Mid-Market Update for 5/3/2017

Square (SQ) Slips Ahead of Earnings/ New Trade (IWM)

1:00pm (EST)

Shares of Square (SQ) are down 3% ahead of the company’s earnings report due out after the close. Despite the pullback, the technical picture remains extremely bullish as the major moving averages are all in a very strong uptrend. Shares are pushing fresh support at $18 with risk to $17.50-$17.25 on continued weakness and close below $18. Resistance is at $18.50-$19.

As you can see, shares made a dramatic move from $15.04 to $17.15 in late February following a smaller than expected loss for the quarter. More importantly, the company forecasted a profit of $0.15-$0.19 for 2017 while analysts were previously penciling-in losses of up to 31 cents.

Square also said FY17 revenue would come in at $2.09-$2.15 billion versus estimates for $2.12 billion. For the recently ended quarter, Wall Street is expecting a loss of 8 cents on revenue north of $450 million.

The company has topped forecasts the past three quarters but reported a larger-than-expected loss in the year ago period. Although the year will be be profitable for Square, a loss for the quarter might spooked investors that don’t know the story. In any event, I always like to see back-to-back improving, profitable, quarters for a company before possibly buying a stock.

I trade options way more than buying a stock, but I do have some positions in my retirement account. Covered calls, or actually selling calls and puts on Square are also trading ideas when it comes to establishing a possible position. However, after making a quick 37% in just under two weeks, I would rather wait until after earnings to reestablish a possible position.

I’m more bullish than bearish on Square and there is chatter of a debit card coming soon. Another surprise quarter, or two, and deeper business development deals will be bullish catalysts going forward and something to watch for.

As far as the market, futures were slightly weak throughout the night and into the open with the opening losses limited. Near-term support is holding but the action in the small-caps is concerning.

The Dow is down 25 points to 20,925 while the S&P 500 is slipping 6 points to 2,384. The Nasdaq is lower by 31 points to 6,064 and the Russell 2000 is off 9 points to 1,389.

I have a New Trade as I mentioned we would go short IWM if shares fell below $138.50-$138.25.


Momentum Options Play List

Closed Momentum Options Trades for 2017: 27-10 (73%). 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.


New Trade

iShares Russell 2000 (IWM, $138.05, down $1.10)

Buy to Open IWM June 134 puts (IWM170616P00134000, $1.40, up $0.25)

Action: I like these put options at current levels and you can use a Limit Order up to $1.60 to get the best fills. These are the regular IWM June 134 puts that expire on June 16th 2017. I will provide the parameters of the trade in tomorrow’s Pre-Market update.

Current Trades

STMicroelectronics (STM, $16.22, down $0.27)

STM July 17.50 calls (STM170721C00017500, $0.50, down $0.05)

Entry Price: $0.55 (5/2/2017)
Exit Target: $1.10
Return: -10%
Stop Target: None

Action: Support is at $16.25-$16. Resistance at $16.75-$17.


Oracle (ORCL, $44.93, down $0.20)

ORCL June 46 calls (ORCL170616C00046000, $0.60, down $0.05)

Entry Price: $0.55 (4/26/2017)
Exit Target: $1.10
Return: 9%
Stop Target: 57 cents (Stop Limit)

Action: The low has tapped 58 cents on the puts so far today.

Support is at $45-$44.75. Resistance at $45.25-$45.50.


Cypress Semiconductor (CY, $13.36, up $0.03)

CY June 14 calls (CY170616C00014000, $0.40, flat)

Entry Price: $0.85 (4/20/2017)
Exit Target: $1.70
Return: -53%
Stop Target: 25 cents

Action: Support is at $13.25-$13. Resistance is at $13.50.