MomentumOptions.com Pre-Market Update for 5/15/2017
Another Mixed Week
The bulls and bears battled to another draw last week with Tech showing strength while the broader market and the small-caps stayed stuck in neutral. Friday’s action offered both bullish and bearish clues for this week but the recent listless trading could continue over the near-term. First-quarter earnings season is still in focus but will be less of a factor going forward with much of the heavy hitters and larger-cap companies having reported.
Apple shares continue to be a beast after hitting another lifetime high on Friday. The stock has been a rising tide that has lifted a lot of boats but is currently 10% above its 50-day moving average. How this stock reacts the rest of May, along with the small-caps, could determine this month’s overall results for the major indexes.
The Dow dropped 22 points, or 0.1%, to finish at 20,896 on Friday. The blue-chips traded in negative territory throughout the day with the low reaching 20,869. Support at 20,800-20,700 and the 50-day moving average held for the second-straight session with risk to 20,600-20,450 and the 100-day moving average on a move below the latter. Resistance has been lowered to 20,975-21,000 followed by 21,150-21,200.
The S&P 500 slipped 3 points, or 0.2%, to end 2,390. The index opened 2 points lower while testing a low of 2,387 shortly after the opening bell. Support at 2,390-2,385 was split but held into the closing bell with risk to 2,370-2,365 and the 50-day moving average if 2,380 fails this week. Resistance remains at 2,400-2,405 with a move above the latter leading towards 2,425-2,430. Last Tuesday’s all-time peak reached 2,403.87.
The Nasdaq gained 5 points, or 0.1%, to settle just under 6,121. Tech was slightly weak during the first half of action with the low tapping 6,105. Upper support at 6,100-6,075 held with a breech below 6,050 being a bearish development. The rebound to 6,122 fell shy of resistance at 6,150-6,175. Last Tuesday’s lifetime high touched 6,133.
The Russell 2000 gave back 7 points, or 0.5%, to close at 1,383. The small-caps opened a point lower at 1,389 with Friday’s low kissing 1,380. Support at 1,380-1,375 and the 50/100-day moving averages held for the second-straight session. There is wiggle room, or stretch, to 1,370 on continued weakness with a close below this level being a warning sign. Resistance remains at 1395-1,400 with additional hurdles at 1,410-1,415.
The S&P 500 Volatility Index ($VIX, 10.40, down 0.20) traded in a tight range after testing a midday high of 10.87 and a low of 10.28 ahead of the close. Resistance at 10.50-11.50 was nearly split with a close above the latter likely leading to 12.50-13.50 and a possibly breech of all the major-moving averages. Support is at 10-9.50 with last Tuesday’s 52-week low registering 9.56.
The losses last week were limited and for the month, the indexes are mixed. The Dow fell 110 points last week and the S&P 500 slipped 9 points. Tech gained over 20 points while the Russell 2000 sank 14 points. For the month, the blue-chips are down just 44 points while the S&P 500 is up 6 points. Tech has climbed 74 points and the small-caps are lower by 18 points.
The divergence and sector rotation has put more traders in the bears camp but the major indexes are still within striking distance of their all-time highs. While calling a market top is never easy, this week will be an important test for the bulls. If a continued trading range holds, along with near-term support, higher highs would still be in play for the month and possibly into June. However, if Tech start to crack along with the small-caps, the rest of the market will likely follow suit.
This month’s lows on the Nasdaq reached 6,053 and 6,054 on May 3rd and 4th, respectively. I mentioned this possibly signaled a short-term bottom and why the 6,050 level has been highlighted in my earlier notes and over the past few weeks.
Until this level is breeched, it is wise to stay long the market. However, if 6,050 fails, I will be looking at the PowerShares QQQ ETF (QQQ) to possibly go short. The QQQ’s tapped a fresh 52-week peak and all-time high of $138.63 on Friday. There is room to run to $140 over the near-term on continued closes above $138.50. Rising support is at $138-$137.50.
The QQQ June 140 puts (QQQ170616C00140000, $1.15, up $0.08) can be targeted by bullish traders on continued strength and a move above $138.50. Bearish traders can target the June 136 puts (QQQ170616P00136000, $1.05, down $0.18) if the QQQ’s breech $137.50-$137.25.
One of the biggest components of Tech, the Dow, and the overall market are share of Apple (AAPL). The stock reached a lifetime high of $156.42 on Friday after Bank of America/ Merrill and Goldman Sachs raised their Price Targets to $180 and $170, respectively. Shares are certainly in blue-sky territory with a market-cap now above $800 billion. Analysts have been tripping over themselves predicting a $1 trillion valuation and would represent another 20%-25% increase in shares.
Fresh resistance is at $158-$160 and where I would expect shares to take a pause on continued strength. However, a $200 stock can’t be ruled out if the iPhone 8 has record sales later this year and into 2018. Right now, shares look a tad frothy, to me, with fresh support at $154-$153.50. A close below the $150 level could lead to a quick backtest to $145.
BofA kept a Buy rating on the stock and the price target of $180 is up from $155. Meanwhile, the analyst at Goldman upped the price target from a prior $164 to $170 based on Apple pricing its 128GB and 256GB models at $999 and $1,099, respectively. Wow. The latter 3% price hike looked slightly cheesy after predicting those luxury prices and the amount of cash in the company’s coffers.
In any event, the options on Apple are slightly expensive to trade and I would wait for $150 to fail before shorting this monster. I have the APPL June 150 puts (APPL170616P00150000, $1.13, down $0.44) and the APPL July 150 puts (170721P00150000, $2.23, down $0.55) on my Watch List. These options will get cheaper on continued strength in the stock, and the math will need to be reworked before a possible bearish trade, but I like them once a top is in.
As far as the VIX, I have talked about a low double-digit to single-digit VIX playing out for a few weeks, and even months. I don’t like using put options at these levels as I do believe volatility will return at some point in June, July, or possibly this month.
One of the ways to trade volatility is by using the iPath S&P 500 VIX Futures (VXX, 14.06, down 0.02). The index is also at 52-week lows with the major moving averages in a steady downtrend.
It is too early to say if a bottoming process is forming at 14 and current support but continued closes above this level over the near-term would start to confirm so. While there are put options to trade on VXX on continued weakness, I’m watching call options if the index clears 15.50-16 and the 50-day moving average.
The June 15 calls (VXX170616C00015000, $0.60, down $0.05) and the July 15 calls (VXX170721C00015000, $1.05, down $0.05) are on my Watch List if VXX clears the aforementioned resistance levels over the near-term.
Weekly options are also available to trade on the QQQ’s and VXX but they aren’t as liquid and carry slightly wider bid/ask prices. The spreads in the monthly options are less than a nickel and the open interest is also much higher.
The action in the small-caps, along with iShares Russell 2000 (IWM, $137.51, down $0.73) will also be my main focus this week. I talked about stretch on the Russell 2000 possibly coming into play and the Daily has already nibbled on a small position.
I have listed the QQQ’s and VXX as possible short positions but I don’t want to get trigger happy and aggressive unless the bearish clues I have discussed come into play. Until then, bullish plays on undiscovered and momentum stocks are still working.
From desk to press, futures look like this: Dow (+18); S&P 500 (+2); Nasdaq 100 (+3).
Momentum Options Play List
Closed Momentum Options Trades for 2017: 29-10 (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.
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Imax (IMAX, $29.10, down $0.75)
IMAX June 28 puts (IMAX170616P00028000, $0.45, up $0.15)
Entry Price: $0.40 (5/12/2017)
Exit Target: $0.80
Stop Target: None
Action: Friday’s low of $29.05 cleared November’s low of $29.25 with fresh support at $29 holding into the close. A move below this level sets up a possible backtest to $28.50-$28, or worse. Resistance is at $29.50-$29.75. The major moving averages are in a nasty downtrend with the 50-day moving average on the verge of falling below the 100-day moving average. This would form a mini death-cross and is usually a bearish setup for lower lows.
The company recently reported earnings in mid-April that beat estimates by two pennies but revenues of $68.66 million fell shy of expectations for $71.38 million. Imax also topped estimates the previous three quarters by a penny, twice, and four cents, respectively.
The suit-and-ties have been mixed on IMAX in recent months with one analyst reiterating a Buy rating and $39 price target following the earnings announcement last month. Another analyst downgraded the stock in February to Neutral from Outperform.
I have covered the company for over a decade when shares were below $5 and ahead of the 3D movie craze that started in 2008. While I like the company’s new initiatives, such as virtual reality and original content, video on demand has been hurting theatergoing.
These options expire in a month so I would like to be out of this trade in a couple of weeks. July options are currently unavailable to trade and I didn’t want to use September puts.
Viavi Solutions (VIAV, $11.66, up $0.14)
June 12 calls (VIAV170616C00022500, $0.40, up $0.05)
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 $11.67 on Friday. Fresh resistance is at $11.75-$12. Support is at $11.50-$11.25. The 10-year weekly chart below shows continued closes above $12 would be bullish for a possible run towards $15-$17.
I have been bullish on the stock from the $7’s since last November and I have talked about a run to the mid-teens for a few months now. I could piggy-back this trade with additional June and September call options on continued strength and as early as today.
iShares Russell 2000 (IWM, $137.51, down $0.73)
IWM June 134 puts (IWM170616P00134000, $1.25, up $0.10)
Entry Price: $1.40 (5/2/2017)
Exit Target: $2.10-$2.80
Stop Target: 70 cents (Stop Limit)
Action: IWM traded to a low of $137.16 on Friday. Near-term support is at $137.25-$137 and the 50-day moving average. A move below $136.50 and the 100-day moving average would be a bearish development and should get this trade moving. Resistance is at $138-$138.50.
Cypress Semiconductor (CY, $13.45, down $0.18)
CY June 14 calls (CY170616C00014000, $0.35, down $0.10)
Entry Price: $0.85 (4/20/2017)
Exit Target: $1.70
Return: – x
Stop Target: 25 cents
Action: Support is at $13.25-$13 following Friday’s close below $13.50 and low of $13.37. Resistance is at $13.75 and the 50-day moving average.