MomentumOptions.com Pre-Market Update for 3/13/2017
Big Week for Bulls, Bears and the Fed
The bulls settled their first setback in seven weeks as the bears are either rolling over, or, waking up for an assault. Last week’s losses, excluding the small-caps, were minimal and Friday’s choppy action showed there is still nervousness ahead of this week’s Fed announcement on interest rates.
Political and overseas news will also be in the mix this week with the Dutch election and overseas monetary policies coming into play. Additionally, this is also March option and triple-witching week as stock, index and futures options expire on Friday. Fed watch and a possible interest rate hike on Wednesday will be the biggest event.
The Dow gained 44 points, or 0.2%, to settle at 20,902 on Friday. The blue-chips made a run to 20,940 shortly after the open with resistance at 21,000-21,200 holding. The all-time high is at 21,169 and still in play. Upper support at 20,800-20,750 was tested following the afternoon fade to 20,827. There is risk to 20,600-20,500 on a move below the latter. The higher high and higher low than Thursday’s action was slightly bullish along with the up Friday. The index fell 103 points last week.
The S&P 500 advanced 7 points, or 0.3%, to close at 2,372. The index reached a morning high of 2,376 with lower resistance at 2,375-2,380 failing to hold. The all-time peak just north of 2,400 is less than 1% away. The backtest to 2,363 bested Wednesday and Thursday’s lows with upper support at 2,260-2,250 standing strong. The index gave back a little over 10 points for the week.
The Nasdaq jumped nearly 23 points, or 0.4%, to end at 5,861. Tech held positive territory for much of Friday’s action while reaching a high of 5,872. Upper resistance at 5,850-5,875 held but the close above the former was a slightly bullish development. The lifetime high of 5,911 is also less than 1% away and gets back in the mix if 5,875 clears. The 3 point pullback to 5,835 held support at 5,825-5,800. Last week’s low tapped 5,812 but the weekly loss was just 9 points.
The Russell 2000 added 5 points, or 0.4%, to finish at 1,365. The small-caps traded up to 1,369 within the first hour of action with lower resistance at 1,370-1,375 and the 50-day moving average holding. A move above the latter would be a bullish development for another possible assault at the 1,400 level and all-time high. However, Friday’s trip to 1,356 was the weekly low with the index dropping 29 points, or over 2%, for the week. Support remains at 1,360 with risk to 1,345-1,340 on a move below this level.
The S&P 500 Volatility Index ($VIX, 11.66, down 0.64) fell 5% after trading in negative territory throughout the session. The low reached 11.46 with the 11.50 level holding into the closing bell. Support remains at 11-10.50 on a close move back below this level. Resistance at 12.50-13.50 is still in play with a close above the latter being a bearish development.
Wall Street has priced in a 90% chance an interest rate hike by the Fed at its upcoming Wednesday meeting following a February nonfarm payrolls report that showed 235,000 jobs were added last month. The stronger numbers may have convinced the zombies to hike a quarter-point (or half-point) but most of them have been turning hawkish in recent weeks.
The more important picture, aside from the possible hike, will be the “dot plot” the Fed has for the rest of the year. Interest rate futures are pricing in about a 50% chance of another pop in June with a total of nearly three hikes by mid-December. Oil could also play an important role this week after plunging to 3 1/2-month lows and below the $50 level on fresh worries of oversupply.
The one sector I wanted to focus on, specifically, is retail, as the Spiders S&P Retail ETF (XRT, $42.14, up $0.31) fell to their lowest levels of the year. The underlying chart shows bearish crosses have developed wth the 50-day moving average falling below both the 100/200-day moving averages. This is usually a bearish development. The November 9th low touched $40.85 before a monster rebound past $48 a month later. Near-term resistance is at $42.25-$42.50.
I’m targeting the XRT April 41 put options (XRT170421P00041000, $0.60, down $0.15) for a possible bearish trade if shares drop below $41.75-$41.50 this week. Last Thursday’s low tapped $41.78 and the 52-week bottom is at $39.50. These options would return 100% from current levels if XRT trades below $39.80, technically, by April 21st. A stop can be used if XRT shares regain the $43 level to limit losses.
One stock that is in the process of development possible bearish crosses is Starbucks (SBUX, $54.53, down $0.66). Shares have been in a wicked downtrend this month and have fallen below all of the major moving averages. The current action appears if shares could easily make a backtest to $53.50 and the early February lows. A move below this level could lead to breakdown into the $52.50-$50 area. Near-term resistance is at $55-$55.50 and the 200-day moving average.
On a fundamental basis, the company has only topped earnings estimates once, by a penny, over the past four quarters. A change in CEO is often a risky endeavor as Howard Schultz hands the reins over to his predecessor next month. Earnings are due out April 27th.
The current trade for the portfolio is based more on the technical outlook but I also believe revenues will come in light next quarter. Starbucks could match current estimates for a profit of 45 cents a share but I think they come up shy on the forecast of sales topping $5.41 billion for the current quarter. The lowball number has the company doing $5.33 billion in revenue and I think it’s possible they fail that number, as well.
Out of the 32 analysts that cover the stock, there are 13 Strong Buy; 12 Buy; and 7 Hold recommendations. There are no Underperform or Sell ratings on SBUX. An earnings, or revenue miss, could change the minds of some of the analysts but this would occur “after the fact” and when shares might be down double-digit percentage points on the news.
Starbucks is considered a Wall Street darling but love affairs can end quickly in today’s “what have you done for me lately” world. I won’t even mention the failed vision of Charles Schultz’s desire to see more tea shops developed. Despite having a world dominance, Starbucks has stuck more to coffee despite their claims they were going to innovate and transform the tea industry over four years ago.
Starbucks acquired Teavana Holdings in an all-cash acquisition for $620 million in November 2012. Given the current state of the malls, there have been a number of store closings despite Starbucks describing tea as a “major, major business opportunity” at the time.
Although their stores will likely do well in a thriving economy, Starbucks still faces increasing competition with cheaper prices – and quite frankly, better coffee. The company has ambitious plans to open another 12,000 stores, globally, for a grand total of 37,000 by 2021. In fact, they are opening one Starbucks a day in China and currently have over 2,500 stores that will double to more than 5,000 over the next five years.
These are ambitious plans for Starbucks that could become harder if profits continue to fade. The company has missed revenue targets in three of the past four quarters. There was a report their U.S. market share declined by a percentage point in February, to 11% from 12% in January, as competitors offered aggressive drink deals.
Dunkin’ Donuts, Panera Bread, and the 800-pound gorilla, McDonald’s, could continue to eat away at Starbucks and could shave another point or two off in the coming months. There have also been mobile-ordering issues at Starbucks that have likely weight on dales for the current quarter.
I like the risk/ reward setup for our current SBUX put options and the prospects of XRT going forward.
As far as this week’s main focus, it will be on the small-caps and their ability, or inability, in recovering the 50-day moving average. I often mention Wall Street gets nervous when a stock or an index gets “stretched” and often times it can be an overreaction. However, continued weakness and another leg lower could increase selling pressure this week and could hurt overall momentum.
The financial stocks will also play a major role so I will be watching this sector as well. I’m expecting flat action into Wednesday’s Fed announcement on interest rates with perhaps a bullish bias. A lower Monday and a higher VIX would keep me cautious into midweek.
From desk to press, futures look like this: Dow (-3); S&P 500 (-2); Nasdaq 100 (-3).
Momentum Options Play List
Closed Momentum Options Trades for 2017: 16-3 (84%). 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.
Starbucks (SBUX, $54.53, down $0.66)
April 52.50 puts (SBUX170421P00052500, $0.40, up $0.08)
Entry Price: $0.40 (3/10/2017)
Exit Target: $0.80
Stop Target: None
Action: Support is at $54-$53.50. Near-term resistance is at $55-$55.50 and the 200-day moving average.
Advanced Micro Devices (AMD, $13.91, up $0.58)
AMD April 14 calls (AMD170421C00014000, $1.05, up $0.20)
Entry Price: $0.90 (3/7/2017)
Exit Target: $1.80
Stop Target: 45 cents
Action: Fresh resistance is at $14-$14.25. Rising support is at $13.75-$13.50. Shares were added to the S&P 500 after Friday’s close and were up nearly 2% in after-hours on Friday and a run towards $15 could be in play today.
Amicus Therapeutics (FOLD, $7.55, up $0.02)
FOLD April 8 calls (FOLD170421C00008000, $0.45, flat)
Entry Price: $0.60 (3/2/2017)
Exit Target: $1.20
Stop Target: None
Action: Support is at $7.25-$7 on a close below $7.50. Resistance is at $7.75-$8. The 50-day moving average is in a strong uptrend and on track to clear the 100/200-day moving averages in a month or two. This is typical a bullish development.
Tower Semiconductor (TSEM, $23.06, up $0.10)
TSEM April 24 calls (TSEM170421C00024000, $0.45, up $0.05)
Entry Price: $0.65 (3/1/2017)
Exit Target: $1.30
Stop Target: None
Action: Support is at $22.75-$22.50. Resistance is at $23-$23.25. The major moving averages remain in a strong uptrend but a close below $22.50 would be a bearish development.
Vuzix (VUZI, $7.35, up $0.10)
VUZI April 7.50 calls (VUZI170421C00007500, $0.60, flat)
Entry Price: $0.50 (2/27/2017)
Exit Target: $1.00
Stop Target: None
Action: Resistance is at $7.50-$7.75 with Friday’s high reaching $7.45. Support is at $7.25-$7 and the 100/200-day moving averages.
Flex (FLEX, $16.66, up $0.16)
FLEX April 17 calls (FLEX170421C00017000, $0.27, up $0.02)
Entry Price: $0.35 (2/15/2017)
Exit Target: $0.70
Stop Target: None
Action: Shares traded to a high of $16.69 on Friday. Resistance is at $16.75-$17. Support is at $16.25-$16.
TherapeuticsMD (TXMD, $6.67, down $0.08)
TXMD June 7.50 calls (TXMD170616C00007500, $0.95, flat)
Entry Price: $0.75 (1/18/2017)
Exit Target: $1.50
Stop Target: None
Action: Resistance is at $6.75-$7 and the 200-day moving average. Support is at $6.50-$6.25.