least half of the premium I’ve collected.  Doing naked options is not for everyone and I keep my risk small by only doing one contract above my covered limit.  In other words, if I can sell 4 contract covered by my long leaps I’ll sell one additional.  This helps hedge the losses a bit but it this tactic is not without risk and must maintain a tighter stop than I would normally use with the regular position.

Note:  We do our best to get both text alerts and email alerts out in a timely manner, occasionally there will be trades that are missed because of delay in the Text or Email alert applications.  Additionally, please double check with your broker to assure they allow spread trades like we do with Strategy III.  Some do and some don’t.

Additionally, it is crucial when selling premium against the Long LEAPS position that the premium collected cover the weekly cost of holding the LEAPS plus an additional amount to over this amount as a gain.  This is one of the reason I sell premium of weekly options that are close to be “At The Money”.  I base my selling on the expected move during the next week.  If one is not bringing enough weekly premium this trade will not work out as well and may wind up being a losing trade.

Several members have asked about this strategy and a more detailed explanation is available at:  http://activetrendtrading.com/wealth-and-income-strategy/

I posted a video about how to choose the weekly options to short for this strategy. It can be viewed at:  http://activetrendtrading.com/videos/

Additionally, some of these trades may be selling weekly puts on up trending stocks.  If you are interested in parallel trading this strategy register at this link:  http://forms.aweber.com/form/99/1278533099.htm

Early Warning Alerts for Leveraged Index ETFs:   Last Trigger: 10/3.  Waiting new signal or secondary trigger.

EWA Account Return to date:  10.0%

 

The Early Warning Alert Service alerted on all 5 market lows in 2016.  A new video detailing EWA for 2016 will be out within the next 2 weeks, along with highlights on entry refinements that will provide improved entries even in environment like 2016.  In 2016 the entry triggers were challenging because of the number of straight off the bottom moves.  Mike and I have analyzed this and have tested adjustments in place going forward.

If simplifying your life by trading along with us using the index ETF is of interest, you can get the full background video at:  http://activetrendtrading.com/etf-early-warning-alerts-video/


Potential Set Ups for this week:  The probability of interest rates going up at next week’s Fed meeting is very high.  Between now and December 14th the Indexes may slosh around between established support and resistance without clues to long term direction.  Staying mostly in cash is a great option until price action pulls back to support.  If you choose to trade look to open only partial positions and take profit quickly with tight stops.  In other lower expectation during this posturing environment.   

NUGT is holding between 7.20 and 9.83.  Price action closed above the 8 day EMA the

Trades for Week of 12/4:  NUGT is holding between 7.20 and 9.83.  Price action closed above the 8 day EMA the last two trading days, which is positive.  In past years’ gold, has based during this period of the year and then took off early in the year for its initial yearly run.  Higher interest rates and a stronger dollar may mute a move early in 2017 but even a muted rally may result in a 20% or higher move in NUGT.  NUGT is currently moving in a 30% sideways channel.  With the closes above the 8 day EMA we can start building a position in NUGT with a stop below 7.00.  A climb back to the 20 day EMA would equate to a 14% rise from the 8 day EMA.

TSLA looks to be moving up into resistance at the 8/20 day EMA’s.  If price moves up near the 20 day EMA at 189.53 I will look to buy January 190P for a potential ride back down to around 180.

If the Indexes weaken again I will add to SQQQ and open a position in TZA.   This will depend on what kind of pullback both provide. Watch support at 20.75 on TZA.  Watch support on SQQQ at 13.70.

The current Strategy I watch list contains 3 stocks in addition to the leveraged ETFs.  These are: TSLA, AEIS & WOR.  WOR may provide an entry for a pre-earnings run with a good set up.


Mike’s Macro Market Musings:  Black Line’s Matter

Much, but not all, of the following is copied and pasted from another source.  To read the full article, go to:  http://www.zerohedge.com/news/2016-11-29/advance-decline-line-divergence-big-deal-spoiler-alert-yes .

Dennis and I have recently commented on the relative lack of breadth underlying the recent historical post-election rally in U.S. equity markets.  Sharp rallies that seem to go straight up on the charts following relatively minor pullbacks without the support of either volume and/or market breadth seem to be a characteristic of the cyclical bull market which has prevailed since early 2009.  We have also commented at length and on numerous occasions of the outsized influence on the price action of weighted indices of a relative handful of influential stocks.

There is currently evidence of a mild divergence setting up between the price action of the S&P 500 index and the NYSE Advance/Decline line, as would be evidenced on the following chart if trendlines were drawn along the recent tops of both the index and the advance/decline line:

mike-12-5a

Why might this be noteworthy?  Why am I even bothering to write about this?  Because a non-confirmation by the A-D Line has historically been a significant warning for stocks – at times. Every important cyclical top in the S&P 500 in the last 50 years has been accompanied by a divergence in the A-D Line.

mike-12-5b

However, there are caveats associated with this potential set up (the word “potential” should be heavily emphasized here).  Consider that not every divergence of this type leads to a significant cyclical market top.  Divergences can persist – for a long time. Consider the 2000 top in the S&P 500. The A-D Line had actually peaked in 1998, 2 years before the Index topped.  And, on the other side of the spectrum, sometimes we have to be a little patient in allowing the A-D Line to catch up to the S&P 500 at new highs. That is, sometimes, the large caps may lead a bounce and it may be that the broader market simply needs a day or two to catch up. Thus, we must be careful not to prematurely label the relative large cap strength a divergence.  Additionally, this observation of the relationship of the S&P 500 to the advance/decline line does not hold if a similar comparative chart between the NYSE index (ticker symbol:  NYA) and the advance/decline line were to be drawn – there is no divergence in that relationship since the NYSE index has not put in new highs recently, consistent with the lack of a new high in the advance/decline line.  While we’re speaking of NYA and negative divergences, I’d recommend taking a look at a weekly chart of NYA and the marked negative divergences currently apparent in some of the more traditional oscillators such as slow stochastics and CCI and TSI when comparing current price action with highs noted in August and September of 2015.

mike-nya

Also of note and potential significance indicating the relative lack of breadth in this most recent rally in the market indexes are the marked negative divergences between S&P 500 price action and the number of stocks trading above their 50 and 200 day moving averages, as follows:

mike-12-5c

So, are divergences in the NYSE Advance-Decline Line significant?  Often, but not always.  Certainly, something of which to be aware, though.  Especially in conjunction with other signals noted in a recent article such as the Hindenburg omen and the so called Akron omen which historically have proven to be significant even if not 100% perfectly predictive.  There are a few signals that put us on alert whenever they pop up. A divergence in the NYSE A-D Line is one of them, no matter the circumstances.

Fans of a cable TV show named “Suits” will understand the following reference.  To paraphrase a famous line of dialogue from that show, the question now becomes – what will Janet do?


General Market Observation:  Last week the Trump Rally slowed down as profit taking and European financial issues appeared.  Both the RUT and SPX went on a rocket ride after the election with the Nasdaq 100 lagging both the other 2 Tracking Indexes.  Today’s market action was a mixed bag.  On all three Indexes a resistance ceiling is in place. The RUT made the strongest move and will hit resistance at the 1347 level.   Both the SPX and NDX were up for the day but without the same vigor as the Russell.

The chart of the SPX shows a good move up but retreated late in the day. The long upper wick shows that the sellers showed up at a resistance zone just short of 2210.  Look for sideways move between 2190 and 2213 until the Fed reports.  The NDX is still lagging the other indexes.  Price while up closed below the 8/20/50 day moving averages.  This cluster defines current resistance.  Because of the weakness on NDX, SQQQ continues to look like a viable trade buying off support.

spx-12-5

SPX:   Downside Market Short the SPY, SPY Puts or SPXU.
Preferred Long ETF’s:  SPY, UPRO and SPXL

NDX:   Downside Market Short the QQQ, QQQ Puts or SQQQ.
Preferred Long ETF’s: QQQ and TQQQ

RUT:   Downside Market Short the IWM, IWM Puts or TZA.
Preferred Long ETF’s:  IWM and TNA

The How to Make Money Trading Stock ShowFree Webinar every Friday at 11:00 a.m. PDT.   This weekly live and recorded webinar helped traders find great stocks and ETF’s to trade with excellent timing and helped them stay out of the market during times of weakness.

How to Make Money Trading Stocks on Friday, Dec 9th
 Register now for the next live webinar at the link below:
 Register Here:  https://attendee.gotowebinar.com/register/3195696840396152833
Time 11:00 a.m. PDT

To get notifications of the newly recorded and posted How to Make Money Trading Stocks every week subscribe at the Market Tech Talk Channel:   https://www.youtube.com/c/MarketTechTalk

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Index Returns YTD 2016

index-12-5

ATTS Returns for 2016 through Dec 5, 2016

atts-12-5

Percent invested initial $100K account:  Strategies I & II invested at 3.00%; Strategy III invested at 20%.

Current Strategy Performance YTD (Closed Trades)
Strategy I:  Up $896.15 or +1.28%
Strategy II:  Up $2,031.00 or +20.3%
Strategy III:  Up $28,647.00
Cumulative YTD:  31.5%

Active Trend Trading’s Yearly Objectives:
–          Yearly Return of 40%
–          60% Winning Trades
–          Early Warning Alert Target Yearly Return = 15% or better

For a complete view of specific trades closed visit the website at:  http://activetrendtrading.com/current-positions/

Updated first full week of each month.  The next update after first week in January.


Outs & Ins:   Both UNH and WWD made a debut on the IBD 50 this weekend.  Both stocks are well extended above their moving averages after solid moves up recently. Neither are close to a valid entry point.

The stocks with the strongest fundamentals this week are: AEIS, AMAT, CPE, NVDA, WOR, ESNT & EXP.

in-out-12-2

 

Share Your Success:  Many of you have sent me notes regarding the success you are having with the Active Trend Trading System.  Please send your stories to me at dww@activetrendtrading.com or leave a post on the website.   Thanks.

 

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