MomentumOptions.com Pre-Market Update for 4/24/2017
Exciting Week in Store for Wall Street
The market rebounded last week after being in danger of cracking March lows. The bulls showed why it has been had to bet against them despite the number of well-known knuckleheads calling for a pullback. Tech is within spitting distance of its all-time high and the small-caps quieted its critics by rising nearly 3% and posting its best week of the year.
It remains to be seen if all-times are in play across the board and the bulls still have a little work to do to make April a positive month. The bears are still holding the VIX hostage but a steady stream of positive earnings could bolster market sentiment this week with a number of high profile companies reporting first-quarter results.
The Dow dipped 31 points, or 0.2%, to settle at 20,547 on Friday. The blue-chips traded to a high of 20,601 shortly after the open with resistance at 20,600-20,650 holding for the 8th-straight session. A close above the latter gets 20,700-20,800 in play with a move above the 100-day moving average being a bullish development. Support remains at 20,400-20,350 with risk to 20,250-20,200 and the 200-day moving average on a close below the latter. The midday low reached 20,505.
The S&P 500 slipped 7 points, or 0.3%, to close at 2,348. The index made a 1-point pop into positive territory to 2,356 but failed lower resistance at 2,360-2,370 and the 50-day moving average. The fade to 2,344 held support at 2,340-2,335. I have warned a close below the latter would lead to a retest to 2,325-2,300 and the 100-day moving average. The next 15-point move will be crucial in determining the next short-term trend.
The Nasdaq declined a 6-pack, or 0.1%, to finish at 5,910. Tech was choppy during the first half of action with the high tapping 5,919 midday. Resistance at 5,925-5,950 held with breakout potential to 5,975-6,000. The all-time high is at 5,936. The backtest to 5,899 held support is at 5,850-5,825 and the 50-day moving average. A close below 5,800 over the near-term would be a bearish development.
The Russell 2000 gave back 4 points, or 0.3%, to end at 1,379. The small-caps traded in negative territory for much of Friday’s session with the low reaching 1,368 shortly after the opening bell. Fresh support at 1,375-1,370 and the 50/100-day moving averages held and was a slightly bullish signal. A move below 1,365-1,360 bears caution. A move below 1,365-1,360 bears caution. Resistance is at 1,395-1,400 if 1,385 clears this week. Friday’s high tapped 1,384.58.
The S&P 500 Volatility Index ($VIX, 14.63, up 0.48) tested a low of 13.85 on Friday with upper support at 13.50-12.50 and the 200-day moving average holding. Resistance is at 15-16 following the close back above 14.50 and high of 15.33. The 50-day moving average has cleared the 100-day moving average to form a mini “golden cross”. This is usually a bullish development for higher highs but a rising VIX will lead to a pullback in stocks.
Last week’s gains were nice across the board as the blue-chips added 94 points and the S&P 500 gained 20 points, or nearly 1%. Tech jumped 105 points, or 2%, and the small-caps surged 34 points, or 2.7%. The bears lead for April has nearly evaporated as the Nasdaq is down just over a point while the Russell 2000 is lower by 6 points, or a half-percent. The Dow is off 116 points and the S&P 500 needs to make up 14 points.
We can blame some of Friday’s tentative action on nervousness as Wall Street awaited results from the French presidential election. While this could have some impact on Monday’s action, the market will quickly focus its attention towards earnings and a possible tax bill proposal. The two candidates that won face a runoff vote in early May.
This will be the busiest week of the month for earnings as over a third of the S&P 500 companies will be announcing. I will profile a number of possible trades on stocks that will likely make the biggest moves and we have some trades that could move dramatically on the news.
I don’t actively seek earnings trades because company results can be taken well, or not so good, by Wall Street and investors. However, the trades we are have cash in favor bullish or bearish numbers so hopefully the stock direction afterwards goes our way.
After today’s close, Alcoa (AA), Express Scripts (ESRX), Rambus (RMBS) and T-Mobile (TMUS) will report quarterly results.
Tuesday’s action includes Caterpillar (CAT), Coca-Cola (KO), Freeport-McMoRan (FCX), McDonald’s (MCD), JetBlue Airways (JBLU), PulteGroup (PHM) and WynnResorts (WYNN).
Boeing (BA), Pepsico (PEP), Hershey (HSY), Tractor Supply (TSO) and Twitter (TWTR) will announce numbers on Wednesday.
Thursday’s heavy-hitting lineup includes Amazon.com (AMZN), Alphabet (GOOG), Comcast (CMCSAA), Dow Chemical (DOW), Ford (F), GoPro (GPRO), Intel (INTC), Microsoft (MSFT), Starbucks (SBUX) Under Armour (UA), and United Parcel Services (UPS).
Chevron (CVX), Colgate-Palmolive (CL), Exxon Mobile (XOM), General Motors (GM), Honda Motor (HMC) and Phillips 66 (PSX) highlight Friday’s high profile earnings.
Another sector that needed to show strength last week were the Transports. The Dow Jones Transportation Average ($TRAN) was also facing a test towards its March low just south of 8,800 but battled back to reclaim the 9,100-9,000 level, and now fresh support. Resistance remains at 9,200-9,225 and the 50/100-day moving averages.
Cyclical stocks, like apparel retailers and auto parts, have also shown strength and that is good news that shows a broader rally could be developing on a breakout. The Consumer Discretionary Spiders (XLY) are a good way to track the sector and reached a fresh 52-week high of $88.62 last week. The breakout could lead to a blue-sky territory past fresh resistance at $90. Support is $87.50-$87 and the 50-day moving average.
Last week, I predicted the Russell 2000 could move 50 points within two weeks and by month’s end. The bulls made 68% of that move in a week and cleared major resistance in the process. The small-caps remain the key to this week’s action along with the VIX.
From desk to press, futures look like this: Dow (+163); S&P 500 (+20); Nasdaq 100 (+47).
Momentum Options Play List
Closed Momentum Options Trades for 2017: 23-9 (72%). 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.
Snap (SNAP, $20.93, down $0.22)
SNAP May 23 calls (SNAP170519C00023000, $0.80, down $0.07)
Entry Price: $0.75 (4/21/2017)
Exit Target: $1.50
Stop Target: None
Action: Set an Exit Target at $1.50. There is no Stop Target.
Shares traded down to $20.71 on Friday. Support is at $20.50-$20. A close below $19 would be a bearish development. Near-term resistance is at $21-$21.25. A move above $22 could lead to a run towards $23.50-$24.
Cypress Semiconductor (CY, $13.99, down $0.10)
CY June 14 calls (CY170616C00014000, $0.85, down $0.05)
Entry Price: $0.85 (4/20/2017)
Exit Target: $1.70
Stop Target: None
Action: Support is at $13.75-$13.50 and the 50-day moving average with Friday’s low tapping $13.76. Resistance is at $14.25-$14.50. Earnings are due out Thursday and I will have a more detailed writeup in the next day or two.
Square (SQ, $17.49, down $0.22)
SQ June 18 calls (SQ170616C00018000, $0.95, down $0.05)
Entry Price: $0.95 (4/20/2017)
Exit Target: $1.90
Stop Target: None
Action: Shares held upper support at $17.50-$17.25 after trading to a low of $17.32. Resistance is at $17.75-$18.
Best Buy (BBY, $50.64, up $0.11)
BBY May 45 puts (BBY170519P00045000, $0.20, flat)
Entry Price: $0.57 (4/13/2017)
Exit Target: $1.15
Stop Target: None
Action: Shares traded up to $50.92 on Friday. Resistance is at $50.50-$51. Support is at $50-$49.75. If shares hold $50 throughout the week, I could exit the trade by Friday’s close to save the remaining premium.
STMicroelectronics (STM, $14.64, down $0.21)
STM May 15 calls (STM170519C00015000, $0.60, down $0.10)
Entry Price: $1.15 (3/31/2017)
Exit Target: $2.30
Stop Target: 40 cents (Stop Limit)
Action: Fresh support at $14.50-$14.25 following Friday’s backtest to $14.60. Resistance is at $14.75-$15 and the 50-day moving average.