Pre-Market Update for 12/27/2016

Bulls Get Back on Track

8:00am (EST)

The market finished higher last week with the bulls regaining slight momentum heading into the final week of trading for 2016. The bears kept fresh resistance in play along with a two-week trading range while denying fresh all-time highs.

The lack of volume could play a larger role this week as Wall Street gets busier with fund managers and traders taking on new positions while scaling out of others. The sector rotation into and out of certain groups will also be important to follow and could yield early signs on how January unfolds.

The Dow added nearly 15 points, or 0.1%, to end at 19,933 on Friday. The blue-chips kissed 19,899 at the start of trading with lower resistance at 19,900-20,000 holding for the fourth-straight session. The all-time record high is at 19,987 set last Thursday. Support at 19,800 has held for seven-straight sessions with backup help at 19,600-19,500.

The S&P 500 climbed roughly 3 points, or 0.1%, to finish at 2,263. The index traded mostly in positive territory throughout the session following a negative 2-point test to 2,158 an hour after the open. Upper support at 2,260-2,250 held with additional help at 2,240-2,235. The close at session highs fell shy of resistance at 2,275-2,300. The all-time peak is half-point above 2,277.

The Nasdaq gained 15 points, or 0.3%, to close at 5,462. Tech slipped a six-pack to 5,441 shortly after the opening bell with support at 5,425-5,400 standing strong. The close back above 5,450 and high of the day was a bullish signal. Resistance remains at 5,475-5,500 with the lifetime peak at 5,489.

The Russell 2000 advanced 8 points, or 0.7%, to settle at 1,371. The small-caps dipped a tenth-point on the open with support at 1,360-1,350 easily holding. A close below the latter would likely signal a short-term top. The run to the session high into the three-day weekend cleared lower resistance at 1,375-1,400 and was a bullish signal. The recent all-time top is just south of 1,393.

The S&P 500 Volatility Index ($VIX, 11.44, up 0.01) traded in a range of 11.81-11.35 and hasn’t made more than a 1-point intraday move since December 9th. Crucial longer-term support is at 10.50-10 and remains in the mix as long as resistance at 12.50-13.50 holds. The close below 11.50 over the past four sessions remains a bullish sign a single-digit VIX is also possible and something that will shock the talking heads.

With four trading days left for the month, and year, the bulls are in good shape to show solid returns over both time frames. The Dow needs to hold 19,123 to post a sweet December while the S&P came into the month at 2,198. The Nasdaq has gained nearly 3% after coming into December at 5,323 and the Russell 2000 has zoomed nearly 4% and was at 1,322 to close November out.

Despite the negative talk about how fast the market has risen in a short amount of time and since the election, the price swing to the upside haven’t been as strong from the prior 2016 selloffs. The small-caps have made the most impressive move and is the only index up double-digits but the talk that the market has come “to far to fast” is overblown nonsense.

With a return to the win column, the bulls have once again proved the talking heads and slick talking pros wrong and will look for the traditional Santa Claus rally to take them to bluer-sky territory this week and into early 2017. However, I mentioned last week a pullback over the final days of trading into yearend and the first two days of January would be a bearish signal worthy of respect.

On another sour note, the Dow closed lower on back-to-back sessions last week for the first time since November 4th. Of course, at some point it was going to happen and nonetheless, an impressive streak.

The one sector I want to focus on this week are the Transports. The Dow Jones Transportation Average ($TRAN, 9,190, up 31) has been in a slight downtrend over the past few weeks and has made lower highs since peaking north of near-term resistance st 9,400 earlier this month.

The good news is a mini-trading range between 9,400-9,175 has been holding with backup support at the 9,000 level. The major moving averages remain in a solid uptrend and show possible higher highs and a run towards 10,000 at some point in 2017.

The Dow and the Transports often work in a tandem and over the years I have discussed Dow Theory patterns and the correlation as they pertain to the market. I will go more in detail next week on how this could effect the first quarter of 2017, but for now, let’s keep it simple.

With some of Wall Street coming back off Christmas vacation, other traders and so-call fund managers will likely milk the last week of action. This means shorting the market shouldn’t be as aggressive as years’ past despite some calling for yearend tax loss selling. Additionally, with lower taxes from a new Trump administration ushering in the New Year, this process could be delayed.

From desk to press, futures look like this: Dow (-4); S&P 500 (-1); Nasdaq 100 (+1)


Momentum Options Play List

Closed Momentum Options Trades for 2016: 87-36 (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.

Sony (SNE, 28.46, up $0.11)

January 27.50 puts (SNE170120P00027500, $0.30, flat)

Entry Price: $0.30 (12/23/2016)
Exit Target: $0.60
Return: 0%
Stop Target: None

February 27 puts (SNE170217P00027000, $0.65, down $0.05)

Entry Price: $0.65 (12/23/2016)
Exit Target: $1.30
Return: 0%
Stop Target: None

Action: Resistance is at $28.75-$29. Support is at $28.25-$28 with a close below the latter being a bearish development. A death cross is in the process of forming with the 50-day moving average in a steady decline and headed for a move below the 200-day moving average.

Array Biopharma (ARRY, $8.80, up $0.19)

ARRY March 10 calls (ARRY170317C00010000, $0.95, up $0.10)

Entry Price: $0.85 (12/21/2016)
Exit Target: $1.70
Return: 11%
Stop Target: None

Action: Friday’s high reached $8.86. Near-term resistance is at $8.75-$9. A close above the latter could lead to a breakout to double-digits. The recent 52-week peak is at $9. Support at $8.50-$8.25. A tight trading range has formed throughout the month that should lead to a major move in the coming weeks.

CVS Health (CVS, $79.14, up $0.35)

CVS January 82.50 calls (CVS170120C00082500, $0.45, up $0.05)

Entry Price: $0.68 (12/20/2016)
Exit Target: $1.40
Return: -34%
Stop Target: None

Action: Resistance is at $80-$80.50 and the 50-day moving average. Support is at $78.50-$78. A close below $76 would be a bearish development.

Viavi Solutions (VIAV, $8.37, up $0.05)

VIAV March 9 calls (VIAV170317C00009000, $0.28, down $0.03)

Entry Price: $0.37 (12/8/2016)
Exit Target: $1.00
Return: -24%
Stop Target: None

Action: Support is at $8.25-$8. Resistance is at $8.35-$8.40.

TiVo (TIVO, $20.20, down $0.20)

TIVO January 22.50 calls (TIVO170120C00022500, $0.20, flat)

Entry Price: $0.33 (11/30/2016)
Exit Target: $0.70
Return: -39%
Stop Target: None

Action: Support is at $20.50-$20 and the 50-day moving average. Resistance is at $21.25-$21.50.