MomentumOptions.com Pre-Market Update for 12/12/2016
Bulls Continue Record Run
The market regained its momentum last week following a slight pullback to start the month. The Dow, of course, hasn’t skipped a beat as the blue-chips have traded higher for five-straight weeks and continues to set record highs.
It was good to see the other indexes recover and push fresh all-time highs, as well, especially with Wall Street continuing to doubt the rally. At some point, a bigger pullback will come, but the rest of December is looking bullish as long as volatility stays relaxed.
The Dow zoomed 142 points, or 0.7%, to end at 19,756 on Friday. The blue-chips held positive throughout the session while reaching a record peak of 19,757. My near-term targets of 19,800-20,000 continue to be pushed and a close above lower resistance today would be bullish. Rising support is at 17,600-17,500.
The S&P 500 soared 13 points, or 0.6%, to close at 2,259. The index opened at 2,249 while reaching an all-time peak of 2,259.80 into the closing bell. I mentioned continued closes above resistance at 2,250 could lead to a run towards 2,275-2,300 by the end of the month. Fresh support is at 2,240-2,235.
The Nasdaq added 27 points to the upside, or 0.5%, to finish at 5,444. Tech traded to a lifetime high of 5,450 intraday to keep my near-term fluff targets of 5,475-5,500 in play. Short-term resistance is at 5,475. Support has moved up to 5,400-5,350.
The Russell 2000 advanced nearly 2 points, or 0.1%, to settle at 1,388. The small-caps slipped 3 points to 1,383 intraday with rising support at 1,380-1,375 holding. The run to 1,392 was another record high with short-term resistance at 1,395-1,400. A close above the latter would be bullish for a possible yearend run to 1,425-1,435.
The S&P 500 Volatility Index ($VIX, 11.75, down 0.89) fell 7% after trading up to 12.72 on Friday’s open. Resistance at 12.50-13.50 held with a close above the latter being a warning signal. The fade to 11.67 afterwards came close to clearing support at 11.50. Continued closes below this level gets 10 and possibly, single-digits in the mix.
The Dow had nine record closes ahead of the election and has posted a baker’s dozen all-time high closes since. With 22 record highs in the books and 14 trading days left for 2016, the chances are good this number could reach 30. This may sound a little bullish to some of you, but I have mentioned my longer-term charts from February 2015 have penciled-in this type of price action.
My price targets from the February lows of this year were also very bullish and I have covered both in recents weeks. I have done so because it has been one of the easiest ways to stay bullish. I have also listed crucial downside targets throughout the year that the bulls have held along with covering the VIX on a daily basis.
Granted, some of the downside targets were stretched, or bended, but they held up and didn’t crack. At some point, the downside targets I listed on November 21st will come into play but I mentioned, if they held, the rebound rally off the pre-election lows could last into yearend. To review, these targets are:
I will be adjusting these targets this week, or next, if the major indexes continue to set higher highs as the opportunity to go short could come into play in January, or February. Until then, the trend remains our friend. Speaking of trends, they also can be bearish but don’t be nervous to play a pullback, correction, or market selloff at some point in 2017. We can make just as much money on the downside as bullish traders make on the upside. It is also why I believe 2017 will be one of the most fascinating markets, ever, to trade.
In the meantime, my Price Targets and charts from February 2015 predicted:
It remains to be seen if, and when, these targets will come into play but it has been one of the main reasons I have stayed bullish this year. While most market pundits continue to doubt the rally, having a game plan keeps you focused.
This week promises to be a little more volatile as the Fed will meet on interest rates along with triple-witching option expiration this Friday.
According to the futures market, there is a 98% chance the Federal Reserve will raise interest rates at its meeting on December 13th-14th. While it seems to be a given a quarter-point hike is in the cards, stranger things have happened.
Mortgage rates for a 30-year fixed-rate loan have surged from 3.5% to more than 4.1% since the election, its fastest pace in more than three years. This is due to expectation of higher inflation under a Trump administration and additional rate hikes down the road.
The rise in mortgage rates have given an added boost to banks, homebuilders, and mortgage companies like Freddie Mac (FMCC), Fannie Mae (FNMA), and New Residential (NRZ). Surging mortgage rates could increase home buying, as demand still outstrips supply and rates are still at near record lows.
The last time mortgage rates surged this fast, in 2013, the S&P 500 rose 25% for the year. However, mortgage rates and stocks could pullback if the Fed does not raise rates this week. In Janet Yellen’s speech on November 18th, she said that an increase could come relatively soon, but the unemployment rate was slightly above the mean of what the Fed considers a healthy rate. This was a fascinating and somewhat bewildering statement considering unemployment remains under 5%.
Further, core inflation is still about 1.75%, below the Fed’s 2% goal. The only excuse the zombies could use and may not hike rates would be further strength in an already strong dollar. A stronger dollar would make it harder for emerging markets to buy U.S. exports. However, with unemployment falling, inflation rising, and GDP growing, chances are the Fed will raise rates by 0.25%. The U.S. dollar is at a two-year high.
For the sake of a bearish argument, the last time the Fed raised interest rates for the first time in years was last December 2015. A liquidity crisis happened in emerging markets afterwards and led to a 13% correction. The U.S. dollar peaked around the rate hike and fell in the months afterward. Gold bottomed around $1,050 and surged to $1,375 by mid-2016. Many of you know I’m a historian buff, so this factoid can’t be ignored, either, as history often rhymes and repeats itself.
Speaking of Gold, the yellow metal is at multi-month lows and could face additional weakness to $1,125-$1,100 on a close below $1,150. If so, I have put options ready on my Watch List to play the possible breakdown.
I have a updates for our current trades as I have raised the Stop Limits on CBI, RMBS and lowered the Exit Target on MSFT.
From desk to press, futures look like this: Dow (+19); S&P 500 (+1); Nasdaq 100 (xx); Russell (-17).
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.
Viavi Solutions (VIAV, $8.51, up $0.07)
VIAV March 9 calls (VIAV170317C00009000, $0.40, up $0.04)
Entry Price: $0.37 (12/8/2016)
Exit Target: $1.00
Stop Target: None
Action: The five-year chart shows longer-term resistance is at $8.75-$9. A close above the latter should lead towards a run towards $9.50. Short-term support is at $8.40 followed by $8.25-$8.
E*Trade Financial (ETFC, $35.64, up $0.20)
ETFC January 35 calls (ETFC170120C00035000, $1.75, flat)
Entry Price: $1.20 (11/30/2016)
Exit Target: $2.40
Stop Target: $1.50 (Stop Limit)
Action: Friday’s high reached $35.74. Resistance is at $35.75-$36 and the recent multi-year high of $36.04. Support is at $35-$34.75.
PowerShares QQQ Trust (QQQ, $119.50, up $0.93)
QQQ January 122 calls (QQQ170120C00122000, $0.90, up $0.20)
Entry Price: $0.90 (11/30/2016)
Exit Target: $1.80
Stop Target: None
Action: Friday’s peak reached $119.54 and the recent all-time high is at $119.66. Resistance is at $119.75-$120. Support is at $118.50-$118.
Rambus (RMBS, $14.27, up $0.06)
RMBS February 14 calls (RMBS170217C00014000, $0.95, up $0.03)
Entry Price: $0.53 (11/30/2016)
Exit Target: $1.10
Stop Target: 65 cents, raise to 75 cents (Stop Limit)
Action: Raise the Stop Limit from 65 cents to 75 cents.
Resistance is at $14.50 and the 52-week high following the close above $14.25 to end last week. Near-term support is at $14-$13.75.
TiVo (TIVO, $21.65, up $0.15)
TIVO January 22.50 calls (TIVO170120C00022500, $0.55, flat)
Entry Price: $0.33 (11/30/2016)
Exit Target: $0.70
Stop Target: None
Action: Resistance is at $22-$22.50. Support is at $21.25-$21. Shares traded up to $21.70 on Friday.
Chicago Bridge & Iron (CBI, $35.50, up $0.73)
CBI January 35 calls (CBI170120C00035000, $1.80, up $0.20)
Entry Price: $1.25 (11/25/2016)
Exit Target: $2.50
Stop Target: $1.30, raise to $1.50 (Stop Limit)
Action: Raise the Stop Limit from $1.30 to $1.50.
Fresh resistance is at $35.75-$36. Support has moved up to $35-$34.75.
Imax (IMAX,$32.55, up $0.10)
IMAX January 36 calls (IMAX170120C00036000, $0.30, flat)
Entry Price: $0.90 (11/23/2016)
Exit Target: $1.80
Stop Target: None
Action: Resistance is at $32.75-$33. Friday’s high tapped $32.80. Support is at $32.25-$32.
You can read my previous comments on IMAX from the 11/28/16 Pre-Market update.
Microsoft (MSFT, $61.97, up $0.96)
MSFT December 62.50 calls (MSFT161216C00062500, $0.52, up $0.30)
Entry Price: $0.45 (11/22/2016)
Exit Target: $1.00, lower to 75 cents (Limit Order)
Stop Target: None
Action: Lower the Exit Target from $1 to 75 cents with a Limit Order.
Shares traded to an all-time high of $61.99 on Friday. These options expire this Friday and they are still out-of-the-money. This means time decay will start to erode rapidly, starting today. I lowered the Exit Target to ensure we can still try to make a little more to the upside. I could set a Stop Limit or take profits ahead of today’s Mid-Market update. If I take action, I will send out a Trade Alert.
Fresh resistance is at $62-$62.50. Support is at $61.
Lattice Semiconductor (LSCC, $7.02, up $0.01)
LSCC December 7.50 calls (LSCC161216C00007500, $0.05, flat)
Entry Price: $0.30 (10/12/2016)
Exit Target: 60 cents (Limit Order)
Stop Target: None
Action: Support is at $6.75 and the 50-day moving average. Resistance is at $7-$7.25.
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