Dear Momentum Options Subscriber,
The bulls got their best shot at testing and possibly breaking out to fresh all-time highs last week, but the bears had other plans. The Nasdaq was within 1% of its lifetime high going into heavy-weight Apple’s earning’s announcement. The results failed to impress Wall Street, despite the company forecasting a strong holiday season for its products.
The Dow component fell on the news, but, overall, the index held support while finishing higher mid-week. However, the Nasdaq closed lower last Wednesday, and this was the first warning that the rest of the week would be rough. Thursday’s closes pushed the October lows, but Friday’s action kept a continued two-month-long trading range intact.
The Dow dipped 8 points, or 0.05%, to finish at 18,161 on Friday. The blue-chips held positive territory throughout the first half of the action, with the high reaching 18,257. Resistance at 18,275-18,300 has been holding since mid-October, with the 50-day moving average holding since early September. A close above the latter would be a bullish development. Shaky support is at 18,100-18,000, with 18,094 holding intraday. Additional help is at 17,800-17,700 on a close below the latter.
The S&P 500 slipped 6 points, or 0.3%, to settle at 2,126. The index failed resistance at 2,145-2,150 and the 100-day moving average following the run to 2,140 mid-day. The fade to 2,119 was a bearish development, with lower support at 2,135-2,125 holding into the closing bell by a point. There is risk to 2,100-2,075 and the 200-day moving average on consecutive closes below the October intraday low of 2,114.
The Nasdaq fell 25 points, or 0.5%, to end at 5,190. Tech traded up to 5,232 but failed lower resistance at 5,250-5,275 and the 50-day moving average. The lower lows throughout the week and close below the 5,200 level was a bearish clue following the fresh October low of 5,178. A move below 5,175 could lead to a continued backtest to 5,150-5,100 and the 100-day moving average.
The Russell 2000 declined 2 points, or 0.2%, to close at 1,187. The small-caps failed fresh resistance at 1,195-1,200 after reaching a peak of 1,196. A close above 1,210 and the 100-day moving average would be a bullish development. The backtest to 1,185 held near-term support at 1,180-1,175. A close below the latter could lead to a tumble to 1,150 and the 200-day moving average.
The S&P 500 Volatility Index ($VIX, 16.19, up 0.83) tested a low of 14.65, with support at 15-14.50 holding and the 100-day moving average holding for the second-straight session. The bulls need to recover 14-13.50 and the 50-day moving average this week to regain momentum. Friday’s high reached 17.35, and the close above the 200-day moving average was a bearish sign. Closes above 16.50-17.50 could lead to a quick test to 20-22.
“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.”
These were my final comments heading into last Monday’s opening bell, and only one of the three “Aces” failed to impress Wall Street last week. Apple beat by two pennies after Tuesday’s close, with a profit of $1.67 on revenue of $40.9 billion that also topped estimates.
The company also said current-quarter revenue would come in at $76-$78 billion for the holiday season but that gross margins would come in at 38%-38.5%. Wall Street was looking for sales just under $75 billion for Apple’s first-quarter and was perhaps spooked by gross margins not pushing 39%-40%.
Apple shares are holding support at $112.50-$112 and the 50-day moving average, with a close below the latter leading to $110. Resistance is at $115, followed by $117.50.
The results from Amazon.com and Alphabet were mixed, as the first name under-performed, while the second company, still considered by the majority as Google, over-performed, with a smashing earnings beat.
Amazon announced third-quarter earnings of $0.52 a share on revenue of $32.7 billion. Analysts were expecting a profit of $0.78 a share on revenue of $32.69 billion. The $0.26 earnings miss was followed with a conference call that said the company expected operating income of $0-$1.25 billion for the fourth-quarter. This was below last year’s fourth-quarter of $1.1 billion in operating income.
Shares of Amazon fell 5% on Friday to close back below their 50-day moving average. The low of $774 held the 100-day moving average by five bucks, but there is risk to $750 on a close below $769. Resistance is at $775-$800 and the 50-day moving average.
Alphabet reported a third-quarter profit of $9.06 a share versus forecasts for $8.64 a share. Revenue of $22.4 billion also topped expectations for $22.05 billion. Shares traded a little over a buck shy of the 52-week and all-time high of $816.68. Oppenheimer came out with a $1,000 price target for the stock following the strong third quarter.
The failure to hold the $800 level on Friday keeps risk open to $790-$780 and the 50-day moving average. I would not open bullish positions until shares reclaim fresh highs or clear $820 in the coming weeks.
This week’s big earnings announcement will come from Facebook after Wednesday’s closing bell. Wall Street is looking for a profit of $0.97 a share on revenue of $6.92 billion. The high estimate has the company earning $1.04 a share on revenue of $7.19 billion, with the low estimate at $0.79 a share on revenue south of $6.6 billion.
The chart looks bullish, with the recent high of $133.50 set, ironically, ahead of Apple’s earnings announcement. A move above this level could lead to a run at $135-$140 on a blowout beat-and-raise quarter. There is risk to $128-$126 and the 50-day moving average on a less-than-stellar quarter.
Today is the last trading day of the month, and the bears are winning October so far. The bulls will need a meaningful rally, not only today but for the rest of the week, to regain lost momentum.
The Dow is down 247 points for October and will need to trade above 18,308 to get back to even. The S&P 500 will need to make up 42 points and trade past 2,168 to turn positive for the month. The Nasdaq is down 122 points and needs to clear 5,312. The Russell 2000 came into the month above 1,251 and needs a 64-point, or 5%, recovery.
The two-month trading range has been frustrating, I know, but the biggest market moves of the year are right around the corner. I’m already predicting that 2017 could be even more volatile than this year and the most incredible time since 2008 to play a pending correction. However, the bears still have a little work to do before scaring Wall Street back to the sidelines for the rest of the year.
I have been fortunate over the past decade in predicting market bottoms and tops, along with trading ranges. For those of you that have followed me since inception, you know that my market calls have been some of the best in the business. I have talked previously about the current trading range lasting into next week and the presidential election, but the bearish signs are hard to ignore.
The “symmetrical triangle” formation in the Dow chart shows a possible rebound rally to prior highs if the index can clear 18,300 in the coming weeks. Continued closes or dips below 18,100-18,000 could be the signal to go “short” with November or December index put options.
I could have a New Trade shortly after this morning’s open, but I also want to wait to see how the first hour or so of action plays out, so stay tuned.
From desk to press, futures look like this: Dow (+16); S&P 500 (+3); Nasdaq 100 (+15); Russell (+2).
Momentum Options Play List
Closed Momentum Options Trades for 2016: 77-31 (71%). 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).
Lattice Semiconductor (LSCC, $6.06, down $0.20)
LSCC December 7.50 calls (LSCC161216C00007500, $0.19, down $0.01)
Entry Price: $0.30 (10/12/2016)
Exit Target: $0.60-$0.90
Stop Target: None
Action: Support is at $6.05-$6 and the 100-day moving average. A close below the latter could lead to $5.90-$5.75 and the 200-day moving average. Resistance is at $6.25-$6.30 and the 50-day moving average.
The company announces earnings next Monday, and I will have a preview ready later in the week.
Viavi Solutions (VIAV, $7.11, down $0.04)
VIAV December 8 calls (VIAV161216C00008000, $0.11, down $0.02)
Entry Price: $0.51 (8/19/2016)
Exit Target: $1.05
Stop Target: $0.05 (Stop Limit)
Action: Support is at $7-$6.90, with risk to $6.75 and the 200-day moving average on a move below the latter. Resistance is at $7.20-$7.25 and the 100-day moving average.
Earnings are due out tomorrow.
Editor and Chief Options Strategist