MomentumOptions.com Pre-Market Update for 5/22/2017
Bulls Push Resistance on Continued Momentum
The bulls continued their bounce off the midweek lows to rally past resistance on Friday while getting their second-straight win. However, it was the bears that got the weekly trophy and a slice of the monthly action following the overall pullback.
Volatility also closed below key levels of support, suggesting the worst might be over, but this week will be packed with headlines. The news will likely be more geopolitical than economic but all of the moving pieces are suggesting another explosive move to the upside, or downside, in the coming weeks.
The Dow jumped 141 points, or 0.7%, to end at 20,804 on Friday. The blue-chips opened at 20,698 and reached an intraday high of 20,857 while holding positive territory throughout the session. The move and close above upper resistance at 20,700-20,800 and the 50-day moving average was slightly bullish. Additional hurdles are at 20,950-21,000. Key support is at 20,600 with risk to 20,500-20,450 and the 100-day moving average on another move below the latter.
The S&P 500 spiked 16 points, or 0.7%, to settle 2,381. The index opened above upper resistance at 2,370-2,375 by a point while testing a high of 2,389 late in the day. The close back above the 50-day moving average opens up a return to 2,390-2,400. Fresh support is at 2,365-2,360 on a pullback with risk to 2,340-2,335 and the 100-day moving average, if breeched. I might go short SPY put options on a move below the latter.
The Nasdaq advanced 28 points, or 0.5%, to close at 6,083. Tech opened on 6,070 and just below upper resistance at 6,050-6,075 while reaching a peak of 6,106. The 6,100 level failed to hold and the bigger concern is the 6,125 area. A move above the latter would be a more bullish development and help negate Wednesday’s candlestick action. Shaky support is at 6,050-6,025 with and opportunity to go short using the QQQ’s on a move below 5,975-5,950 and the 50-day moving average.
The Russell 2000 gained 6 points, or 0.5%, to finish at 1,367. The small-caps also held positive territory throughout Friday after opening a half-point higher at 1,361. The run to 1,374 nearly cleared upper resistance at 1370-1,375. I was cheerleading for the latter to hold but it’s still early to trust the index until 1,380 and the 50/100-day moving averages are cleared, again. Near-term support is at 1,360-1,350 this week with stretch to 1,340-1,335. I talk more about the Russell 2000 below.
The S&P 500 Volatility Index ($VIX, 12.04, down 2.62) stayed deflated after sinking another 18% while trading down to 11.72. I mentioned I wanted to see a recovery of support at 13.50-12.50 and the major moving averages ahead of Friday’s close, or early this week, to ensure volatility had settled. While bullish, the 11.50 level needs to hold for several sessions this week in order for the bulls to keep their momentum. Resistance is at 13.50-14.50 with another move above 15 a signal to buy VXX call options.
After weeks of not seeing a 1% move, the tight trading range from mid-April finally cracked to get the major moving averages in play. Last Wednesday’s drubbing was only the second time this year the S&P 500 had moved more than 1% but it was the largest plunge in 8 months. You can see a nice curl to the aforementioned chart of the index and the close 2,380 on Friday was slightly bullish. While I would be bullish to go long on another run past 2,395-2,400, I also won’t hesitate to go short on a move below 2,350 and last week’s low of 2,352.
The Spiders S&P 500 ETF (SPY, $238.31, up $1.54) is showing the same technical setup with a close above resistance at $239.50-$240 a sign to possibly go long. A drop below support at $237-$236.50 and the 50-day moving average would be a signal to possibly go short.
While there are weekly options to trade on SPY, I like using the regular monthly options as they are more liquid with tighter bid/ ask spreads. The SPY June 240 calls (SPY170616C00240000, $1.50, up $0.40) and the SPY June 241 calls (SPY170616C00241000, $1.00, up $0.24) are relatively cheap option trades to keep an eye on if the bulls keep momentum and clear $239.50-$240.
The SPY June 236 puts (SPY170616P00236000, $2.00, down $1.06) and the SPY June 235 puts (SPY170616P00235000, $1.70, down $1.03) can be targeted if $237-$236.50 and the 50-day moving average starts to crack. The puts options are currently carrying slightly elevated premiums than call options given the nervousness caused from last week’s pullback.
In any event, these are my initial trading plays to target action in the S&P 500 this week based on a move above or below resistance and support. Last week, I targeted the PowerShares QQQ Trust (QQQ, $137.82, up $0.57) for a quick trade for the Daily, and also have them on my watch list to play again this week. For Easy Money subscribers, I want to wait for a more defined breakout or breakdown before recommending possible index trades.
The iShares Russell 2000 ETF (IWM) mirrors the action in the small-caps and the major index I continue to watch more closely. I mentioned in the Daily last week the March low on the Russell 2000 reached 1,335 on the 22nd and 27th. At the time, I mentioned it may have been a temporary double bottom. The index made a run to 1,376 afterwards and into April before a backtest to 1,345 mid-month on back-to-back sessions.
Last week’s lows reached 1,355 and 1,351 on back-to-back sessions with a return to the 1,375 level on Friday. This wasn’t as clear as the previous two double bottoms and why the Friday’s action was neutral to bearish, to me. I mentioned earlier, it would be hard to trust the small-caps until the index clears 1,380 again as this would help neutralize the current downtrend.
Bullish traders can use IWM call options on a move above 1,382-1,385 to make certain another run at 1,400+ might be coming. The IWM June 139 calls (IWM170616C00139000, $0.90, down $0.05) can be used if resistance at $137.50-$138 clears as they would double from current levels if IWM clears $140.80, technically, by June 16th. The IWM June 140 calls (IWM170616C00140000, $0.65, down $0.05) can also be targeted with shares needing to clear $141.30 over the same time period to achieve a double, or 100% return.
If the Russell 2000 falls back below 1,345, and more so 1,335, it would confirm the downtrend is still intact. It is highly likely that the 1,325-1,320 area and the 200-day moving average comes into play if the aforementioned support levels are cracked.
The IWM June 134 puts (IWM170616P00134000, $1.50, down $0.50) can be used by bearish traders if IWM falls below $134.50-$134 this week. These puts would double from current levels if IWM shares fall below $131, technically, by mid-June as they would be $3 “in-the-money”.
One sector that might be ripe for a trade is Gold as commodities are starting to rally on a continuing weakening dollar. The talking heads are saying the dollar is weaker due to deteriorating conditions here at home. However, the rise in the European markets shows economic conditions are improving faster than anticipated and this has helped the Euro and the British Pound.
In mid-April, I mentioned a golden cross in Gold ($GOLD) was in the processing of forming but the price action needed to clear and hold $1,300. From 4/17:
“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.”
Gold immediately backed off this level as you can see from the chart below and stayed in a steady downtrend into early May. Support at $1,220 and the 100-day moving average held and the golden cross is now official on Friday’s close above the $1,250 level. Near-term resistance is at $1,260-$1,265 with a close above the latter likely leading to another run at $1,300. Support is at $1,245-$1,240 with a close below $1,230 negating the current momentum.
I often profile the Spider Gold Shares (GLD) as a way to trade gold and the chart shows near-term resistance at $119.50-$120 with Friday’s high tapping $119.54. A close above the latter could lead to a run towards $122-$123 with breakout potential to $125-$130. The 52-week high is north of $131. Fresh support is at $119-$118.75 and the 50/200-day moving averages with risk to $118-$117 and the 100-day moving average on a close below the latter.
Aggressive traders can target the GLD June 121 calls (GLD170616C00121000, $0.90, up $0.05) if shares clear $119.50-$120. These options will double from current levels if GLD clears $122.80, technically, by June 16th.
The GLD July 122 calls (GLD170719C00122000, $1.40, up $0.05) would give the trade another month to play out as the regular June options expire in less than a month. GLD shares would need to rally past $124.80, technically, by mid-July for the aforementioned options to return 100% from current levels.
Aside from the small-caps and the VIX, I will be watching the action in the Financial group and the Transports. These two sectors have bearish chart patterns and I will cover them in more detail next week. As far as geopolitical risks, North Korean is at it again after launching another missile over the weekend. This, as the U.S. Navy is moving the USS Ronald Reagan aircraft carrier to join the USS Carl Vinson in dual-carrier training exercises near the Korean Peninsula.
From desk to press, futures look like this: Dow (+11); S&P 500 (+1); Nasdaq 100 (+3).
Momentum Options Play List
Closed Momentum Options Trades for 2017: 32-10 (76%). 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.
Flex (FLEX, $16.51, up $0.41)
FLEX July 17 calls (FLEX170721C00017000, $0.45, up $0.15)
Entry Price: $0.45 (5/16/2017)
Exit Target: $0.90
Stop Target: None
Action: Lowered resistance at $16.50-$16.75 was cleared on Friday’s run to $16.67. Support is at $16.25-$16 and the 50-day moving average. The 100/200-day moving averages are in solid uptrends and a close above $16.75 would be a bullish development.
STMicroelectronics (STM, $16.37, up $0.19)
STM October 20 calls (STM171020C00020000, $0.60, up $0.05)
Entry Price: $0.70 (5/15/2017)
Exit Target: $1.40
Stop Target: None
STM July 17.50 calls (STM170721C00017500, $0.50, up $0.05)
Entry Price: $0.65 (5/15/2017)
Exit Target: $1.30
Stop Target: None
Action: Shares traded up to $16.59 on Friday. Resistance is at $16.50-$16.75 with a move above the latter a bullish signal. Support is at $16.25-$16 followed by $15.75 and the 50-day moving average.
Viavi Solutions (VIAV, $10.95, flat)
June 12 calls (VIAV170616C00022500, $0.10, flat)
Entry Price: $0.35 (5/5/2017)
Exit Target: $0.70-$1.05
Stop Target: None
Action: Resistance is at $11.25-$11.50 on continued closes above $11. Friday’s high reached $11.03. Support is at $10.75-$10.50 and the 50-day moving average. The major moving averages are still in solid uptrends and shares are capable of making big upside moves.
There are rumors swirling Viavi Solutions has interest in acquiring Gigamon (GIMO) and how serious they are is another story. I mentioned Viavi has a unique 3D sensing opportunity with the upcoming iPhone8 expected to have 3D sensing technology when it debuts later this year. If so, this could increase the company’s earnings growth, significantly, with multiple smartphone markers following suit next year.
Cypress Semiconductor (CY, $13.15, up $0.02)
CY June 14 calls (CY170616C00014000, $0.25, flat)
Entry Price: $0.85 (4/20/2017)
Exit Target: $1.70
Stop Target: None
Action: Resistance is at $13.50-$13.75 and the 50-day moving average with shares kissing $13.40 on Friday. Support is at $13-$12.75 and the 100-day moving average.
The 52-week high is at $14.98 and we will need shares to make a run past $14.85 to breakeven, or possible make a profit, over the next three weeks. While possible, I would like to see shares recover $14 by the end of the month. If not, I could exit the trade to save the remaining premium.