MomentumOptions.com Pre-Market Update for 5/8/2017
Nasdaq/ S&P 500 Tap All-Time Closing Highs
The bulls got the weekly win to start the month of May and are within spitting distance of setting all-time highs again. There were signs of a possible “double bottom” last week despite the indexes being trapped in a tight two-week trading range. The bears are still lurking but Friday’s action showed momentum is back on the bullish side.
The Dow gained 55 points, or 0.3%, to close just below 21,007 on Friday. The blue-chips were weak during the first half of trading after falling to a low of 20,905. Support at 20,800-20,700 held for the 10th-straight session. Resistance at 21,150-21,200 held on the late day run and close on the high. A move above the latter gets 21,450-21,600 in play.
The S&P 500 advanced 9 points, or 0.4%, to finish at 2,399. The index held positive territory for much of the session aside from the morning hold at 2,389. The less than a point loss was hardly noticed with support at 2,375-2,370 easily holding. Last week’s low reached 2,379 and 2,380 and I mentioned how 2,380 was crucial in holding. It is too early to tell if this represented a near-term double bottom but the rebound to nearly 2,400 pushed upper resistance at 2,390-2,400. A move above the latter gets fresh all-time highs back in the mix with fluff to 2,425-2,450.
The Nasdaq added 25 points, or 0.4%, to end at 6,075. Tech opened 16 points higher before fading to a low of 6,067 after a half-hour of trading. Near-term support at 6,050 was once again strong for the 3rd-straight session. Although there is risk to 6,025-6,000 on a close below this level, last Wednesday and Thursday’s low kissed 6,053 and 6,054, respectively. This may have also signaled a temporary double bottom with Friday’s push past 6,100 and close at a fresh record high. Upper resistance at 6,075-6,100 was cleared with continued closes above the latter bullish for a run towards 6,075-6,150.
The Russell 2000 climbed 8 points, or 0.6%, to settle at 1,397. The small-caps traded down to 1,385 on the morning weakness with support at 1,380-1,375 and the 50/100-day moving averages holding. Upper resistance at 1395-1,400 was nearly cleared following the quarter-point close off the session high. The record high is at 1,424 and would be back in play if the bulls can clear 1,410-1,415 this week.
The S&P 500 Volatility Index ($VIX, 10.57, up 0.11) stayed underwater throughout the first half of action with the low reaching 9.99. The recent 52-week low is at 9.90 with lowered support now at 10-9.50. Resistance remains at 11.50 and a level that has been holding for the 9-straight sessions. Continued closes above this level opens up risk to 12.50-13.50. Friday’s high tapped 10.98 intraday.
The “sell in May and go away” theme was a hot topic last week but the steady gains from the last week of April carried over to start the month. Financial stocks showed strength after the Federal Reserve decided to leave interest rates unchanged. Meanwhile, the Healthcare sector is pushing its 52-week peak after the House passed a bill intended to repeal and replace Obama’s Affordable Care Act.
These were bullish developments as these sectors are stronger than others. Energy stocks, on the other hand, account for less than 10% of the S&P 500’s weight. Much of the recent pullback in energy stocks have come on the heels on another pullback in Oil, especially, Brent crude Oil which caved below the $50 level in a dramatic way for the first time since early December.
Brent Oil ($BRENT) traded to a low of $46.64 on Friday after failing to hold $50 during Thursday’s session. This level was breeched in mid-March as you can see from the chart below. The mid-November 2016 low touched south of $44 and an area to watch on continued weakness. Continued closes below this level would be a very bearish development. Resistance is at $51-$51.50 and the 200-day moving average if $50 is cleared and held for several sessions.
The Vanguard Energy EFT (VDE) has developed pretty much the same bearish setup as Brent Oil after trading to a fresh 2017 low. The ETF rebounded nearly 2% on Friday after kissing $90.23 last Thursday. The longer-term chart shows solid support at the $87.50 level on continued weakness and area that could come into play if $90 fails to hold over the near-term. Resistance is at $95-$95.50 and a nasty, downward sloping 50-day moving average if shares can recover $92-$94.
Exxon Mobil (XOM) and Chevron (CVX) have bearish charts with both stocks struggling with their 50-day moving averages. These two stocks are the largest constituents for most exchange traded funds and are considered investor favorites as they pay huge dividends. Although safe for now, there is risk on the dividend payouts and earnings forecasts for companies, overall, on continued lowered oil prices.
Shares of Exxon Mobil (XOM) recovered the $82 level and the 50-day moving average on Friday’s run to $82.24. Additional hurdles are at $83-$84 and the 100-day moving average. A more bullish outlook won’t come until shares can clear $85 and a downward sloping 200-day moving average. I would get aggressively short the stock with put options if shares fall below $80.30 and $80.47 and the mid-April lows.
While there may be some upside to the stock over the near-term, I have the XOM July 80 puts (XOM170721P00080000, $1.55, down $0.30) on my Watch List for the longer-term. These puts will get cheaper if XOM can gain some momentum, or hold current levels. However, aggressive traders will also be active in the name on a break below the $80 level.
Bullish traders can target the XOM June 82.50 calls (XOM170616C00082500, $1.00, up $0.10) if shares can clear and hold $82.25-$82.50 this week on multiple closes. These options were heavily traded on Friday as over 1,500 contracts exchanged hands. Open interest is approaching 10,000 contracts. This helps keeps tighter bid/ ask prices and shows plenty of liquidity, two traits I like to see when trading options.
The Vanguard Health Care ETF (VHT) made a run past $141 shortly after Friday’s open before settling slightly lower. The mid-March 52-week peak tapped $141.68 with fresh resistance at $142.50-$143 and a possible push past $145 in the works. Support is at $138.50 and the 50-day moving average on continued closes below $140.
The Financial Select Sector Spiders (XLF) has been mired in a two-week trading range and is trying to clear resistance at $24 and a downward sloping 50-day moving average. Continued closes above this level would be bullish and temporary avoid a possible mini death-cross forming with the 100-day moving average. Shaky support is at $23.75-$23.50 with a close below the latter a bearish development.
Futures here at home were showing green throughout Sunday evening after candidate Emmanuel Macron won the French presidential election versus rival Marine Le Pen. Macron is a vivid supporter of the European Union (EU) and his election victory could calm global markets as overseas investors have fretted for weeks over the possible outcome.
Most suit-and-ties worried about a market selloff if far-right candidate Le Pen stole the show. She has been making promises to pull France out of the EU while closing up boarders and potentially unsettling the eurozone and world markets. While this is understandable, a market selloff wasn’t a given, and overseas economies are still underperforming the US economy, for the most part.
From desk to press, futures look like this: Dow (-15); S&P 500 (-1); Nasdaq 100 (-1).
Momentum Options Play List
Closed Momentum Options Trades for 2017: 28-10 (74%). 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.
Viavi Solutions (VIAV, $11.33, up $0.47)
June 12 calls (VIAV170616C00022500, $0.35, up $0.17)
Entry Price: $0.35 (5/5/2017)
Exit Target: $0.70-$1.05
Stop Target: None
Action: Shares traded to a 52-week high of $11.49 on Friday. Fresh resistance is at $11.50-$11.75. Support is at $11.25-$11.
iShares Russell 2000 (IWM, $138.95, up $0.85)
IWM June 134 puts (IWM170616P00134000, $1.15, down $0.25)
Entry Price: $1.40 (5/2/2017)
Exit Target: $2.10-$2.80
Stop Target: 70 cents (Stop Limit)
Action: Make the Stop Target of 70 cents a Stop Limit order.
Friday’s peak reached $138.99 into the closing bell. Resistance is at $139.50-$140 with a move above the latter a bullish signal. Near-term support is at $138.50-$138. Although this trade has a tremendous amount of time left before expiration, I want to reserve the remaining premium, in case last week was a temporary double-bottom.
STMicroelectronics (STM, $16.70, up $0.48)
STM July 17.50 calls (STM170721C00017500, $0.70, up $0.20)
Entry Price: $0.55 (5/2/2017)
Exit Target: $1.10
Stop Target: None
Action: Fresh resistance is at $16.75-$17 following the close at a new 52-week high. Rising support is at $16.50-$16.25. Volume was heavy as these options traded over 5,000 contracts on Friday.
Cypress Semiconductor (CY, $13.45, up $0.13)
CY June 14 calls (CY170616C00014000, $0.40, up $0.05)
Entry Price: $0.85 (4/20/2017)
Exit Target: $1.70
Stop Target: 25 cents
Action: Friday’s high tapped $13.49. Resistance is at $13.50-$13.75 and the 50-day moving average. Support is at $13.25-$13.