MomentumOptions.com Pre-Market Update for 3/27/2017
All About the VIX
Friday’s final hour of whipsaw trading ended a whacky week of action with the bears easily getting the win. Volatility traded to its highest level of the year but held a key level of resistance following the bulls worst week in five months. Forget figuring out politics, the VIX is giving THE best clues on how the rest of March might unfold and who the fools will be in April.
With the 50/100-day moving averages holding and fresh February lows in play, the indexes are surprisingly mixed for the month but showing some divergence. The Nasdaq is up by the slimmest of margins (3 points) while the Dow and S&P 500 are down roughly 1%. The Russell 2000 will need to make up more than 2% this week to get back to even for the month.
The Dow dropped 60 points, or 0.3%, to end at 20,596 on Friday. The blue-chips traded to high of 20,718 but failed lower resistance at 20,750-20,800 for the third-straight session. Lower support at 20,600-20,550 held on late day fade to 20,529 with risk to 20,450-20,400 and the 50-day moving average on a close below the latter.
The S&P 500 slipped 2 points, or 0.1%, to finish at 2,344. The index split near-term resistance at 2,350-2,360 following the morning trip to 2,356 but levels that failed to hold. Support at 2,340-2,335 was tested for the fourth-straight session with a move the latter getting 2,330-2,325 and the 50-day moving average in play.
The Nasdaq advanced 11 points, or 0.2%, to settle at 5,828. Tech’s high point reached north of 5,858 shortly after the open with upper resistance at 5,825-5,850 getting breeched. The close above the former was a slightly bullish sign along with the continued closes back above 5,800. There is still risk to 5,775-5,750 and the 50-day moving average on a breech below this level again. Last week’s low reached 5,781.
The Russell 2000 gained a point, or 0.1%, to close at 1,354. The small-caps first half peak reached 1,362 to clear upper resistance at 1,350-1,360 but a level that failed to hold. Additional hurdles are at 1,370-1,375 and the 50-day moving average. Support is at 1,345-1,340 and the 100-day moving average with a close below 1,335 and last week’s low being a very bearish development.
The S&P 500 Volatility Index ($VIX, 12.96, down 0.16) soared to a high of 14.16 ahead of Friday’s closing bell to push upper resistance at 13.50-15 and the 200-day moving average. A close above the latter would be a nasty signal a possible push towards 17.50-20 could come quickly. If so, I will have options on my Watch List to play the excitement. Near-term support remains at 12.50-11.50 and the 50/100-day moving averages.
Most of the zombies weren’t too confident the American Health Care Act to repeal and replace Obamacare would pass. However, a few of them talked the talk throughout the week and Friday morning after the House Rules Committee cleared the bill by a 9-3 vote, setting up for a final floor vote to pass the bill.
The final verdict from a planned House vote was to happen about a half-hour ahead of the closing bell with the market trading at its worst levels of the session. For better or worse, in a somewhat surprising move, the bill was yanked, with Republicans saying they “came up short”. The Democrats were happy to say the least.
While the uncertainty of Obamacare lingers for months, and perhaps a few more years, the certainty of a new healthcare bill not coming anytime soon may have been a relief for the market. Blotted premiums remain a problem so it was probably a good thing it got scrapped. Now the new Trump administration can focus on tax cuts and where their focus should have been out of the gate.
Nothing like gridlock in DC. Moving on…
Oil continues to be a wild card and I touched on Brent Crude Oil last week and the $50 level. I mentioned the chart looked bearish with a downward sloping 50-day moving on track to fall below 100-day moving average. A mini death-cross could form at some point in April. Last week’s drop below support at $50.75-$50 and the 200-day moving average could be early stretch but more likely a sign a test to the mid to high $40’s is coming. Resistance remains at $52-$52.50.
Earnings season is just a couple of weeks away and what I have been saying will be the key driver of stock prices for April and May. With healthcare reform once again on the back burner, the President has said he will move on to tax cuts while letting Obamacare collapse. Word is the White House wants to have tax reform wrapped up by August.
Given the gridlock in Washington, and the start of an upcoming recess for the zombies, political news could slow over the near-term. This would allow economic and earnings events to take centerstage and perhaps provide better clues on how the action might shake out over the next few weeks.
Gold ($GOLD) has made a nice rebound off the mid-month lows and the $1,200 level while finishing Friday just below the $1,250 level. The rebound back above the 50/100-day moving averages and push towards the 200-day moving average looks bullish as long as Gold clears and holds $1,260-$1,265. Support is at $1,240-$1,225.
One stock that will attract plenty of interest this week will be Lululemon Athletica (LULU). The company will report their quarterly results after Wednesday’s closing bell with analysts expecting a profit of $1.01 a share, on revenue north of $793 million. Last quarter resulted in a 4-cent beat but the previous two came in flat and a penny miss. In the year-ago period, LULU topped estimates by a nickel.
The chart below show the recent struggle with the 100-day moving average along with slopping 50/200-day moving averages. This month’s continued closes below $64 and the February and December major areas of support are now resistance. This follows a major gap up from $60. Last weeks’s dip below $62 reached $61.68 and a backtest to the mid-$50’s could come on a move below $60.
LULU’s current quarter and yearend guidance will play a major role in Wall Street’s reaction and if the short-sellers will cover. A revenue beat along with a rosy outlook could get buyers giddy again.
Bearish traders can target the LULU April 60 puts (LULU170421P00060000, $1.40, down $0.20) if shares fall below $61.50 ahead of Wednesday’s closing bell. These put options would more then double from current levels if shares fall below $57, technically, by April 21st as they would be $3 “in-the-money’.
If shares clear $65 midweek, bullish traders can target the LULU April 67.50 calls (LULU170421C00067500, $1.45, up $0.25) for s possible run towards $67.50-$70. The aforementioned call options would double if shares push the latter of the breakout range.
There are weekly options to trade on LULU, and perhaps, better setups. However, I’m not too interested in shorting, or going long, on one of Wall Street’s love/ hate relationships as LULU is a major battleground for analysts.
The real battles will be in the VIX and Oil this week. The monthly results will be interesting to see if the bulls can keep their winning streaks going but mote importantly, near-term support will need to hold on additional weakness.
From desk to press, futures look like this: Dow (-142); S&P 500 (-20); Nasdaq 100 (-45).
Momentum Options Play List
Closed Momentum Options Trades for 2017: 20-3 (87%). 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.
Viavi Solutions (VIAV, $10.72, down $0.06)
VIAV April 11 calls (VIAV170421C00011000, $0.31, down $0.07)
Entry Price: $0.42 (3/20/2017)
Exit Target: $0.85
Stop Target: None
VIAV June 11 calls (VIAV170616C00011000, $0.70, down $0.05)
Entry Price: $0.40 (3/15/2017)
Exit Target: $1.20
Stop Target: 60 cents (Stop Limit)
Action: Support is at $10.50-$10.25 with Friday’s low reaching $10.60. Resistance is at $10.75-$11 with the latter representing the 52-week peak. May options are now available to trade on VIAV and I may use them if shares clear $11 over the near-term. My Price Target is $13-$15 over the next few months on a breakout with heavy volume.
Starbucks (SBUX, $56.81, up $0.96)
April 52.50 puts (SBUX170421P00052500, $0.07, down $0.03)
Entry Price: $0.40 (3/10/2017)
Exit Target: $0.80
Stop Target: None
Action: Shares traded to a high of $57.38 on Friday. Fresh resistance is at $57-$57.50. Rising support is at $56.50-$56.
Earnings are due out on April 27th but these options will expire before the news. There is a chance I exit this trade if shares aren’t back below double-nickels ($55) by Friday’s close.
Amicus Therapeutics (FOLD, $7.24, up $0.10)
FOLD April 8 calls (FOLD170421C00008000, $0.20, flat)
Entry Price: $0.60 (3/2/2017)
Exit Target: $1.20
Stop Target: None
Action: Shares traded to a high of $7.29 on Friday. Resistance is at $7.25-$7.50 with a close above the latter a bullish development. Support is at $7-$6.75.
Tower Semiconductor (TSEM, $23.05, up $0.14)
TSEM April 24 calls (TSEM170421C00024000, $0.30, flat)
Entry Price: $0.65 (3/1/2017)
Exit Target: $1.30
Stop Target: None
Action: The close above lower resistance at $23-$23.25 was slightly bullish. Support remains at $22.75-$22.50 if $23 fails to hold.
Flex (FLEX, $16.63, down $0.01)
FLEX April 17 calls (FLEX170421C00017000, $0.25, flat)
Entry Price: $0.35 (2/15/2017)
Exit Target: $0.70
Stop Target: None
Action: Support is at $16.50-$16.25. Friday’s low tapped $16.51. Resistance is at $16.75-$17. The recent 52-week peak is at $16.99. This is now our longest running trade and I still like the position. However, I would like to see a run past $17 this week to get momentum back into this trade.