MomentumOptions.com Pre-Market Update for 3/6/2017
VIX Back Below 11.50
The bulls pushed record highs again last week to bring March in with a bang despite the continued catcalls for a market correction. At some point, the bears will wakeup from their winter hibernation but that might not happen until later this month, or next, as volatility continues to be pretty much nonexistent.
Of course, political and geopolitical news (and tweets) could cause some near-term hiccups but there will be plenty of warning signs on when momentum slows and the bears are waking up. April first-quarter earnings season is also around the corner and could keep near-term support, or higher highs, in play if raised guidance starts coming in over the next few weeks.
The Dow added 2 points, or 0.01%, to finish at 21,005 on Friday. The blue-chips traded to a high of 21,039 shortly after the open with resistance at 21,200-21,250 holding. It was the second-straight lower low following Wednesday’s all-time high of 21,169 but the higher Friday close was slightly bullish. Upper support at 21,000-20,800 held following the backtest to 20,953 afterwards. Additional help is at 20,600-20,550 on a move below the latter.
The S&P 500 gained a point, or 0.1%, to settle at 2,383. The index traded in negative territory for much of the session with the low checking in at 2,375. Near-term support is at 2,375-2,370 held with backup at 2,260-2,250 on a move below the latter. The late day push towards 2,384 fell shy of lower resistance at 2,400-2,425. Last Wednesday’s record high cleared 2,400 by nearly a point.
The Nasdaq climbed 9 points, or 0.2%, to close at 5,870. Tech was slightly weak throughout the first half of action on Friday with the low reaching 5,841. Rising support at 5,850-5,825 held for the fourth time in the past five sessions with a move below 5,800 a possible warning sign. Near-term resistance at 5,875-5,900 held with the index going out at its peak. The March 1st intraday lifetime high cleared 5,911.
The Russell 2000 slipped over a point, or 0.1%, to end at 1,394. The small-caps failed lower resistance at 1,400-1,405 by a point after topping out at 1,399 within the first 15 minutes of trading. The rest of the session was spent underwater with the low taping 1,387. Rising support is at 1,390-1,385 with the latter representing the February 23rd intraday low. Last Wednesday’s record peak cleared 1,414 with Thursday’s top at 1,413. A move above 1,415 will likely get fresh money off the sidelines.
The S&P 500 Volatility Index ($VIX, 10.96, down 0.85) fell 7% to end last week after trading down to 10.94. The high at 11.97 on the open held lower resistance at 12.50-13.50. The VIX closed above the 12.50 level twice last week but hasn’t cleared 13.50 since January 3rd. When it does, this will be the time to add “protection”. Friday’s close below the 11.50 level was a bullish development if this level hold today and keeps fresh support at 11-10.50 in play. The February 1st 52-week low is at 9.97.
Just as impressive as the start to March was, February’s gains extended the bulls winning streak to 4-straight months following a shaky October 2016. The Dow led the way with a 4.8% gain, or 948 points, followed by the Nasdaq’s advance of 3.75%, or 210 points. The S&P 500 jumped 3.72%, or nearly 85 points, while the Russell 2000 climbed roughly 25 points, or 1.8%, in February.
The Dow had not made more than a 1% move for 95 trading days before last Wednesday’s 303 point surge. The previous move of more than 1% came on November 10th. The S&P 500 jumped 32 points midweek and hadn’t moved more than 1% since December 7th. Although they could, I doubt the two indexes will go another 3 or 4 months before another 1% daily move. When this frequency starts to pick up, it will provide another early indication volatility is about to return.
Despite the recent holiday Monday’s, the Dow closed higher on February 13th and 27th after ending the previous four Monday sessions in the red. There were a number of holiday Monday’s in January and December with mixed Tuesday’s. The blue-chips have closed higher the past five Friday’s and seven of the nine Friday’s for 2017. This has indicated there hasn’t been much fear holding positions over the weekends this year.
For new subscribers, I often mention up Monday and Friday closes on the Dow usually means money is flowing into the market. Down closes to start and end the week can lead to cash moving to the sidelines. Mixed Monday/ Friday closes can signal possible trading ranges. I also like to watch volume on these days, as well, and the positive M/F closes have helped confirm my continued bullish thesis coming into the year.
Ahead of the November breakout, and throughout 2016, I mentioned the Financial stocks would need to lead the market’s next major move. They have and the group continues to outperform expectations. The Financial Select Spiders (XLF, $24.97, up $0.12) traded to a fresh all-time high of $25.30 last Thursday, on a split-adjusted basis, as you can see from the 20-year monthly chart below.
Continued closes above $25 on XLF could lead to a push towards $27-$27.50 over the next 3-6 months on continued momentum. Short-term support is at $24-$23.75 and will need to hold throughout the month. The XLF April 26 calls (XLF170421C00026000, $0.20, flat) traded over 10,000 contracts on Friday and have open interest approaching 40,000 contracts.
While these options are considered “cheap” at current levels, XLF shares will need to clear $26.40 by April 21st, technically, for the trade to make a 100% return. This would require another 4%-5% gain in the stock over the next six weeks with a possible Fed hike coming later this month.
The XLF April 25 calls (XLF170421C00025 000, $0.55, up $0.03) will be “in-the-money” on continued closes above $25 and would double from current levels if XLF shares clear $26.10 by mid to late April. I like these call options a little more than the aforementioned April 26 call options as open interest is above 200,000 contracts. Weekly XLF options are also available to trade but can carry slightly wider bid/ ask prices.
Although Wall Street has been dying for a pullback in the sector and individual names, momentum has remained strong. In fact, Bank of America (BAC, $25.44, up $0.21) has gained 10% from mid-January and reached a fresh 52-week of $25.80 last week. The 10-year chart for BAC shows shares could easily make a run at $27.50-$30 this year on continued momentum.
Bullish traders can target the BAC April 26 calls (BAC170421C00026000, $0.70, up $0.07) on continued momentum and a near-term run towards $27-$27.50. These options would double from current levels if BAC shares clear $27.40, technically, by April 21st.
Bank of America reported a 4Q profit of $0.40 a share versus forecasts for $0.38 a share back in mid-January. However, what has kept me cautious on BAC was the fact revenues were light at $20 billion versus expectations for $20.85 billion. In any event, price action has remained strong but something to remember come the second week of April and when 1Q earnings are expected.
Another sector I wanted to cover is Biotech as I mentioned midweek in the Daily the sector was on the verge of a breakout. The iShares Nasdaq Biotechnology ETF (IBB, $302.49, up $2.70) is trying to hold the $300 level and multi-year resistance following last Thursday’s 52-week peak at $303.74.
The 5-year weekly chart shows IBB’s pop above the 100-week moving average with longer-term resistance at $310-$320. The all-time high is just north of $400 and was set in the summer of 2015. Near-term support is at $295-$290 with risk to $275 and the 50/200-week moving averages on a close below the latter.
Continued strength in Biotech and the Financial stocks for the rest of the month should be enough to hold the market at higher levels heading into April and 1Q earnings season. Near-term support levels in other sectors will also need to hold, especially in Tech, the Transports, and the small-caps. If not, a tricky trading range could develop if momentum stalls and there is a backtest to start the week.
I could have a New Trade as early as this morning but I could wait an extra day as I want to see how the action might play out this morning and into the afternoon.
From desk to press, futures look like this: Dow (-34); S&P 500 (-7); Nasdaq 100 (-13); Russell (-4).
Momentum Options Play List
Closed Momentum Options Trades for 2017: 16-2 (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.
Amicus Therapeutics (FOLD, $7.79, up $0.36)
FOLD April 8 calls (FOLD170421C00008000, $0.65, up $0.10)
Entry Price: $0.60 (3/2/2017)
Exit Target: $1.20
Stop Target: None
Action: Resistance is at $7.75-$8. Friday’s high reached $8.01. Support is at $7.50-$7.25. I could piggy-back this trade on another move or close above $8.
Tower Semiconductor (TSEM, $23.10, down $0.16)
TSEM April 24 calls (TSEM170421C00024000, $0.55, down $0.05)
Entry Price: $0.65 (3/1/2017)
Exit Target: $1.30
Stop Target: None
Action: Support is at $23-$22.50. Resistance at $23.25-$23.50. The major moving averages are still in a strong uptrend but I would like to see $23 hold on any pullback this week.
Vuzix (VUZI, $7.40, up $0.50)
VUZI April 7.50 calls (VUZI170421C00007500, $0.65, up $0.15)
Entry Price: $0.50 (2/27/2017)
Exit Target: $1.00
Stop Target: None
Action: Fresh resistance is at $7.50 with Friday’s high tapping $7.80. Rising support is at $7.25-$7. The 50/100-day moving averages have flattened out and the close above the 200-day moving average was a bullish development.
3D Systems (DDD, $14.53, down $0.09)
March 18 calls (DDD170317C00018000, $0.05, flat)
Entry Price: $0.45 (2/22/2017)
Exit Target: $1.00
Stop Target: None
Action: Shares traded to a low of $14.35 last Friday. Support is at $14.50-$14.25. Resistance is at $14.75-$15. These options expire in 11 days, or next Friday. I would like to see a close above $15 over the next couple of sessions. If not, I will likely close the trade to save the remaining premium.
Flex (FLEX, $16.51, flat)
FLEX April 17 calls (FLEX170421C00017000, $0.25, down $0.05)
Entry Price: $0.35 (2/15/2017)
Exit Target: $0.70
Stop Target: None
Action: Upper support at $16.50-$16.25 was breeched but held following Friday’s low of $16.39. Resistance is at $16.75-$17.
TherapeuticsMD (TXMD, $6.91, up $0.28)
TXMD June 7.50 calls (TXMD170616C00007500, $0.95, up $0.10)
Entry Price: $0.75 (1/18/2017)
Exit Target: $1.50
Stop Target: None
Action: Fresh resistance is at $7-$7.25 following Friday’s run to $6.95 snd close above the 200-day moving average. Rising support is at $6.75-$6.50.