June 26, 2017

Another Interesting Week – New and Old Portfolio Positions

First, I would like to post my late day trade in TZA (Smalll Cap 3x Bear Shares).

TZA Trade

I am now almost fully invested on the short-side with a total of 57 puts scattered among IWM, SPY and TZA.

Today was another bearish tease with the unemployment numbers failing to meet economists’ expectations which led to a large decline that lasted throughout most of the day. However, much like the last few bearish days, buyers stepped in and pushed the market higher by days end. The recent price action has certainly been frustrating, but the probability of a continued move to the downside is still quite high.

Bearish Camp

Yes, the bears have had a difficult time holding back the bulls recently. Although, it looks as thought we could see some decent selling as we enter next week.

According to Jason Goepfert of the reknowned SentimenTrader:

Historically, when the S&P opens below the prior day’s low on a bad miss in the Payroll report, it suffers even more through Monday.

Nonfarm Payroll Report

The big news today is obviously the Payroll report, and even more than that, the market’s reaction to it.  The usual tendency after a big knee-jerk move after the release is a “fade” if the market closes strongly one way or another.  So if we get a big rally, the market tends to drop during the following session(s) and vice-versa, especially if prices are near a multi-day extreme at the time.

While the situation is very fluid, so far the S&P appears as though it will open below yesterday’s low on a worse-than-expected Payroll number.  The table below shows every time since 1998 that Payrolls came in more than -50K below estimates and the S&P opened below the prior day’s low:

Date Miss Open To Close 1 Day


1 Week


05/04/01 -238 3.0% 2.1% 1.2%
07/06/01 -64 -1.9% -1.3% 0.8%
09/07/01 -68 -1.2% 0.0% -10.3%
12/07/01 -131 -0.3% -2.2% -3.2%
12/06/02 -75 2.1% -0.7% -0.9%
03/07/03 -318 2.1% -0.4% 3.1%
03/05/04 -109 0.8% -0.4% -2.5%
08/06/04 -208 -0.7% -0.6% -0.4%
10/08/04 -51 -0.6% -0.2% -1.7%
02/03/06 -57 -0.2% 0.0% 0.1%
09/07/07 -104 -0.3% -0.5% 1.7%
01/04/08 -52 -1.4% -1.5% -2.2%
03/07/08 -83 0.1% -1.3% 0.0%
12/05/08 -198 5.1% 8.8% 6.4%
07/02/09 -102 -1.5% -1.5% -3.5%
10/02/09 -88 0.5% 2.0% 5.1%
06/04/10 -105 -1.7% -2.9% 1.0%
Median -0.3% -0.5% -0.1%
% Positive 41% 29% 47%

We can see that it was tough for buyers to step in on such a shock on both a fundamental and technical basis.  In fact, through Monday’s close, there were really only two times the S&P managed to rally by any meaningful amount.

When we add one more condition, that the S&P was trading near a one-month high the day before the Payroll release, then only two days popped up – December 7, 2001 and March 5, 2004.  While it’s very hard to rely much on two precedents, it’s telling to see how the market reacted when we were coming off a high, and suffered this kind of fundamental/technical break.  Both times, the S&P went into at least a 5-day decline.

Furthermore, we have yet to fill the gap in the S&P (SPY and the /ES)from Monday which should also weigh heavily on the market.

So, as you can see I am leaning heavily towards the bearish camp and have been for several days. I will continue to do so until the recent high is broken in the /ES. I will also look to exit or most likely scale out of my trades when the S&P is able to fill the gap which is around the $110.80 mark in SPY.

I will be back with more this weekend, including the my new paid newsletter service, which will include real-time trade alerts that mimic the trades in My Options Portfolio.

Until then I hope all of you have a wonderful night.