Easy Money Options Weekly Review for 4/10/2017

Bears Get Weekly Win

8:00am (EST)

The bears got the weekly win, and their second in three, as the market pulled back to start the month. The bulls did well holding near-term support and have kept volatility under control as both sides prepare for the start of first-quarter earnings season along with a short week.

The financial sector will be among the first to report quarterly results and will be in focus on Thursday. With the Federal Reserve’s shift to a tighter monetary and recent rate hikes, first-quarter results will be a critical test for whether financial stocks have more room to run.

The Dow dipped 6 points, or 0.03%, to settle at 20,656 on Friday. The blue-chips tested a low of 20,606 at the start of trading with upper support at 20,600-20,550 holding for the 9th-straight session along with the 50-day moving average. The second half run to 20,7426 failed resistance at 20,750-20,800. The next 150-point swing from current levels, up or down, should provide a good clue on the next possible major trend.

Trading graph

The S&P 500 slipped 2 points, or 0.1%, to close at 2,355. The index kissed upper support at 2,350-2,340 and the 50-day moving average for the third-time in four sessions with the other low just south of 2,349 last week. This is a 20-point wiggle room for weakness down to 2,335 with a close below this level a bearish development. A 20-point pop to the upside would clear upper resistance at 2,370-2,375. Friday’s high reached 2,363.

Trading graph

The Nasdaq declined a point, or 0.02%, to end at 5,877. Tech was at its weakest on the open, falling to a low of 5,855. Near-term support at 5,850 held for the third-straight session with risk to 5,825-5,800 and the 50-day moving average on continued closes below this level. Resistance remains at 5,900-5,925 with Friday’s peak reaching 5,892.

Trading graph

The Russell 2000 climbed less than a fifth-point, or 0.01%, to finish flat at 1,364. The small-caps opened lower at 1,363 while kissing 1,358 shortly afterwards. Rising support at 1,360-1,350 held with a close below 1,340 a signal to possibly go short. Resistance at 1,375-1,380 and the 50-day moving average held on the run to 1,367 along with the 100-day moving average.

Trading graph

The S&P 500 Volatility Index ($VIX, 12.87, up 0.48) made a morning low of 12.23 with rising support at 12-11.50 and the 50/100-day moving averages holding. A close below 11 would signal a possible return to all-time highs are still in play. Friday’s high of 13.43 held upper resistance at 12.50-13.50 and the 200-day moving average. If the VIX clears 14.50-15 over the near-term, the market could test fresh lows for the year.

Trading graph

Last week’s losses were minimal, for the most part, as the Dow and S&P 500 both fell 7 points. The Nasdaq gave back 34 points, or 0.6%, while the Russell 2000 shed 21 points, or 1.6%. The small-caps continue to be the most volatile of the major indexes and will likely continue to underperform, or outperform, the overall market for the foreseeable future.

The negative Monday/ Friday closes on the Dow continue to be a slightly bearish picture but the pullbacks both days last week weren’t damaging. While I talked more in-depth about this last week, it is still disappointing to watch, to a degree, as it continues to show money is scared to stay long over the weekend.

The market will be closed for Good Friday this week and will represent a 3-day weekend for traders to get aggressively long, or short, ahead of the heart of earnings season. This means Thursday should be an impactful session, especially with the numbers that will be reported by the financial companies.

Citigroup (C), JPMorgan Chase (JPM), PNC Bank (PNC), and Wells Fargo & Company (WFC) will give the market a good snapshot on whether financial stocks have more upside potential, or if they will have to wait. The sector has been slightly weak since the Federal Reserve’s shift to a tighter monetary policy and rate hike last month.

Out of the aforementioned group, JPMorgan is my favorite following the pullback off its recent 52-week high just south of $94. Shares are currently holding the 100-day moving average with support at $86-$85.50. A close below $84 would be a bearish development with risk to $82-$80 on an earnings miss or a disappointing forecast. Resistance is at $88-$88.50 with a close above the latter a bullish signal for a run past $90.

Trading graph

Wall Street is expecting earnings of $1.52 a share on revenue of $24.88 billion for JPM’s recently ended quarter. The high estimates are pegged at $1.64 a share with a low estimate for a profit of $1.40 a share. This could mean a headline beat of 12 cents or a miss of up to 12 cents.

With April options expiring in less than two weeks, more conservative traders can look at the JPM May 90 calls (JPM170519C00090000, $1.00, down $0.05) for a possible bullish trade. These options have over a month before they expire and would double from current levels if JPM shares clear $92, by May 19th, technically.

Bearish traders can target the JPM May 82.50 puts (JPM170519P00082500, $1.10, up $0.05) for a possible pullback towards $82-$80. These options would double from current levels if JPM shares are below $80.30, technically, by May 9th.

Both aforementioned options can be used to create a strangle option play but shares would have to make a much larger directional move for the trade to make a profit, or double. The premium for both options would be $2.10 with breakeven points of $92.10 and $80.40. The trade would double if JPM shares trade past $94.20, or fall below $78.30, by May 19th.

To get a snapshot on the overall sector, I often mention the Financial Select Sector Spiders (XLF) as another way to trade the sector. The chart is showing the same setup on JPM with XLF shares also holding the 100-day moving average. Support is at $23.25-$23 on continued closes below $23.50. Resistance is at $23.75-$24 and the 50-day moving average.

Trading graph

If XLF shares can clear the lower end of resistance at $23.75, bullish traders can target the “in-the-money” XLF May 23 calls (XLF170519C00023000, $0.90, down $0.05) for possible action. These options would double from current levels if XLF shares can clear $25.55, technically, by May 19th. This would represent a breakout to fresh 52-week highs.

Bearish traders can use the “in-the-money” XLF May 24 puts (XLF170519P00024000, $0.80, up $0.05) if XLF shares fall below $23.25. These options would double from current levels if XLF shares fall below $22.40, by mid-May 19th.

Aside from the Financial stocks, I’m still monitoring the action in the Dow Jones Transportation Average ($TRAN). The index is still struggling with its 100-day moving average and the 50-day moving average has been in a downward slope since early March. A drop below the 9,000 level and support would be a bearish development. The bulls need to recover resistance at 9,200-9,250 over the near-term to regain momentum.

Trading graph

If the Transportation sector continues to weaken and can’t recover, it could have a nasty effect on the overall market in the coming weeks or months.

From desk to press, futures look like this: Dow (+21); S&P 500 (+3); Nasdaq 100 (+5).

Closed Easy Money Options Trades for 2017: 8-3 (73%). All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.

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 from the Monday morning update or the Trade Alerts throughout the week.

TherapeuticsMD (TXMD, $7.70, down $0.39)

TXMD September 7.50 calls (TXMD170519C00007500, $1.60, down $0.10)

Entry Price: $1.30 (3/17/2017)
Exit Target: $2.60
Return: 23%
Stop Target: 65 cents, raise to $1.35 (Stop Limit)

Action: Raise the Stop Limit from 65 cents to $1.35 and make it a Stop Limit to protect profits. Friday’s close back below $8 and low of $7.67 held support at $7.50. A move below this level could lead to $7.25-$7 and will easily trip the Stop Limit. The technical setup is still bullish with the 50-day moving average on track to clear the 200-day moving average. This would form a bullish cross and signal possible higher highs if the pattern plays out.

Trading graph
Starbucks (SBUX, $58.02, up $0.10)

May 52.50 puts (SBUX170519P00052500, $0.20, flat)

Entry Price: $0.95 (3/10/2017)
Exit Target: $1.90
Return: -79%
Stop Target: None

Action: Resistance is at $58.50-$59. Support is at $57.75-$57.50. Earnings are due out April 27th.

Trading graph