Big Picture:

What’s next?  This week stocks pushed higher again, however, both the S&P 500 and the Russell have failed to get up and stay above their previous January highs.  The S&P was relatively weaker and finished the week down slightly after making a slightly higher high.  Bonds chopped around and finished the week essentially unchanged, while Gold was the biggest winner of the three and gained 1.67% this week.

Stocks have been hard for me in the past two months after the reversal in trend that took the pTheta system from long to short and then the re-reversal a few weeks later.  The reality of the system is that you expect to lose a little money on whipsaws.  Fortunately, the options trades in Bonds and Gold have been going more smoothly.

On Wednesday I sold a weekly $SPY put spread that I covered on Thursday.  I’ve been experimenting with a weekly options trading system for a while now and I’m hoping to have something trade ready by this summer.  In the meantime, you can check out this post.

Side-note:  For those of you who don’t already know, I’m a CPA and work as a tax accountant by day.  What that means is that from now through April 15th my life becomes something of challenge.  I’ll do my best to tweet out new trades, etc, but my work has really picked up and at times that might not be possible.  For some reason, tax clients don’t appreciate you pausing your time with them to tweet trades.  Oh well.

Implied Volatility:

Implied volatility ticked up slightly this week despite higher prices.  It seems like when prices are trying to make a new high (as stocks are doing right now) people get nervous about a potential failed move.

The Weekly Stats:

A note about trend . . . Trend on the daily timeframe is defined using Donchian  channels and an Average True Range Trailing Stop.  There are three trend states on the Daily timeframe:  up, neutral, and down.  On the weekly timeframe, I’m looking at Parabolic SAR to define trend and there are two trend states, up and down.  In reality, there are always periods of chop and I’m using the indicator to capture the general bias of both the trend and those periods of chop.

Stocks ($SPY – SPDR S&P 500 and $IWM – iShares Russell 2000):

It seems fairly strange to be in a position like this, but I’m short a $SPY put and also short an $IWM call.  The position ends up being a short strange in two different markets.  Right now the short put is doing better than the short call.

The Russell 2000 was significantly stronger than the S&P this week, however, the pSAR is still short.  For a while on Friday I thought we might take out the indicator to flip the trend long, but that hasn’t happened.  The S&P briefly made a new high and backed off from that level without racing higher.  Higher prices are definitely possible, but the selling on Friday afternoon wasn’t confidence inspiring.

 Gold ($GLD – SPDR Gold Shares ETF):

Gold was up again this week and price appears to be pausing.  Commodities in general seem strong right now.  There have been new highs in quite a few different commodities markets and we’re seeing strength across the board in grains, energy, and the softs.  The dollar was slightly weaker agains the Yen and the Euro this week, but the strength in Commodities seems to be more about strength in those markets than weakness in the dollar.

Bonds ($TLT):

Bonds continued to do nothing this week.  What’s interesting to note is that if prices continue higher there could be a bullish cross in the 10/40 week (50/200 day) moving averages.

Donchian Channel Breakout Trades:

The Donchian Channel trades are doing well.  Coffee ($JO) and Real Estate ($IYR) continued higher this week.  I took off another few shares of the coffee position when the open risk exceeded 6%.  At this point, the stop loss on Coffee has been paid for and I won’t be taking off any more shares.  A new trade in Sugar ($SGG) was triggered on Friday.

 Trades This Week:

SGG (Sugar) – Bought to open 25 shares at 56.555

SPX – Sold and covered the Weekly Feb4 2014 1790/1785 Put Spread (Sold at .50 on Wednesday, covered at .25 on Thursday)

JO (Coffee) – Sold 12 shares at 33.20 to reduce open risk

SPY – Covered the May short Call for .90 (whipsaws are unfortunate)

SPY – Sold the April 168 Put for .72

Option Inventory:

GLD – Short May 2014 108 Put (sold for .60)

IWM – Short May 122 Call (sold for .61 – rolled from April)

SPY – Short April 168 Put (sold for .72)

TLT – Short May 2014 99 Put (sold for .55)

IYR – Short June 2014 57 Put (sold for .58)

ETF & Forex Inventory:

BAL (Cotton) – Long 50 shares from 53.19

JO (Coffee) – Long 31 shares from 23.38 (started with 58 shares)

IYR (Real Estate) – Long 39 shares from 65.63

SGG (Sugar) – Long 25 shares from 56.555

USD/JPY – Short 3,000 Notional Units from 100.765

Looking ahead:

Stocks have been challenging so far this year, but other markets have been better and that’s always good.  I’m hoping we get a little bit of sideways to slightly lower action in stocks next week, although markets don’t usually care about what I want.  The strength in commodities without pronounced weakness in the dollar is interesting and I don’t have a good explanation for what we’re seeing.  The reality is that the reason for the strength doesn’t matter and we just need to focus on trading that strength.

Next week wraps up February and we’ll already be 2 months into the year.   Have a great weekend and please share this post with anyone you think would enjoy it.  Thanks for reading.

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