MomentumOptions.com Pre-Market Update for 5/30/2017
Transports Show Strength on Continued Rally
The bulls got the weekly win and regained control of May despite a lackluster Friday that included the lightest trading day of the year. The Russell 2000 still needs some work and a strong move past the 1,400 level to close the month in positive territory. As far as the other major indexes, they are holding nice, round numbers that will try to serve as a floor of support going forward.
The Transportation sector led last week’s recovery and helped the breakout to fresh highs on the S&P 500 with Tech also staying strong. The Dow is just 89 points from a fresh all-time high and should see continued strength if the Transports stay strong and clear another layer of resistance. The Financial sector stalled midweek and will also need to show strength if fresh all-time highs are going to stay in play.
The Dow slipped 2 points, or 0.01%, to settle at 21,080 on Friday. The blue-chips tested a low of 21,050 shortly after the open and were in negative territory for much of the session. Rising support is at 21,000-20,900 following six prior higher closes. A move below 20,800-20,750 and the 50-day moving average would be a warning sign a temporary top is in. The midday trip to 21,092 failed lower resistance at 21,150-21,200 and the all-time high at 21,169. A close above the latter could lead to a run to 21,450-21,500.
The S&P 500 added three-quarters of a point, or 0.03%, to close 2,415. The index traded down to 2,412 on the morning low with fresh support at 2,400-2,390 easily holding. Backup help is at 2,380-2,375 and the 50-day moving average. The rebound past 2,416 afterwards fell shy of the all-time high by 2 points and resistance at 2,420-2,425. There is breakout potential to 2,450-2,460 on a close above the latter.
The Nasdaq gained 5 points, or 0.1%, to finish at 6,210. Tech kissed 6,196 on the opening weakness with new support at 6,150-6,125 easily holding. A move back below 6,100 will likely lead to a backtest to 6,000-5,975 and the 50-day moving average. The 15-point rebound to 6,211 fell a six-pack shy of last Thursday’s lifetime hime of 6,217. Resistance is at 6,250-6,275 with my February target of 6,300-6,350 also on the horizon.
The Russell 2000 dipped a point, or 0.1%, to end at 1,382. The small-caps also traded underwater for much of Friday with the low reaching 1,376. Support at 1,380-1,375 and the 50/100-day moving averages held for the third-straight session. A close below 1,370-1,365 would be a bearish development. Resistance remains at 1,390-1,400.
The S&P 500 Volatility Index ($VIX, 9.81, down 0.18) reached its highest point of 10.48 within the opening 15 minutes and resistance at 10.50-11.50 holding. A move above 11.75-12 and the downward sloping 50/100-day moving averages would be a yellow light to pump the breaks. Upper support at 9.75-9.50 was breeched on the low of 9.65. The 52-week low from May 9th is at 9.56.
The Dow came into the month at 20,940; the S&P 500 at 2,384; and the Nasdaq at 6,047. These are the levels the bulls need to hold to get the overall May win with the small-caps needing to recover 1,400 over the next two trading days. While I would put money on the first three coming out of May with the victory, the small-caps are a slight long shot.
The aforementioned chart on the Russell 2000 shows both the 50/100-day moving averages have remained flat since early May after having rising uptrends through February and April, respectively. The next 40 points to the upside will have fresh all-time highs in play, while 40 points to the downside gets 2017 lows in play. The next 10-point swing likely sets up a bullish or bearish trade.
I mentioned last week we would use iShares Russell 2000 ETF (IWM) options to play the move. Bullish traders can go long on a move above $138.50-$139. Bearish traders can target a drop below $136.50-$136.
The continued rebound in the Dow Jones Transportations Average ($TRAN) was especially encouraging and a sector I mentioned would be crucial to any market recovery. The run to 9,192 pushed fresh resistance at 9,175-9,200 and the 100-day moving average. I would like to see a move past 9,300 on continued momentum this week. Support is at 9,100-9,050 and the 50-day moving average. A close back below the 9,000 level would be a bearish development.
The Financial stocks are still trying to recover from the mid-month selloff with Bank of America (BAC) and Goldman Sachs Group (GS) struggling to recover their 50-day moving averages. Morgan Stanley (MS) recovered its 50-day moving average on Friday along with PNC Financial clearing its 100-day moving average.
The Financial Select Spiders (XLF) cleared its 50-day moving average last week with current resistance at $23.75 and the 100-day moving average. If the index can clear $24 and show continued strength, it would be a bullish sign for the overall market. Support is at $23.50-$23.25 with a close below $23 being a bearish development.
While all of the aforementioned stocks have basically the same bearish chart setups, there could be an opportunity to trade them. However, I would rather trade one of the stronger stocks in the sector based on a better looking chart.
Citigroup (C) has made a nice recovery off its recent backtest to the 50/100-day moving averages earlier this month to reach a 52-week peak of $62.69 last Thursday. Current resistance is at $62.50-$62.75 with breakout potential to $65-$67 over the near-term. Support is at $61.50-$61.
Bullish traders can target the C June 63 calls (C170616C00063000, $0.60, flat) if shares clear $62.50-$62.75 this week. There are weekly options available to trade on Citigroup and remember these call options expire in less than three weeks. If shares are above $64.20 by June 16th, technically, these options would double from current levels.
The C July 65 calls (C170721C00065000, $0.75, down $0.05) would give a bullish trade over an extra month to play out with the break even point at $65.75. If shares can clear $66.50, technically, by July 21st, these call options would also return 100% from current levels. A double could occur sooner, depending on how fast shares move on a breakout past $63.
If shares of Citigroup fall below $61 the aforementioned trades would suffer and it would be time to start possibly looking at bearish positions using put options.
Biotech stocks could be on the verge of a major move after trading in a tight for much of May. The iShares Nasdaq Biotechnology ETF (IBB) closed below its 100-day moving average on Friday with near-term support at $288-$287.50 holding. These levels have been holding since late February, for the most part, with stretch to $285. A close below $285-$283.75 and the 200-day moving average would be a bearish development. Resistance is at $290-$292 and the 50-day moving average with a move above the latter a bullish sign.
Although there are some bullish setups in the sector, I’m looking at shares of Mylan (MYL) as a possible bearish play following the recent death-cross that formed earlier this month. The 50-day moving average has now fallen below both the 100/200-day moving averages with $39.50-$39 serving as near-term support. Last week’s strength carried shares towards resistance and the $39.75-$40 level.
The MYL July 37.50 puts (MYL170721P00037500, $0.75, down $0.05) can be targeted targeted by bearish traders if shares fall below $39 over the near-term. These options would double from current levels if shares make a backtest to $36, technically, by July 20th.
If shares clear $40.50-$40.75, bullish traders can use the MYL July 42.50 calls (MYL170721C00042500, $0.65, down $0.05) on a possible trend reversal. Regular MYL June and MYL weekly options are also available to trade but these options would give the trade an extra five weeks to play out.
Oil dropped sharply late last week after an extension of the OPEC production quota for another nine months. The OPEC agreement hit the price of oil which fell nearly 4% on the news. The chart for Brent Crude Oil ($BRENT) remains somewhat neutral with support at $51 holding on back-to-back sessions. The 50/200-day moving averages were stretched but held with a close below $50 being a negative development. Resistance is at $53.75-$54 and the 100-day moving average.
This week will be shortened following Monday’s holiday but the action could heat up as Wall Street gets back from vacation and back to work. While May’s outcome is still up for grabs over the next two days, the first trading day of June is typically bullish. I mentioned last week the current rally could last into mid-June and a lot will depend on the small-caps this week along with follow through on the blue-chips.
From desk to press, futures look like this: Dow (-16); S&P 500 (-2); Nasdaq 100 (-4).
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.
Sony (SNE, $36.68, up $0.51)
SNE July 37 calls (SNE170721C00037000, $1.00, up $0.28)
Entry Price: $0.85 (5/26/2017)
Exit Target: $1.70
Stop Target: None
Action: Shares traded to a 52-week and multi-year high of $36.82 on Friday with fresh resistance at $36.75-$37 holding. Support is at $36-$35.50.
I mentioned my near-term target is $39-$40 by late July that will easily double these call options from current levels, if reached.
Amicus Therapeutics (FOLD, $7.93, down $0.36)
FOLD July 8 calls (FOLD170721C00008000, $0.75, down $0.35)
Entry Price: $0.85 (5/22/2017)
Exit Target: $1.70-$2.55
Stop Target: None
Action: Upper support at $8-$7.75 was breeched with Friday’s low reaching $7.92. Resistance is at $8.25-$8.50 on a move back above $8.
Spider Gold Shares (GLD, $120.54, up $1.06)
GLD June 122 calls (GLD170616C00122000, $0.70, up $0.30)
Entry Price: $0.75 (5/22/2017)
Exit Target: $1.50
Stop Target: None
Action: GLD made a late session run to $120.79 to push lower resistance at $121-$121.50. The options traded to a high of 84 cents. Support is at $119.25-$119 and the 50-day moving average.
Flex (FLEX, $16.96, down $0.17)
FLEX July 17 calls (FLEX170721C00017000, $0.60, down $0.10)
Entry Price: $0.45 (5/16/2017)
Exit Target: $0.90
Stop Target: 55 cents, lower to 47 cents (Stop Limit)
Action: Lower the Stop Limit from 55 cents to 47 cents to give the trade a little wiggle room.
Friday’s bottom reached $16.86 with upper support at $17-$16.75 failing to hold into the closing bell. Resistance is at $17.25-$17.50.
STMicroelectronics (STM, $16.50, up $0.06)
STM October 20 calls (STM171020C00020000, $0.55, flat)
Entry Price: $0.70 (5/15/2017)
Exit Target: $1.40
Stop Target: None
STM July 17.50 calls (STM170721C00017500, $0.45, flat)
Entry Price: $0.65 (5/15/2017)
Exit Target: $1.30
Stop Target: None
Action: Lower resistance at $16.50-$16.75 was cleared and held on the run to $16.53 into Friday’s close. Support is at $16.25-$16.
Viavi Solutions (VIAV, $11.36, up $0.18)
June 12 calls (VIAV170616C00022500, $0.16, up $0.04)
Entry Price: $0.35 (5/5/2017)
Exit Target: $0.70-$1.05
Stop Target: None
Action: Resistance at $11.25-$11.50 was split with Friday’s high tapping $11.37. Support is at $11.
Cypress Semiconductor (CY, $13.83, down $0.23)
CY June 14 calls (CY170616C00014000, $0.40, down $0.10)
Entry Price: $0.85 (4/20/2017)
Exit Target: $1.70
Stop Target: None
Action: Friday’s backtest to $13.65 breeched support at $13.75-$13.50 and the 50-day moving average but levels that held into the closing bell. Resistance is at $14-$14.25.
This trade made an incredible comeback last week but it is still not out of the woods. It is also why I don’t usually carry 50% Stop Loss Limits on options under $1.50-$1.25. I would like to see shares regain their momentum this week with continued closes above $14.25-$14.50.