MomentumOptions.com Pre-Market Update for 1/17/2017
Mixed Week Slightly Bullish
The Financial sector delivered strong earnings on Friday but it wasn’t enough to offset a mixed week on Wall Street. Tech continued its run towards record highs but the blue-chips remain on hold in their quest for bluer-sky territory.
Fourth-quarter earnings will heat up during an upcoming shortened week that concludes with option expiration day and the Presidential inauguration on Friday. Needless to say, Donald Trump’s first 100 days in office will be market moving material with Healthcare stocks likely taking center stage.
The Dow dipped 5 points, or 0.03%, to finish at 19,885. The blue-chips traded up to 19,952 during the morning action with resistance at 19,900-20,000 continuing to hold. Support at 19,800-19,725 held following the late day trip to 19,849. The trading range since mid-December is signaling a 2%-3% upside move, or 3%-5% pullback, once it cracks. For the week, the Dow fell 78 points.
The S&P 500 gained 4 points, or 0.2%, to settle at 2,274. The index held positive territory throughout the session with the high reaching 2,278. Lower resistance at 2,275-2,300 failed to hold by a point with the 52-week high at 2,282. Support is at 2,260-2,250 with a yellow light warning on a close below 2,240. The S&P has traded in a tight 2% range since early December and slipped 2 points last week. The same outlook is in mix as the blue-chips with a slightly longer trading range in play.
The Nasdaq gained 26 points, or 0.5%, to close at 5,574. Tech returned to its winning ways after having its seven-straight green streak interrupted by trading to another record high of 5,584. I have been cheerleading for a possible run to fresh resistance and fluff targets of 5,575-5,625 with a close above the latter likely a short-term top. Near-term support remains at 5,525-5,500. A close below the latter might be a good opportunity for a quick backtest to 5,450-5,400 and the 50-day moving average. The index advanced 53 points, or 1%, last week.
The Russell 2000 jumped nearly 11 points, or 0.8%, to end at 1,372. The small-caps also held positive territory throughout Friday’s session while tickling a high of 1,376. The close below lower resistance at 1,375-1,400 continues to be a headache with the all-time high just south of 1,393. Support is at 1,360-1,350 with a close below 1,340 a warning sign to lighten up on bullish trades. The index added a nickel for the week.
The S&P 500 Volatility Index ($VIX, 11.23, down 0.31) kissed a low of 10.94 with support at 11.50-11 holding for the seventh-straight session. The 52-week low is at 10.93 and I continue to believe it’s a 60/40 chance of the VIX testing 10 and possibly single-digits this month. Resistance at 12.50-13.50 still requires respect with a move above the latter a possible signal to play VIX call options.
It was good to see strong earnings from the Financial sector, for the most part, as Bank of America (BAC, $23.01, up $0.09) and JPMorgan Chase (JPM, $86.70, up $0.46) topped estimates while Wells Fargo (WFC, $55.31, up $0.81) came up short of expectations.
BAC reported a profit of $0.40 a share versus forecasts for $0.38 a share. However, revenue was slightly light at $20 billion versus expectations for $20.85 billion. JPM beat by 27 cents after reporting profits of $1.71 a share on revenue of $24.3 billion. The suit-and-ties were looking for $1.44 a share on revenue just south of $24 billion.
WFC missed by 4 pennies after reporting a profit of $0.96 a share on revenue of $21.6 billion. Analysts were looking for a buck a share on revenue of $22.45 billion. For the week, the stock gained 27 cents.
There could still be a trade in WFC now that earnings are out of the way with the February or March call/ put options. If shares can clear $56, perhaps there is a bullish trade for a possible run towards $58-$60. If shares fall below $54-$53.75 and the 50-day moving average in the coming weeks, a bearish trade for a continued backtest to $52-$51 could be useful.
Citigroup (C, $59.63, up $0.40) and Goldman Sachs Group (GS, $244.30, up $0.46) will announce their quarterly results on Wednesday morning. Citigroup is expected to post earnings of $1.12 a share on revenue of $17.3 billion. Golden Slacks’ numbers are pegged at $4.82 a share on revenue of $7.72 billion.
Shares of Goldman Sachs reached a fresh 52-week peak of $247.77 on Friday and could hold the key for the Dow to trip 20,000 this week. The top of an early December, or 6-week trading range, is on the verge of a breakout if the company comes in with a beat-and-raise quarter. A 5% move could have GS pushing $260 or $235 this week. The 50-day moving average is 10% away and could come into play on an earnings miss.
The options for GS are very expensive chips and an earnings trade would be risky with the near-term regular January options expiring on this Friday’s close. The GS January 250 calls (GS170120C00250000, $1.90, down $0.75) are a lottery ticket but would double if shares clear $254 on Wednesday’s results, or by Friday’s close. The GS January 240 puts (GS170120P00240000, $2.40, down $1.10) can be targeted by giddy bearish traders targeting a move below $235. If cleared, the aforementioned put options would also double.
With premiums approaching $4 for both options, a strangle option trade would also be a high-roller bet. The break even points would be at $254 and $236 with a double occurring if shares clear $258, or fall below $232. Obviously, I will be sitting on the sidelines with GS but I’m looking at the Brokerage stocks as possible earnings trades.
Interactive Brokers (IBKR, $38.78, up $0.10) will confess their results after today’s close with Charles Schwab (SCWH, $41.41, up $0.15) and TD Ameritrade (AMTD, $46.86, up $0.12) earnings due out on Wednesday.
A sneaky play without taking the direct hit of an earnings announcement might be a bullish trade on E*Trade Financial (ETFC, $36.93, up $0.21). Shares have been in a strong, tight range for two weeks but have been setting higher highs and fresh 52-week peaks since mid-November.
Analysts are expecting a profit of $0.42 a share on revenue just shy of $502 million. The high estimate is pegged at $0.45 a share with the low at $0.39. The high revenue estimate is north of $517 million while the lowball is at $459 million. The company has topped estimates by 12 cents and 10 cents, twice, over the past three quarters.
The ETFC February 38 calls (ETFC170217C00038000, $0.95, up $0.15) look attractive at current levels and would give the trade a month to play out. If ETFC shares can clear $40 by mid-February, these options would easily double from current levels. Of course, an earnings miss, or lowered guidance, could cause a pullback in the stock.
The first five days of January were up for the market, overall, and the odds are usually good there will be full-year gains, according to history. While this is still a coin flip as far as market direction, the overall January results are more predictive. However, like last year, a pre-election year is always tricky to predict as well as a new President’s first year in office. History also points to February being a tricky month to trade and is usually a bearish month.
Needless to say, I believe volatility will return in a big way in the coming weeks with possible all-time highs still in play across the board. The one omen has been all the guarantees for the Dow to trip 20,000 since late December. For longer-term subscribers, they know I have been targeting Dow 20K since February 2015 but until it triggers, it isn’t official.
This week’s action for higher highs will be contingent on Goldman Sachs breaking out to fresh 52-week peaks, a continuing lower VIX, with Friday being key closes ahead of the first weekend of the incoming President. If my additional fluff targets are cleared and held, that would be great but we still need to be prepared for a bear attack at any moment.
From desk to press, futures look like this: Dow (-54); S&P 500 (-7); Nasdaq 100 (-12); Russell (-6).
Momentum Options Play List
Closed Momentum Options Trades for 2017: 2-0 (100%). 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 8am and 12pm–2pm (EST) updates. Also, I will usually give you a heads-up if I think I’m going to send an Trade Alerts outside of these time frames.
Transocean (RIG, $15.48, down $0.36)
RIG March 17 calls (RIG170317C00017000, $0.63, down $0.12)
Entry Price: $0.66 (1/13/2017)
Exit Target: $1.35
Stop Target: None
Action: Shares have traded between $15-$16 to start 2017. The recent 52-week peak is at $16.66. Near-term resistance is at $15.75-$16. Support is at $15.25-$15. All of the major moving averages are in a solid uptrend. Earnings aren’t due out until late February so we don’t have to worry about headline risk on this front, unless the pre-announce.
Tower Semiconductor (TSEM, $20.39, up $0.13)
TSEM February 21 calls (TSEM170217C00021000, $0.75, up $0.05)
Entry Price: $0.65 (1/11/2017)
Exit Target: $1.30
Stop Target: None
TSEM February 20 calls (TSEM170217C00020000, $1.25, up $0.10)
Entry Price: $0.55 (1/3/2017)
Exit Target: $2 (closed 1/3 @ $1.10)
Stop Target: $1, raise to $1.10 (Stop Limit)
Action: Raise the Stop limit from $1 to $1.10.
Friday’s run to $20.60 set another fresh 52-week peak and multi-year high. Resistance and blue-sky territory is at $20.75-$21. Support is at $20-$19.75.
Green Dot (GDOT, $25.28, up $0.28)
GDOT March 25 calls (GDOT170317C00025000, $1.45, up $0.10)
Entry Price: $1.30 (1/6/2017)
Exit Target: $2.60
Stop Target: $1
Action: Set an initial Stop Target at $1. This is not yet a Limit Order but could become one at higher levels on a pullback.
Last week’s 52-week peak reached $25.63. Resistance is at $25.50-$25.75. Rising support is at $25-$24.75.
Sprint (S, $8.61, up $0.15)
S February 9 calls (S170317C00009000, $0.39, up $0.08)
Entry Price: $0.54 (1/6/2017)
Exit Target: $1.10
Stop Target: None
Action: Resistance is at $8.75-$9. Support is at $8.50-$8.25. A close below $8 and the 50-day moving average would be a bearish development and likely force an early exit.
Sony (SNE, $31.02, up $0.15)
February 27 puts (SNE170217P00027000, $0.15, flat)
Entry Price: $0.65 (12/23/2016)
Exit Target: $1.30
Stop Target: 10 cents (Limit Order on half)
Action: Set a Limit Order at 10 cents on half the trade.
The technical setup has improved dramatically over the past week as the 50-day moving average has leveled out after forming a death cross to start the year. Although I predicted this would happen, support and the late December dip to support at $28 held. Friday’s close just below the 100-day moving average could lead to additional gains and a push towards $32-$32.50.
Resistance is at $31.25-$31.50. Support is at $31-$30.50.