MomentumOptions.com Pre-Market Update for 2/6/2017
All-Time Highs Back in Play
The bulls struggled throughout last week as the bears pushed the lower end of the trading ranges that have been in play since early December. Much of the nervousness came on what the Fed might do as they left rates unchanged and Friday’s jobs report that came in better than expected.
The end result was a weekly win for the bulls as the market made another attempt at fresh all-highs. While February tends to be the weakest link of the “Best Six Months”, and a tricky month to trade, I’ve talked about a continuing trading range with the possibility of fresh highs lasting into mid-month.
The Dow zoomed 186 points, or 0.9%, to close at 20,071 on Friday. The blue-chips opened at 19,964 and easily cleared lower resistance at 20,000-20,125 within the first 30 minutes of action. The intraday peak reached 20,081 with upper fluff targets at 20,200-20,350 on a close above the all-time high of 20,125.58. Support has moved up to 19,900-19,800 with a close below 19,700 and the 50-day moving average being a bearish development.
The S&P 500 soared 16 points, or 0.7%, to end at 2,297. The index opened at 2,288 and above lower resistance at 2,285-2,300 while reaching a high of 2,298. The all-time high is at 2,300.99 and I have talked about a possible push to 2,325-2,350 on continued closes above the 2,300 level. Support remains at 2,275-2,270 with backup help at 2,260-2,250 and the 50-day moving average.
The Nasdaq jumped 30 points, or 0.5%, to finish at 5,666. Tech opened on lower resistance at 5,650-5,675 while making a steady run to session highs into the closing bell. The bulls came within 3 points of the lifetime high of 5,669 and a move above 5,675 gets 5,725-5,750 in play. Support has moved up to 5,625-5,600. The 5,600 level has held into the close for 9-straight sessions with a move below this level our signal to go short.
The Russell 2000 surged 20 points, or 1.4%, to settle at 1,377. The small-caps also went out at their session high while clearing and holding upper resistance at 1,365-1,370. These levels will serve a short-term support with a close below 1,360 and the 50-day moving average. Fresh hurdles are at 1,385-1,390 with the all-time high at 1,392. A move above this level gets 1,400-1,410 in the mix.
The S&P 500 Volatility Index ($VIX, 10.97, down 0.96) fell 8% while staying deflated throughout Friday. The low reached 10.72 and the close below support at 11.50-11 keeps 10 and single-digits on the radar. The VIX tested a 52-week low of 9.97 last Wednesday and I mentioned single-digits could stay relevant for a few weeks on continued closes below 10. Resistance and warning signs remain at 12.50-13.50. Last week’s high tapped 12.99 and the VIX started 2017 at 14.04. The time to buy the VIX will come at some point on a move or close above 13.50-14. Otherwise, I mentioned it would be useless to buy protection although some of the pros continue hawking this strategy.
Although the market ended January on a low note, it was still a positive month. The Dow gained nearly 102 points while the S&P 500 added 40 points. The Nasdaq jumped 230 points and the Russell 2000 climbed over 4 points. The slack action in the small-caps was slightly concerning but I’ve mentioned the stronger dollar could put a pinch on the sector.
I mentioned the “Best Six Months” strategy earlier and it is a time frame that tends to be bullish for the Dow from November 1st thru April 30th. November, December, January, March and April to be the top months since 1950. This is why I say February is the trick month to trade.
To put this time period in perspective of how well the blue-chips perform versus the other six months of the year, the Dow has gained nearly 18,000 points. The remaining months from May through October since 1950, the index has fallen over 400 points. This is a very powerful indicator and something to think about when May rolls around.
Meanwhile, the S&P 500 has gained over 1,800 points in the same “Best Six Months” compared to a gain of over 200 points in the worst six months that followed. While nothing can be assumed for 2017, history has a way of repeating and rhyming and why I follow and study the trends.
Another bullish signal was the positive close on the S&P 500 for January. The January Barometer has shown since 1972, that 88% of the time the index closes higher for the month, the year is also positive. There has only been eight errors that gave a false signal and they came on quantitative easing and rate cuts for the most part. Those factors certainly won’t be in play for 2017.
While it is true the stock market has performed its best when there is a Democratic President and a Republican congress, having a Republican President along with complete control of congress has also been bullish. With this scenario, the Dow has been up, on average, over 14%.
One sector I was watching closely last week were the Transports. I often mention the Dow Jones Transportation Average ($TRAN, 9,241, up 138) as they tend to trade in tandem with the Dow. The chart below show the break below the 50-day moving average last week that was recovered on Friday’s close. Longer-term support at 9,000 is still a crucial level going forward with continued closes below this level a bearish development. Resistance is at 9,300-9,400 with a close above the latter getting fresh all-time highs in play.
Checking in on Gold ($GOLD, $1,220.80, up $1.40), the yellow metal regained the $1,200 level last week and the major-moving averages are starting to level out following steady declines since early November. Continued closes above the $1,230 level and the 100-day moving average would be bullish for a possible run towards $1,265-$1,270 and the 200-day moving average. Support is at $1,200 followed by $1,175 and the 50-day moving average.
I love trading Gold, to the upside and downside, as my Track Records have shown over the years. I will be targeting the Spider Gold Shares (GLD, $116.13, up $0.29) as a way to play a bullish trade in Gold if shares clear $116.50-$117 and the 100-day moving average this week. A close above the latter could lead towards a run $118-$120 and the 200-day moving average. A close below $114-$112 and the 50-day moving average would stall the current momentum.
The GLD March 119 calls (GLD170317C00119000, $1.20, up $0.10) are the first options on my list as they would double from current levels if GLD clears $121.40, technically by mid-March. These options were active on Friday and open interest is approaching 3,000 contracts.
The GLD March 120 calls (GLD170317C00120000, $0.95, up $0.50) also look attractive as these options would double from current levels if GLD shares are pushing $122 by March 17th. While there are weekly call options to trade on GLD, often times the bid/ ask is wider and volume is lighter. This is why I mainly trade monthly options. The 52-week high for GLD shares are north of $131. Of I take action on either or both of the aforementioned call options, I will send out a New Trade Alert.
Silver($SILVER, $17.48, up $0.05) is basically in the same technical setup as Gold and has cleared its 100-day moving average. The next areas of resistance are at $17.75-$18 and the 200-day moving average. Continued closes above the latter could lead to a run towards $19-$20 in the coming months. Support is at $17-$16.75 and the 50-day moving average.
One of the better ways to trade Silver is by tracking the iShares Silver Trust (SLV, $16.57, up $0.01). Shares have also cleared their 100-day moving average with near-term resistance at $16.75-$17 and the 200-day moving average. Support is at $16.25-$16 followed by $15.75 and the 50-day moving average.
Bullish traders can target the SLV March 17 calls (SLV170317C00017000, $0.33, up $0.01). The options traded over 2,000 contracts on Friday and open interest is above 16,000 contracts. The SLV April 17 calls (SLV170421C00017000, $0.51, up $0.01) would give the trade an extra month to play out.
Both options would double from current levels if GLD is above $17.65 by mid-March for the GLD March 17 calls and $18 by late April on the GLD April 17 call options.
I have updated our current trades, including Friday’s MYL recommendation. I could also have New Trades as early as this morning, depending on the action.
From desk to press, futures look like this: Dow (+21); S&P 500 (+2); Nasdaq 100 (+1).
Momentum Options Play List
Closed Momentum Options Trades for 2017: 7-1 (88%). All trades are dated and time stamped for verification. New subscribers can look at the past history to see how the trades have played out or to research our Track Records.
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.
Mylan (MYL, $39.21, up $0.21)
MYL March 42.50 calls (MYL170317C00042500, $0.60, up $0.10)
Entry Price: $0.55 (2/3/2017)
Exit Target: $1.10
Stop Target: None
Action: Set an Exit Target at $1.10. There is no Stop Target.
Near-term resistance is at $39.50-$40. Friday’s high tapped $39.50. Support is at $38.50 followed by $38-$37.75 and the 100-day moving average.
Viavi Solutions (VIAV, $9.23, down $0.05)
VIAV March 9 calls (VIAV170317C00009000, $0.50, down $0.05)
Entry Price: $0.50 (1/25/2017)
Exit Target: $1.00
Stop Target: None
Action: Support is at $9-$8.75. Friday’s low reached $9.11. Resistance is at $9.50-$10.
TherapeuticsMD (TXMD, $5.84, down $0.04)
TXMD June 7.50 calls (TXMD170616C00007500, $0.60, down $0.10)
Entry Price: $0.75 (1/18/2017)
Exit Target: $1.50
Stop Target: None
Action: Shares tested a high of $5.98 Friday. Resistance is at $6. Support is at $5.50-$5.25.
Sony (SNE, $31.66, down $0.28)
February 27 puts (SNE170217P00027000, $0.10, flat)
Entry Price: $0.65 (12/23/2016)
Exit Target: $1.30 (closed half at 10 cents on 1/23/17)
Stop Target: None
Action: Support is at $31.50-$31. Resistance is at $32.