Pre-Market Update for 6/5/2017

Small-Caps Lead Continued Breakout

8:00am (EST)

The bulls wrapped up another winning week on Friday’s run to fresh all-times highs while shuttering talk of a June swoon. The small-caps are still running late to the party but led last week’s breakout while closing above a key level of resistance. Volatility nearly touched a 52-week low and remains at historic lows on consecutive closes below the double-digit level.

The performance in the mid-cap stocks, along with the recovery in the Transportation stocks, were also bullish developments. This week could get bogged down with political rhetoric as the bears try to slow momentum and earnings become lighter. However, I’ve talked about a continuing rally thru mid-June as the major indexes have started to trigger my February price targets.

The Dow gained 62 points, or 0.3%, to settle at 21,206 on Friday. The blue-chips traded down to 21,129 shortly after the opening bell with rising support at 21,100-21,000 easily holding. The close above upper resistance at 21,150-21,200 and lifetime high of 21,225 was a bullish development and gets 21,450-21,500 in the mix.

The S&P 500 added 9 points, or 0.4%, to close 2,439. The index opened a point higher at 2,431 before slipping 3 points to 2,427 shortly afterwards. Fresh support at 2,425-2,420 held with risk to 2,410-2,400 on a move below the latter. The run to 2,440.23 set another all-time peak with fresh resistance and fluff to 2,450-2,460.

The Nasdaq zoomed 59 points, or 0.9%, to finish at 6,305. Tech opened in the green at 6,261 while racing to another late day record high of 6,308.76. Fresh resistance at 6,300-6,350 held into the closing bell. There is possible fluff to 6,400-6,425 on continued momentum. Support has moved up to 6,250-6,200 with a move below 6,175 now a possible warning sign of a top.

The Russell 2000 climbed 9 points, or 0.7%, to end at 1,405. The small-caps also held positive territory throughout the session while reaching a midday peak just south of 1,415. The close on upper resistance at 1,400-1,405 was a bullish development and gets 1,420-1,425 in play. The lifetime high of 1,425.70 was reached on April 26th. Support has moved up to 1,390-1,385 with a move back below 1,380 and the 50/100-day moving averages a bearish development.

The S&P 500 Volatility Index ($VIX, 9.75, down 0.14) traded to a high of 10.30 shortly after the open with lower resistance at 10.50-11.50 holding for the eight-straight session. Upper support at 9.75-9.50 held following the dip to 9.58 ahead of the closing bell. The May 9th low tapped 9.56 and there is a chance 8-something comes into play on continued market momentum. This is when I’m expecting a possible near-term market top. If the VIX closes back above 11.50, it would also signal a peak is in, and when we can possible add call options.

These were my notes from February 27th, 2017:

“The Dow is up 1,059 points for 2017, or 5%. A move towards 22,000-22,250 would add 6%-7% from current levels and would give the blue-chips a total gain of 12%-13% for the year. The Dow came into the year at 19,762. The key levels of support are at 20,000-19,800 with a move below these levels a possible opportunity to go short, longer-term.

The S&P 500 has added 129 points YTD, or 6%. A run towards 2,500-2,525 would equal another move of 6%-7% from current levels and a total return of 12%-13% for 2017. The index started the year at 2,238. The key levels of support are at 2,300-2,275 with a move below these levels a possible opportunity to go short, longer-term.

The Nasdaq came into the year at 5,383 and is higher by 462 points, or 9%. While I have talked about the run to 6,000, a move towards 6,300-6,350 would add another 8%-9% from current levels and a total return of 17%-18% for the year. The key levels of support are at 5,750-5,700 with a move below these levels a possible opportunity to go short, longer-term.

The Russell 2000 has gained 37 points, or 3%, for 2017 after coming in at 1,357. While I had already penciled-in Price Targets of 1,400-1,450 for the index, the upper end of this range represents another 4% move higher. I would like to believe the small-caps would outperform in a more business friendly, and less regulatory, environment that could lead towards a run towards 1,500-1,525. This would add another 8%-9% from current levels and an overall return of 11%-12% for 2017. The key levels of support are at 1,375-1,350 with a move below these levels a possible opportunity to go short, longer-term.” (end)

I do my Price Targets every year in February for the major indexes and where I believe they will finish by the end of December. For the past 6 years, I have been incredibly accurate in predicting the bullish run back towards record highs and the bubble days. While predicting market tops is never an easy task, it is easier to identify shorter-term trading trends when longer-term support holds.

I don’t change my yearend targets once my homework is done, and while it makes me a little nervous they have come into play so soon, I obviously won’t mind if my aforementioned price targets are too low come Christmas.

If the current rally stays strong throughout June and into July, I might have to recalculate higher price targets as second quarter earnings will either be a catalyst for a summer rally, or a possible selloff. However, for now, I’m comfortable with my yearend price targets until more clarity comes from possible tax cuts and healthcare reform.

I mentioned again last week, it was imperative the Transportation Dow Jones Transportations Average ($TRAN) continued its rebound and the needed recovery of the 9,300 level. Bingo. Friday’s surge to 9,406 and close at 9,331 was a beautiful development and helped confirm the breakout in the Dow. I mentioned the Dow and Transports tend to trade in tandem and there is a potential of a return to 9,600-9,650 on continued strength, and on closes above resistance at 9,350-9,400. Fresh support is at 9,200-9,175 and the 100-day moving average.

The Financial stocks struggled again last week but may be bottoming. The Financial Select Spiders (XLF) came close to clearing its 50-day moving average following Friday’s trip to $23.57. Additional resistance is at $23.75 on continued closes above this level, or $23.55, with a move above $24 signaling renewed strength and momentum. Support is at $23.25-$23 with a move below the latter being a bearish development.

Goldman Sachs Group (GS), a Dow component, made a midweek backtest to its 200-day moving average and a level that held into Friday’s close. Last Wednesday’s low tapped $209.62 and continued closes below support at $210 would be a bearish development. There is stretch to $205-$200 and longer-term support with a close below the latter a possible opportunity to go short. Resistance is at $215-$220 over the near-term.

While Goldman could be subject to continued headline risk and their investment in Venezuela bonds, Bank of America (BAC) represents a more tradable opportunity. Shares are holding longer-term and December support at $22-$21.75 with last week’s low touching $22.09. Resistance is at $22.75-$23 with a close above $23.25-$23.50 and the 50/100-day moving averages being a bullish development.

There could be an opportunity to go long call options on a possible retest of the major moving averages over the near-term. While there are weekly and monthly options available to trade on the stock, I like the regular monthly BAC July 23 calls (BAC170721C00023000, $0.55, down $0.15) and the BAC August 23 calls (BAC170818C00023000, $0.75, down $0.15) as possible bullish trades.

Both options were very active on Friday with the July 23’s trading over 3,500 contracts and the August 23’s trading nearly 2,000 contracts, respectively. If shares clear $24.10 by July 21st, or $24.50, by August 18th, both aforementioned call options would double from current levels.

I mentioned in my opening commentary the breakout in the mid-cap stocks was especially encouraging with the S&P 400 Mid Cap Index ($MID) clearing its 50/100-day moving averages last week. Current resistance is at 1,760 and the late February high with continued closes above this level a bullish development. Support is at 1,740-1,720.

The breakout from the “symmetrical triangle” on continued momentum would help broaden out the overall market uptrend which has been led mainly by large-cap and Tech stocks. For the year, midcaps have gained about half as much as the S&P 500 and have outperformed the Russell 2000. The mid-caps stocks are right in between the two other extremes and leadership by them would also confirm another leg higher for the market.

The environment for near-term bullish trades remains excellent and we have great clues on when a possible market top might start setting up. Until then, the bears will be waiting patiently to make their move, but current momentum is still favoring the bulls.

From desk to press, futures look like this: Dow (-7); S&P 500 (-2); Nasdaq 100 (-5).


Momentum Options Play List

Closed Momentum Options Trades for 2017: 33-10 (77%). 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, $17.62, up $0.01)

FLEX July 18 calls (FLEX170721C00018000, $0.49, up $0.06)

Entry Price: $0.40 (6/1/2017)
Exit Target: $0.80
Return: 22%
Stop Target: None

FLEX July 17 calls (FLEX170721C00017000, $1.00, up $0.05)

Entry Price: $0.45 (5/16/2017)
Exit Target: $1.35
Return: 122%
Stop Target: 75 cents, raise to 80 cents (Stop Limit)

Action: Raise the Stop Limit on the July 17 calls from 75 cents to 80 cents.

Shares traded to a fresh 52-week high of $17.68 on Friday. Volume in the July 18’s was heavy, possibly indicating traders are positioning for a run towards my near-term Price Target of $20.

Multi-year resistance is at $17.75-$18. Support is at $17.25-$17.

Sony (SNE, $37.75, up $1.24)

SNE July 37 calls (SNE170721C00037000, $1.50, up $0.65)

Entry Price: $0.85 (5/26/2017)
Exit Target: $1.70
Return: 76%
Stop Target: $1.25 (Stop Limit)

Action: Set an initial Stop Limit at $1.25 to start protecting profits.

Shares closed at the session high on the run to lower resistance at $37.75-$38 on Friday. There is breakout potential to $40-$41 on continued strength. Rising support is at $37.25-$37.

Amicus Therapeutics (FOLD, $8.40, up $0.27)

FOLD July 8 calls (FOLD170721C00008000, $0.90, up $0.10)

Entry Price: $0.85 (5/22/2017)
Exit Target: $1.70-$2.55
Return: 6%
Stop Target: None

Action: Near-term resistance is at $8.50 with Friday’s high tapping $8.44. A move above the latter could get $9-$9.50 and November highs in play. The 52-weak peak is at $9.61. Rising support is at $8.25-$8.

The 50/100-day moving averages are in strong uptrends and are signaling a possible push past $10 on continued momentum over the near-term. If so, these options will easily double if $9.70 is cleared, and will triple from the entry price if $10.55 trips, technically, by mid-July.

STMicroelectronics (STM, $16.76, up $0.41)

STM October 20 calls (STM171020C00020000, $0.55, flat)

Entry Price: $0.70 (5/15/2017)
Exit Target: $1.40
Return: -21%
Stop Target: None
STM July 17.50 calls (STM170721C00017500, $0.45, flat)

Entry Price: $0.65 (5/15/2017)
Exit Target: $1.30
Return: -31%
Stop Target: None

Action: Lower resistance at $16.75-$17 was cleared with shares closing a penny off the session high on Friday. The 52-week high is at $17.16. Support has moved up to $16.50-$16.25.

Viavi Solutions (VIAV, $11.39, down $0.18)

June 12 calls (VIAV170616C00022500, $0.12, down $0.06)

Entry Price: $0.35 (5/5/2017)
Exit Target: $0.70-$1.05
Return: -66%
Stop Target: None

Action: Friday’s low reached $11.38 with upper support at $11.25-$11 holding. Resistance is at $11.50-$11.75. We will need a close above the latter early this week if this trade is going to have a chance for a comeback. These options expire in 11 days and the time premium will start eroding rapidly, starting today. These were “cheap” options to begin with and I’m still hoping shares catch fire this week or next like they did in early May.

Cypress Semiconductor (CY, $13.94, down $0.19)

CY June 14 calls (CY170616C00014000, $0.35, down $0.10)

Entry Price: $0.85 (4/20/2017)
Exit Target: $1.70
Return: -59%
Stop Target: 10 cents (Stop Limit)

Action: Set a Stop Limit at 10 cents.

The close below upper support at $14-$13.75 on Friday was a bearish development. Resistance is at $14.25. Although this trade made a beautiful comeback last week, these options are still, technically, out-of-the-money and also expire in 11 days. I would like to see shares recover $14.25-$14.50 by Wednesday. If not, the Stop Limit will likely trigger on additional weakness.