MomentumOptions.com Pre-Market Update for 2/27/2017
Runaway Train Getting Harder to Catch
The bulls once again showed their resiliency on Friday as the major indexes made a last minute comeback to finish the session higher. Although fresh intraday all-time highs weren’t set, the bullish close continues to frustrate the bears and the short-sellers that step in front of the runaway train.
Volatility remains subdued and still has the slick talking pros confused as they become more impatient with the baby steps higher. In fact, it has been nearly three months since the S&P has made over a 1% move with the last time coming in early December. This could change as February winds down and March begins but next month is typically bullish along with April.
The Dow climbed 11 points, or 0.1%, to end at 20,821 on Friday. The blue-chips traded in negative territory throughout much of the session with the low reaching 20,733. Near-term support at 20,600-20,550 held and levels that have been holding for seven-straight sessions. Backup help is at 20,400-20,350. The rebound to 20,821 fell shy of last Thursday’s all-time high of 20,840 and upper resistance at 20,800-21,000. A close above the latter opens the door to 21,200-21,250.
The S&P 500 added 3 points, or 0.2%, to finish at 2,367. The index tested a low of 2,352 rising support at 2,350-2,325 with a close below 2,300 a bearish development. The all-time high at 2,368 and resistance at 2,375-2,400 remain in play with a close above the latter a bullish signal for a run at 2,425.
The Nasdaq jumped nearly 10 points, or 0.2%, to close at 5,845. Tech opened at 5,802 and kissed lower support at 5,825-5,800 on Friday. I have talked about risk to 5,750 on a move below the latter and where we can look to possibly start short positions with a QQQ trade. However, the rebound to session highs into the close keeps last Tuesday’s all-time high of 5,867 and resistance at 5,875-5,900 in play. I would still like to see Nasdaq 6,000 before an eventual pullback but it will depend on momentum.
The Russell 2000 slipped a tenth-point, or 0.01%, to settle at 1,394. The small-caps stayed underwater throughout the session with the low reaching 1,382. Near-term support at 1,390-1,385 was stretched but held with risk to 1,370-1,365 on a close below the latter. Resistance is at 1,405-1,410 with additional fluff to 1,415-1,425 on a close above the latter and all-time high.
The S&P 500 Volatility Index ($VIX, 11.47, down 0.24) cleared lower resistance at 12.50-13.50 following the run to 12.59 shortly after the open. The VIX has not closed above the 12.50 level since January 19th and why it is important this level holds going forward. Support remains at 11-10.50 and the close below 11.50 on Friday looked bullish. Continued closes below the latter keeps 10 and single-digits in play. The February 1st 52-week low is at 9.97.
I will be covering each index along with fresh commentary from the 2015 charts and the current outlook. As you will notice, my Price Targets for all of the major indexes are firmly in play, although they took about a little longer to play out than my previous yearly predictions. Much of the trading ranges and pullbacks caused the delay, but I mentioned throughout last year, they would still come in late 2016, or early 2017.
It has been one of the main reasons I have stayed bullish for the past few years when nearly every market pundit and financial publication has called for a major selloff. Sure, the bears will be roaming at some point this year like they did last year, but remember, you can make just as much money when the market is sinking as you can when it is going up.
Before I get into the charts, these were the levels of support I highlighted in my November 21st market commentary that needed to hold following the election. These levels held in early December, excluding the Nasdaq, and these key support level were:
The Nasdaq fell to a low of 5,238 intraday but closed at 5,251 on December 1st. The following day, the index kissed a low of 5,239 and closed at 5,255. While stretched, Tech did manage to hold the 5,250 level on the closes and it has smooth sailing since then.
At current levels, the aforememtioned price targets would mean a pullback of -11% on the Dow; -9% on the S&P 500; -10% on the Nasdaq; and -8% on the Russell 2000 from my November 21st update. The important thing to remember is these price targets were from 3 months ago and would represent the double-digit correction Wall Street has been waiting for…imagine that.
A double-digit pullback obviously would be bad news to most traders, but remember, if there is this magnificent pullback coming, we will make plenty of money using put options. The good news, if momentum can hold on a longer-term basis, like it has been, higher highs are in store throughout 2017.
The Dow is up 1,059 points for 2017, or 5%. A move towards 22,000-22,250 would add 6%-7% from current levels and would give the blue-chips a total gain of 12%-13% for the year. The Dow came into the year at 19,762. The key levels of support are at 20,000-19,800 with a move below these levels a possible opportunity to go short, longer-term.
Here is my prior 10-year chart for Dow 20,000 from February 2015.
The S&P 500 has added 129 points YTD, or 6%. A run towards 2,500-2,525 would equal another move of 6%-7% from current levels and a total return of 12%-13% for 2017. The index started the year at 2,238. The key levels of support are at 2,300-2,275 with a move below these levels a possible opportunity to go short, longer-term.
Here is my prior 10-year chart for S&P 2,350-2,400 from February 2015.
The Nasdaq came into the year at 5,383 and is higher by 462 points, or 9%. While I have talked about the run to 6,000, a move towards 6,300-6,350 would add another 8%-9% from current levels and a total return of 17%-18% for the year. The key levels of support are at 5,750-5,700 with a move below these levels a possible opportunity to go short, longer-term.
Here is my prior 10-year chart for Nasdaq 5,500-6,000 from February 2015.
The Russell 2000 has gained 37 points, or 3%, for 2017 after coming in at 1,357. While I had already penciled-in Price Targets of 1,400-1,450 for the index, the upper end of this range represents another 4% move higher. I would like to believe the small-caps would outperform in a more business friendly, and less regulatory, environment that could lead towards a run towards 1,500-1,525. This would add another 8%-9% from current levels and an overall return of 11%-12% for 2017. The key levels of support are at 1,375-1,350 with a move below these levels a possible opportunity to go short, longer-term.
Here is my prior 10-year chart for Russell 1,400-1,450 from February 2015.
As far as the S&P 500 Volatility Index, I wanted to use the 15-year chart to show the time periods the VIX has traded in the single-digits and low teens. In late 2006, and early 2017, the index spent 4 months around these low levels of support and why it is possible to see they stay in play thru March and April.
It is hard to say what near-term headlines and longer-term events will play a part in the market’s continued rise or possible fall this year. However, what I do believe is that 2017 and the next several years will provide us a plethora of trading opportunities, bullish and bearish.
It is never wise to short a market setting new highs, or a dull market, for that matter. Given the lack of “1%” moves, the slick talking pros have forgotten how to do their homework, and have become creatures of habit. While they have been waiting for a double-digit pullback since the election, the exact opposite has happened and they still don’t get it.
I’m still preparing for higher highs for a couple of months and will continue to use mostly bullish positions but nothing is a given. However, don’t be nervous to put new money to work on continued highs, or the eventual pullback, if and when it comes. The important thing to remember is the trend is your friend, up or down, and right now, the signs remain bullish.
My Watch List is full of fresh ideas and I should have a New Trade ready shortly after the opening bell so stay locked-and-loaded.
From desk to press, futures look like this: Dow (+9); S&P 500 (+2); Nasdaq 100 (+2); Russell (+1).
Momentum Options Play List
Closed Momentum Options Trades for 2017: 15-2 (89%?). 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 a Trade Alert outside of these time frames.
3D Systems (DDD, $16.49, down $0.14)
March 18 calls (DDD170317C00018000, $0.33, down $0.08)
Entry Price: $0.45 (2/22/2017)
Exit Target: $1.00
Stop Target: None
Action: Friday’s low reached $16.46. Support is at $16.50-$16.25. Near-term resistance at $16.75-$17. Earnings are due out tomorrow morning and I covered the company’s numbers last Thursday in the Mid-Market update.
Flex (FLEX, $16.73, up $0.02)
FLEX April 17 calls (FLEX170421C00017000, $0.40, flat)
Entry Price: $0.35 (2/15/2017)
Exit Target: $0.70
Stop Target: None
Action: Shares traded to a high of $16.77 on Friday. Support is at $16.50-$16.25. Resistance is at $17-$17.25.
TherapeuticsMD (TXMD, $5.84, up $0.20)
TXMD June 7.50 calls (TXMD170616C00007500, $0.60, up $0.15)
Entry Price: $0.75 (1/18/2017)
Exit Target: $1.50
Stop Target: None
Action: Resistance is at $6 and the 100-day moving average with Friday’s peak reaching $5.86. Support is at $5.50-$5.40. The company is hosting an investor webcast on Wednesday.