MomentumOptions.com Pre-Market Update for 4/17/2017
Technical Damage Worsens
The bears used a shortened week to get aggressive amidst a powerful geopolitical backup and the start of earnings season. The major indexes are still holding their March lows but rising volatility and a nervous world could lead to a continued pullback following last week’s close below the major moving averages.
The Financial stocks reported decent earnings and it will be up to Tech to try and give the bulls some momentum over the next few weeks. However, this week’s upcoming tax deadline along with April expiration on Friday could lead to additional selling pressure.
The Dow tanked 138 points, or 0.7%, to end at 20,453 on Thursday. The blue-chips opened lower but made a run to 20,612 shortly afterwards. Fresh resistance is at 20,600-20,650 and the 50-day moving average. The late day fade to the session low held support at 20,400-20,350 with risk to 20,200-20,000 and the 100-day moving average on a move below the latter. The March low tapped 20,412.
The S&P 500 sank 16 points, or 0.7%, to settle at 2,328. The index traded to a high of 2,348 on the opening action but failed lower resistance at 2,350-2,360 and the 50-day moving average. I mentioned a move below 2,335 would be a bearish development with risk to 2,325-2,300 and the 100-day moving average, if breeched. The bulls held upper support into Thursday’s closing bell and the March low of 2,322.
The Nasdaq tumbled 31 points, or 0.5%, to end at 5,805. Tech tested a high of 5,856 during the first half of trading with lower resistance at 5,850-5,875 holding. The close below the 50-day moving average was a bearish development with lower support at 5,825-5,800 holding by a nickel on Thursday. There is risk to 5,750-5,700 on continued weakness with backup at 5,650 and the 100-day moving average on an overshoot. The March low checked in at 5,769.
The Russell 2000 stumbled 14 points, or 1%, to finish at 1,345. The small-caps made a weak 2-point run past fresh resistance at 1,360-1,375 and the 100-day moving average before stalling at 1,361. I warned there was stretch, or wiggle room, down to 1,345 on continued weakness last week with the index also going out at its session low. Backup support is at 1,325-1,320 with risk to 1,300 and the 200-day moving average on a move below the latter. The recent ‘”double bottom” low is at 1,335 and was touched on March 22nd and 27th.
The S&P 500 Volatility Index ($VIX, 15.96, up 0.19) failed rising support at 15-14.50 on Thursday on the trip to 14.97 and levels that the bulls need to recover this week. Thursday’s high of 16.22 was the peak for the week but failed upper resistance at 17-17.50. There is risk to 20-22.50 over the near-term on a move above the latter. The 50-day moving average is also on the verge of clearing the 100-day moving average and would represent a mini golden cross. This is usually a bullish development for a stock chart but not for the VIX and the market.
The Financial and Tech stocks make up over a third of the S&P 500 companies and how they perform as sectors usually have a major influence and impact on market direction. Thursday’s numbers from some of the banking companies were bullish but the stocks finished lower despite the earnings beats.
JPMorgan Chase (JPM) made a run at $87 after reporting a profit of $1.65 a share on revenue of nearly $25.6 billion. Analysts were looking for $1.52 a share on revenue of $24.9 billion. The company’s CEO said they are off to a good start and businesses looks healthy following pro-growth initiatives and improving collaboration between government.
Shares were weak throughout last week and I mentioned there might be an opportunity for a trade after the announcement. With the stock closing below its 100-day moving average and its March low of $85.23, there is risk to $82-$80 over the near-term on continued weakness. Resistance is at $86-$87.
There are weekly options available to trade on JPM and the regular April options expire this Friday. Bearish traders looking for a longer time frame for a trade to play out can target the JPM May 82.50 puts (JPM170521P00082500, $1.40, up $0.10). These options were active on Thursday with open interest now above 13,000 contracts.
The aforementioned put options would double from currently levels, technically, if shares fall below $79.70 by May 19th. The trade would break even if shares close at $81.10 and expire worthless if JPM is above $82.50 by the May deadline. A stop can be used if shares reclaim lower resistance at $86.
Citigroup (C) topped estimates after reporting a profit of $1.35 a share on revenue of $18.1 billion while Wall Street was expecting $1.24 a share on revenue of $17.8 billion. PNC Bank (PNC) beat estimates by 13 cents with a profit of $1.96 a share while topping revenue, and Wells Fargo & Company (WFC) reported a 3-cent beat but revenue fell shy of expectations.
Financial stocks will be in the spotlight again this week with Bank of America (BAC) and Goldman Sachs Group (GS) reporting their results on Tuesday. Morgan Stanley (MS) will report numbers on Wednesday.
Gold ($GOLD) broke out of a mini trading range following last week’s surge above the 200-day moving average and run towards fresh resistance at $1,300. This follows a late February attempt to clear the 200-day moving average with a backtest to $1,200 by mid-March. The selloff was a buying opportunity as I mentioned a bullish golden cross was in the process of forming.
The 50-day moving average is a little over $20 from clearing the 200-day moving average and a confirmation of the process could carry gold towards $1,320-$1,360 on continued closes above the $1,300 level.
The GLD chart shows near-term resistance at $123.50-$124. A close above the latter could lead to a run towards $126-$128. The 52-week peak is north of $131. Fresh support is at $122-$121.50 with risk to $120.50-$120 and the 200-day moving average on a breech below the latter.
There could be some consolidation this week near the $1,300 level for gold ($124 for GLD) over the near-term but bullish traders should keep the GLD May 128 calls (GLD170519C00128000, $0.80, up $0.10) on their radar. These options will double from current levels if GLD clears $129.60, technically, by May 19th.
The GLD June 129 calls (GLD170616C00129000, $1.05, up $0.10) can also be targeted and would provide a bullish trade an extra month to play out. These options would double from current levels if GLD clears $129.60, technically, by June 16th.
Although I have been hopeful of a rebound rally, nothing is a given, and the market tends to trade lower following the tax deadline. This year, taxpayers were given a few extra days and historically, April is typically a bullish month. The bears have clearly been in control this month but one slight bullish signal is that the major moving averages remain in a very bullish uptrend across the indexes.
The exception is the Russell 2000 that shows a leveling 50-day moving average since early March. The 100-day moving average is also showing signs of flatlining but hasn’t shown weakness since last June and has been in a powerful uptrend since. The 1-year chart below shows a longer-term trading range above 1,350 since early December. There has been stretch above and below the 1,350 level with roughly 50-point swings up until now. The next two weeks could provide the same type of explosive move and should provide an opportune time for fresh trades.
Stay locked-and-loaded shortly after the opening bell as I plan to get into a New Trade. From desk to press, futures look like this: Dow (-26); S&P 500 (-3); Nasdaq 100 (-5).
Momentum Options Play List
Closed Momentum Options Trades for 2017: 22-9 (71%). 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.
Best Buy (BBY, $48.27, down $0.09)
BBY May 45 puts (BBY170519P00045000, $0.58, up $0.05)
Entry Price: $0.57 (4/13/2017)
Exit Target: $1.15
Stop Target: None
Action: Resistance is at $48.75-$49 with Thursday’s high tapping $48.73. The 52-week peak is at $49.40 with a move above this level likely leading to a breakout to the low $50’s. Support is at $48-$47.50.
STMicroelectronics (STM, $14.61, down $0.14)
STM May 15 calls (STM170519C00015000, $0.65, down $0.05)
Entry Price: $1.15 (3/31/2017)
Exit Target: $2.30
Stop Target: 55 cents
Action: Support is at $14.50-$14.25 on continued weakness. Resistance is at $14.75-$15 and the 50-day moving average.