Pre-Market Update for 12/5/2016

Bears Snap 3-Week Losing Skid

‪8:00am (EST)‬

The bulls had their 3-week win streak snapped as the overall market pulled back off the end of November all-time highs. The blue-chips finished in the green to keep some momentum in play but Tech’s 3% pullback was a curveball. It was a friendly reminder, the bears are always just a wakeup call away but the. Nasdaq held a key level of support to end last week.

This week and next will be dominated with news and what the Fed will or won’t do concerning interest rates. The action in the Financial stocks were red-hot in November and momentum has been strong. While a quarter-point hike is already baked into the cake, the Fed’s outlook for 2017 will be more in focus.

The Dow dipped 21 points, or 0.1%, to settle at 19,170. The blue-chips traded to a high of 19,196 intraday with lower resistance at 17,200-17,350 holding for the third-straight session. Last week’s all-time high reached 19,225. Rising support at 19,100-19,000 has been holding for eight-straight sessions with backup help at 18,900-18,800. The 50-day moving average has crossed above the 100-day moving average and is indicating additional upside.

The S&P 500 added a point, or 0.04%, to end a shade under 2,192. The index held positive territory for much of the first half with the high coming in just south of 2,198. The 2,200 level held for the third-straight day with additional hurdles at 2,215-2,225. Last week’s record high reached 2,214. The pullback to 2,188 breeched lower support at 2,195-2,190 with risk to 2,175-2,170 on a close below the latter.

The Nasdaq gained 4 points, or 0.1%, to close at 5,255. Tech tested a low of 5,239 with upper support at 5,225 and the 100-day moving average holding. A close below low support at 5,200 would be a bearish development. Short-term resistance is at 5,275-5,300 and the 50-day moving average. Friday’s peak reached 5,274. The all-time high is at 5,403.

The Russell 2000 advanced a half-point, or 0.03%, to finish at 1,314. The small-caps traded in an 8-point range after kissing 1,311 on the open. The 2-point loss held near-term support at 1,310-1,300. The bounce to 1,319 intraday failed fresh resistance at 1,320-1,325. A close above the latter gets 1,335-1,340 back in play. The index is 3% off the recent record high at 1,347.

The S&P 500 Volatility Index ($VIX, 14.12, up 0.05) made another move below the 12.50 level to challenge support ‪at 12-11.50‬ but stalled at 12.39. The move towards resistance ‪at 14.50-15‬ reached 14.48 ahead of Friday’s closing bell but held for the second-straight session. A close above the latter and the 200-day moving average would be a bearish development.

Although December has been a little choppy, the November results were impressive with the bulls pushing lifetime highs and my late February price targets. The Dow jumped 981 points, or 5.4%, last month to end a three-month losing streak. The S&P 500 surged 72 points, or 3.4%, and also closed in positive territory for the time since July.

The Nasdaq gained 134 points, or 2.6%, in November while the Russell 2000 zoomed nearly 131 points, or 11%. Both indexes easily recovered October’s losses following three-month wins streaks from July thru September. Clearly, the small-caps have been the most volatile of the major indexes and a trend likely to continue into 2017.

The Monday/ Friday closes have improved on the Dow despite last week’s pullbacks. The blue-chips had their three-week Monday win streak snapped last week but have traded higher in five of the past eight. Friday closes are still choppy as they have alternated over the past month following last week’s pullback.

For new subscribers, up Monday/ Friday’s can signal money is moving into the market. Lower closes usually signal money is moving out of the market as traders are hesitant to stay long over the weekend or buy at the start of the week. Choppy Monday/ Friday closes can signal trading ranges.

One of the biggest developments from last week was the divergence between Tech and blue-chips as money rotated out of one sector and into others. Many of the big cap and momentum names faded with the Nasdaq failing below but holding the 5,250 level last week. In the November 21st Pre-Market update, I mentioned these key levels of support going forward:

Dow 18,600
S&P 2,160
Nasdaq 5,250
Russell 1,280

The Nasdaq tested a low of 5,238 and closed at 5,251 last Thursday. On Friday, the index kissed 5,239 and finished a nickel above 5,250. Of course, we need to see the aforementioned intraday lows hold today, and all week for that matter, before we can say a “double bottom” was set last week. Let’s hope so.

The other major indexes have wiggle room of 2%-3% before my November 21st key support levels come into play. If there is continued weakness and follow thru across the board, the Nasdaq could test 5,100-5,050 and its 200-day moving average.

The Dow is 5% above its 50-day moving average while the S&P 500 is holding its 50-day moving average by less than 2%. The Russell 2000 is also 5% above its 50-day moving average and the Nasdaq is just 7 points shy of clearing this level.

I mentioned in January there was talk last December (2015) the Fed would hike rates 2-4 times this year. I said I will “take the under” as the odds remained high, in my book, there wouldn’t be a rate hike until this December, if one at all. We shall see next week.

The zombies will be meeting ‪on December 13th-14th‬ but mortgage rates have surged from 3.5% to more than 4% since the election, its fastest pace in more than three years. In Janet Yellen’s speech on November 18th, she said that a rate hike could come relatively soon, but the unemployment rate was slightly above the mean of what the Fed considers a healthy rate. Given Friday’s drop to 4.6%, she can’t use that excuse again.

The only worry the Fed can possibly NOT hike rates over is core inflation which is still about 1.75% and below the Fed’s 2% goal. Also, any rate hike could further strengthen the already strong and rising dollar. A stronger dollar would make it harder for emerging markets to buy U.S. exports but these excuses can certainly handle a quarter-point hike.

Soon to be president, Donald Trump’s first promises were to deregulate banks and repeal Dodd Frank, which placed regulations on the financial markets due to the Credit Crisis. Following his victory, financial stocks were the biggest winners in the first after 3 days the election, rising over 12%.  They rose 3.4% in the week after that, and rose 1.8% over Thanksgiving week. For November, many financial stocks saw gains of 15%-20%.

The Financial Select Sector Spiders (XLF, $22.65, down $0.25) were at $21.67 in mid-November and traded to another fresh 52-week and multi-year high of $22.95 last Thursday.

On November 14th, I has this to say about XLF:

“The 11% surge in XLF last week was breathtaking and the options chains were busy. The 5-year monthly chart shows short-term resistance at $22 with fluff to $24-$25 at some point in early 2017. Support is at $21-$20.

The XLF ‪December 22‬ calls (XLF161216C00022000, $0.38, up $0.28) traded over 10,000 contracts on Friday while the XLF ‪December 23‬ calls (XLF161216C00023000, $0.11, up $0.10) had volume of nearly 18,000 contracts. These options have over a month of time premium and can be targeted by bullish traders. I would wait for a possible pullback while watching the January 2017 call options to see if they get cheaper.”

While these aforementioned options weren’t official recommendations for the portfolio, the XLF ‪December 22‬ calls (XLF161216C00022000, $0.80, down $0.15) are up over 100% despite Friday’s pullback from 95 cents. The XLF ‪December 23‬ calls (XLF161216C00023000, $0.17, down $0.13) were nearly cut in half but are still showing a 50% profit.

Obviously, if you were in these trades, you should have locked-in triple-digit profits by now while playing with the house’s money on the other half. If you are still in any of these trades, please exit them or place Stop Limits to protect profits.

I have received hundreds of emails on the XLF subject and the regular December options expire in 11 days, or ‪next Friday‬. I could use January or February call options to play a move a close above $23 in the coming weeks so stay locked-and-loaded.

How the Financial stocks hold up and what happens in Tech this week are the two main area of focus this week. The third would be the VIX and the index holding key levels of resistance on additional market weakness.

I could have New Trade alerts this week but I want to ensure everyone is comfortable with the changes. I worked nonstop throughout the weekend answering phone calls and meeting with my team. I have a number of talented people working with me (again) and please help us in making this transition as smooth as possible for you. If you have any questions or concerns, email me or my support team. You can also call me and Cat Tierney, as well.

I will be sending additional updates this week to ensure all functions of the website and newsletter are working before sending fresh trades. I don’t plan to close any New Trades this week, so please be patient, if something isn’t working and just let us know. To everyone, thanks you for your support, and I look forward to serving your needs into 2017 – and my 10-year anniversary!


Momentum Options Play List

Closed Momentum Options Trades for 2016: 81-34 (70%). 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.


E*Trade Financial (ETFC, $34.93, down $0.37)

ETFC January 35 calls (ETFC170120C00035000, $1.45, down $0.25)

Entry Price: $1.20 (11/30/2016)
Exit Target: $2.40
Return: xx
Stop Target: $1.25 (Stop Limit)

Action: Set a Stop Limit at $1.25 to protect profits. Friday’s low touched $1.27.

Support is at $34.75-$34.50. Resistance is at $35.25-$35.50. The 50/100/200-day major moving averages remain in a solid uptrend.

PowerShares QQQ Trust (QQQ, $115.70, up $0.23)

QQQ January 122 calls (QQQ170120C00122000, $0.29, down $0.01)

Entry Price: $0.90 (11/30/2016)
Exit Target: $1.80
Return: -xx%
Stop Target: None

Action: Resistance is at $116-$116.50 and the 100-day moving average. Near-term support is at $115-$114. A close below the latter would be a bearish development.


Rambus (RMBS, $12.76, up $0.09)

RMBS ‪February 14‬ calls (RMBS170217C00014000, $0.31, down $0.01)

Entry Price: $0.53 (11/30/2016)
Exit Target: $1.10
Return: -xx%
Stop Target: None

Action: Support is at $12.75 and the 200-day moving average followed by $12.50 and the 50-day moving average. Resistance is at $13 and the 100-day moving average.

TiVo (TIVO, $19.65, down $0.15)

TIVO January 22.50 calls (TIVO170120C00022500, $0.17, down $0.08)

Entry Price: $0.33 (11/30/2016)
Exit Target: $0.70
Return: -48%
Stop Target: None

Action: Support is at $19.50-$19.25 and the 200-day moving average. Resistance is at $20-$20.25 and the 50/100-day moving averages.

Chicago Bridge & Iron (CBI, $32.10, down $1.75)

CBI January 35 calls (CBI170120C00035000, $0.65, down $0.60)

Entry Price: $1.25 (11/25/2016)
Exit Target: $2.50
Return: -48%
Stop Target: None

Action: Support is at $32-$31 and the 100-day moving average. Resistance is at $32.50-$33.

Imax (IMAX,$31.05, flat)

IMAX January 36 calls (IMAX170120C00036000, $0.20, flat)

Entry Price: $0.90 (11/23/2016)
Exit Target: $1.80
Return: -78%
Stop Target: None

Action: Support is at $31-$30.75 and the 50/100/200-day moving averages followed by $30.50-$30. A close below the latter will likely force an early exit for the trade. Resistance is at $31.25-$31.50.

You can read my previous comments on IMAX from the 11/28/16 Pre-Market update.


Microsoft (MSFT, $59.25, up $0.05)

MSFT December 62.50 calls (MSFT161216C00062500, $0.08, down $0.02)

Entry Price: $0.45 (11/22/2016)
Exit Target: $1.00
Return: -82%
Stop Target: None

Action: Support is $59-$58.75 and the 50-day moving average. Resistance is at $60 and a level that I would like to see recovered by midweek.


Lattice Semiconductor (LSCC, $6.94, up $0.07)

LSCC December 7.50 calls (LSCC161216C00007500, $0.05, flat)

Entry Price: $0.30 (10/12/2016)
Exit Target: 60 cents (Limit Order)
Return: -83%
Stop Target: None

Action: Support is at $6.75 and the 50-day moving average. Resistance is at $7followed by $7.20-$7.25. Continue to hold.

You can read my previous comments on LSCC and the buyout offer of $8.30 a share from the 11/4/16 Pre-Market update.

Trade on!

Rick Rouse
Editor and Chief Options Strategist
Momentum Options