Dear Momentum Options Subscriber,
The bulls snapped a two-week losing streak as the market made slight gains last week. However, the technical picture has weakened, with the bears growling and a number of high-profile earnings due out this week. Volatility has been creeping lower, but it could come back into play in a big way if corporate earnings come in with sketchy results or if outlooks are lowered.
The Dow dipped 16 points, or 0.1%, to close at 18,145 on Friday. The blue-chips traded in negative territory for much of the session, with the low of 18,049 coming shortly after the open. Support at 18,000-17,900 has held since early July, with a close below the latter leading to 17,800-17,700 and the 200-day moving average. Near-term resistance at 18,200 and the 100-day moving average held on the late-day rebound to 18,168. A close above this level would be slightly bullish, with additional hurdles at 18,300-18,350 and the 50-day moving average.
The S&P 500 slipped a fraction of a point, or 0.01%, to end at 2,141. The index tested a low of 2,130 on the open, with support at 2,125-2,120 holding. The October low reached 2,114, and a move below this level would likely get 2,100-2,075 and the 200-day moving average in play. The recovery to 2,143 failed to clear the 100-day moving average, with upper resistance at 2,145-2,150 holding. A close above the latter could lead to a run at the downward sloping 50-day moving average.
The Nasdaq advanced 15 points, or 0.3%, to settle at 5,257. Tech was slightly weak during the first half of the action, with the low checking in at 5,225. Support at 5,225-5,200 held, with risk to 5,150-5,100 and the 100-day moving average on a close below the latter. The recovery of lower resistance at 5,250 and the 50-day moving average was slightly bullish following the push to 5,259 intraday. Upper resistance at 5,275 remains the bigger hurdle, but 5,300 could get back on the map if it is cleared.
The Russell 2000 gave back just under 2 points, or 0.1%, to finish at 1,218. The small-caps also struggled throughout the session, while falling just below 1,209 at the start of trading. Support at 1,210-1,200 and the 100-day moving average has been holding since mid-July, with the early-August lows reaching 1,199 and 1,198 on back-to-back sessions. A move below these levels could lead to 1,180-1,175 in a hurry. The mid-day, quarter-point pop into positive territory to 1,220 failed to clear resistance at 1,225-1,235 and the 50-day moving average.
The S&P 500 Volatility Index ($VIX, 13.34, down 0.41) fell 3% after trading to a high of 14.53 on Friday’s open. Near-term resistance at 14.50-15 and the 100-day moving average held for the second-straight session. A close above the latter would likely lead to a retest of 16-17.50 and the 200-day moving average. The fade to 13.27 and close below support at 13.50 and the 50-day moving average was slightly bullish, but a recovery of the 12.50 level is needed to regain upside market momentum.
Today, my focus will be on tech and Apple‘s (AAPL, $116.60, down $0.46) earnings, which are due out after Tuesday’s closing bell. Current forecasts have the company earning $1.65 a share on revenue of $46.9 billion. Some of the iPhone 7 sales will count for the recent quarter that ended at the close of September.
Most analysts have penciled in a penny or two bump ahead of the announcement, with the high estimate at $1.73 a share on revenue pushing $48.3 billion. This would equate to an $0.08 beat along with a revenue beat.
The low estimate has the company earning $1.57 a share on sales of $45.7 billion. This would be a headline miss of $0.08 along with a revenue miss. The dividend yield is paltry at 2%, but it could get raised this year given the $230 billion in cash that Apple has in its coffers.
It has been no secret how well Apple’s iPhone 7 sales have been doing, and some of the good news can be attributed to Samsung’s continued woes with its Galaxy Note 7 recall.
Word has it that Samsung went to market early with its launch of the Galaxy Note 7 to capitalize on the “perceived” lack of features in the iPhone 7. However, rushing a smartphone to market that has now been recalled will likely cause a devastating blow to its market share.
Obviously, safety concerns will be in the back of consumers’ minds when they get new smartphones, upgrade or switch to Apple down the road. Google has also recently introduced a smartphone that could grab some market share.
AAPL shares came have been trying to hold the $115 level since early this month, but they traded to a low of $113.80 mid-week. There is risk to $112.50-$110 and the 50-day moving average on an earnings miss, but the major moving averages are still in a nice uptrend. Resistance is at $117.50-$118. A move past $118.25 should lead to a short-term run to $120-$125.
The two-year chart shows that near-term resistance is at $117.50, followed by $120. A lot of the suits-and-ties missed their chance to buy AAPL at $102.50 in July and September. However, given the fact that most of the slick-talking pros have underperformed the market this year, they could be forced to buy back in if upper resistance at $120 is cleared.
I have a feeling that Apple could report earning as much as $1.79-$1.80 a share, with revenue possibly topping $49 to push $50 billion. I also believe that a “special dividend” could be announced given the company’s cash hoard and the last earnings announcement for 2016.
Apple, along with Amazon, Alphabet, Facebook and Microsoft are the largest-weighted stocks in the Nasdaq 100, and the group makes up more than 40% of the index. The other 95 companies make up the remaining 60% of the Nasdaq 100.
Microsoft (MSFT, $59.66, up $2.41) reported better-than-expected results following last Thursday’s close, with shares rallying 4% and reaching a fresh 52-week peak and all-time high of $60.45 on Friday. The company posted a profit of $0.76 a share on revenue of $22.3 billion. Analysts were looking for $0.68 a share on revenue of $21.7 billion.
Amazon.com (AMZN, $818.99, up $8.67) will announce its quarterly results on Thursday, with Wall Street expecting a profit of $0.80 a share on revenue just south of $32.7 billion. The high estimate is at $1.54 a share, with a low estimate pegged at $0.39 a share. This is a dramatic swing, which is why the average estimate is pegged at $0.80.
I also think AMZN will beat estimates, possibly by a nickel or more, with revenues topping $33 billion. The chart is looking bullish despite the pullback from the recent 52-week high of $847.21 and near-term resistance. A run to $850-$875 could come on a beat-and-raise quarter. Support is at $800-$795 and the 50-day moving average, but there is risk to $765-$760 and the 100-day moving average on an earnings miss.
Alphabet (GOOG, $799.37, up $2.40) will also confess its quarterly numbers on Thursday, and shares also set fresh 52-week and all-time highs last week. Forecasts are calling for a reading of $8.64 a share on revenue of $22.05 billion.
Facebook (FB, $132.07, up $2.07) will announce earnings on Nov. 2, with shares also setting a lifetime high of $132.13 on Friday. The earnings bar is set at $0.96 a share on revenue of $6.92 billion. Below is a five-year chart for FB.
The overall technical picture is starting to look bearish, and a major market move could be forthcoming this week. Although I’m still in the bullish camp, a break below the July lows could have us joining the bears if key levels of support crack.
Obviously, solid earnings from Apple, Alphabet and Amazon.com should provide a lift for tech this week, and the same could be true with Facebook next week. However, if the three “Aces” under-deliver or lower forecasts and disappoint the market, things could get spooky this week.
I could have a New Trade this morning ahead of the Mid-Market Update, so stay close to your email inboxes.
From desk to press, futures look like this: Dow (+80); S&P 500 (+10); Nasdaq 100 (+29); Russell (+9).
Momentum Options Play List
Closed Momentum Options Trades for 2016: 74-28 (73%). All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.
Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades. Please remember, all “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the 9 a.m. and 12 p.m. – 1 p.m. updates. Also, I will usually give you a heads-up if I think I’m going to send an email outside of these time frames.
All prices given in this update are current as of 8:00 a.m. EST.
I hereby disclose that I will be participating in the following trade(s).
E*Trade Financial (ETFC, $29.50, up $1.30)
ETFC November 29 calls (ETFC161118C00029000, $1.20, up $0.53)
Entry Price: $0.90 (10/17/2016)
Exit Target: $1.80
Stop Target: $0.99 (Stop Limit)
Action: Set a Stop Limit at $0.99 to protect profits.
Shares cleared the recent high of $29.92 by a nickel on Friday but fell shy of clearing resistance at $29.75-$30. A close above the latter should get $31-$31.50 and fresh 52-week highs in play. Support is at $29-$28.75.
You can read my detailed write-up on ETFC in last Wednesday’s Mid-Market Update.
PowerShares QQQ ETF (QQQ, $118.15, up $0.44)
QQQ November 120 calls (QQQ161118C00120000, $0.89, down $0.06)
Entry Price: $0.99 (10/13/2016)
Exit Target: $2.00
Stop Target: None
Action: Resistance is at $118.50-$119, with a close above the latter being a bullish development. Support is at $117.50-$117 and the 50-day moving average.
Lattice Semiconductor (LSCC, $6.43, down $0.06)
LSCC December 7.50 calls (LSCC161216C00007500, $0.29, down $0.01)
Entry Price: $0.30 (10/12/2016)
Exit Target: $0.60-$0.90
Stop Target: None
Action: Support is at $6.30-$6.25 and the 50-day moving average. Near-term resistance is at $6.50-$6.60.
Apple (AAPL, $116.60, down $0.46)
AAPL November 125 calls (AAPL161118C00125000, $0.63, down $0.03)
Entry Price: $1.10 (10/11/2016)
Exit Target: $2.20
Stop Target: None
Action: Support is at $116.50, with risk to $114-$113.75 on a close below the latter. Resistance is at $117.50-$118. Earnings are due out Oct. 25.
Finisar (FNSR, $29.16, down $0.52)
FNSR November 31 calls (FNSR161118C00031000, $0.60, down $0.01)
Entry Price: $1.28 (10/10/2016)
Exit Target: $2.60
Stop Target: $0.30 (Stop Limit)
Action: Support is at $29-$28.75, with risk to $28 on a move below the latter. Resistance is at $29.25-$29.50.
Viavi Solutions (VIAV, $7.19, down $0.10)
VIAV December 8 calls (VIAV161216C00008000, $0.15, down $0.01)
Entry Price: $0.51 (8/19/2016)
Exit Target: $1.05
Stop Target: $0.05 (Stop Limit)
Action: Support is at $7.10-$7 and the 100-day moving average. Resistance is at $7.25-$7.35 and the 50-day moving average.
Editor and Chief Options Strategist