MomentumOptions.com Mid-Market Update for 4/4/2017

CarMax (KMX) Technical Outlook Weakens

2:10pm (EST)

Futures were showing another lower open this morning as the bulls prepared for another backtest to support. The damage was minimal with near-term support holding as the bears continue to have their own issues with momentum. Market moving news has been limited but talks of rolling back more regulations, particularly Dodd/ Frank, and two new tax ideas have lifted Wall Street’s spirits.

With 1Q earnings season just a week away, the catalyst for a clearer trend should emerge depending on the results and outlook. One company, on a different fiscal year cycle, that will report earning this week is CarMax (KMX, $55.89, down $0.78). Their 4Q numbers are due out after Thursday’s close and the technical outlook is looking bearish heading into the event.

Shares are currently testing mid-November support at $55 with a close below this level getting $54-$52 in play. The 50-day moving average has begun a major downtrend slope that is easily on track to take out the 100-day moving average. This would form a mini “death-cross” once complete with the potential to grow into a full death-cross if the 200-day moving average is breeched, as well.

CarMax has reported a choppy prior four quarters after topping estimates by two pennies last time out. The previous three were a match, a miss by two cents, and a three-cents beat. Analysts are expecting a profit of 79 cents on revenue of $3.93 billion for the recently ended quarter.

The KMX April 55 puts (KMX170421P00055000, $2.25, up $0.30) are active today as nearly 1,000 contracts have traded. Open interest is over 5,000 contracts and the options expire in 17 days. At current levels, these options would double if shares fall below $50.50 by April 21st.

Although I do like the aforementioned direction trade, $2.25 is a rich premium to pay for an earnings to try and make 100% return. However, purchasing fewer contracts than what a trader might normally use could still be an option. Some option traders might stick to a 10-20 contract routine while others may deploy $1,000-$2,000 per position.

Of course, these limits can be higher or lower but trading an earnings announcement is always risky. Especially, if KMX tops estimates and provides a rosy outlook. While I will be interested in the company’s results, I will still likely remain on the sidelines.

Heading into the final hours of trading, the Dow is up 18 points to 20,668 while the S&P 500 is off a point to 2,357. The Nasdaq is lower by 5 points to 5,888 and the Russell 2000 is slipping 2 points to 1,367.

We have some nice pin action going with TXMD as shares have topped $8 so let’s go check the tape.

 

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STMicroelectronics (STM, $15.17, down $0.11)

STM May 15 calls (STM170519C00015000, $0.95, down $0.10)

Entry Price: $1.15 (3/31/2017)
Exit Target: $2.30
Return: -17%
Stop Target: 55 cents

Action: Support is at $15-$14.75. Resistance at $15.25-$15.50.

 

TherapeuticsMD (TXMD, $7.87, up $0.45)

TXMD May 7.50 calls (TXMD170519C00007500, $1.25, up $0.30)

Entry Price: $0.80 (3/27/2017)
Exit Target: $1.60
Return: 56%
Stop Target: None

Action: Fresh resistance is at $8-$8.25. Support is at $7.50-$7.25.

 

Viavi Solutions (VIAV, $10.40, up $0.05)

VIAV May 12 calls (VIAV170519C00012000, $0.15, flat)

Entry Price: $0.29 (3/27/2017)
Exit Target: $0.60
Return: -48%
Stop Target: None

VIAV April 11 calls (VIAV170421C00011000, $0.15, down $0.08)

Entry Price: $0.42 (3/20/2017)
Exit Target: $0.85
Return: -64%
Stop Target: None

Action: Resistance is at $10.50-$10.75. Support is at $10.25.

 

Amicus Therapeutics (FOLD, $7.24, up $0.01)

FOLD April 8 calls (FOLD170421C00008000, $0.15, flat)

Entry Price: $0.60 (3/2/2017)
Exit Target: $1.20
Return: -75%
Stop Target: None

Action: Resistance is at $7.25-$7.50. Support is at $7-$6.75.

 

Tower Semiconductor (TSEM, $22.47, down $0.20)

TSEM April 24 calls (TSEM170421C00024000, $0.15, flat)

Entry Price: $0.65 (3/1/2017)
Exit Target: $1.30
Return: -77%
Stop Target: None

Action: Support is at $22.50-$22.25. Resistance is at $22.75-$23.

 

Flex (FLEX, $16.81, up $0.13)

FLEX April 17 calls (FLEX170421C00017000, $0.15, flat)

Entry Price: $0.35 (2/15/2017)
Exit Target: $0.70
Return: -57%
Stop Target: None

Action: Resistance is at $16.75-$17. Support is at $16.50-$16.25.