Pre-Market Update for 7/3/2017

Small-Caps Lead June’s Gains/ Tech Stumbles

8:00am (EST)

The bulls were tested to start last week and were in danger of losing June as the bears made a desperate attempt to push fresh lows for the month. The major indexes rebounded midweek afterwards but Thursday’s lower lows gave the bears fresh energy as Tech tumbled on continued rotation. Friday’s action was less volatile than Thursday but the end result was the Nasdaq had its 6-month winning streak snapped.

This week promises to be exciting with a holiday break on Tuesday and the start of 2Q earnings season just around the corner. There hasn’t been any major warnings that companies might miss expectations, but their skeletons could come out of the closet if this is the case. However, with a recovering economy, and a better business environment in play, corporate America seems bullish and could also come in with higher than expected results.

The Dow gained 62 points, or 0.3%, to settle at 21,349 on Friday. The blue-chips opened higher at 21,348 and made a steady run to 21,426 ahead of the closing bell. Lower resistance at 21,500-21,600 held for the 10th-straight session with the all-time high at 21,535. The 139-point gain was cut in half in the final half hour of trading with support at 21,250-21,200 still in play. There is risk to 21,100-21,000 and the 50-day moving average on a move below the latter.

The S&P 500 added 3 points, or 0.2%, to end at 2,423. The index also held positive territory throughout the day with the high reaching 2,432. Resistance at 2,440-2,450 held throughout June with the lifetime high 3 points north of this level. Specifically, a move above 2,443 this week would be a bullish sign. Support at 2,410-2,400 and the 50-day moving average is less than 1% away with a close below the latter being a bearish development.

The Nasdaq slipped nearly 4 points, or 0.1%, to close at 6,140. Tech opened 22 points higher at 6,166 but ran out of gas at 6,170 shortly afterwards. Lower resistance at 6,175-6,200 held by a nickel before the morning fade to 6,129. Support at 6,150-6,100 was split with the continued closes below 6,150 and the 50-day moving average being a warning sign. The bears have held this level for three of the past four sessions with risk to 6,000 and the 100-day moving average if 6,100-6,075 fails.

The Russell 2000 declined a point, or 0.8%, to finish at 1,415. The small-caps tested a low of 1,413 within the opening action on Friday with support at 1,410-1,400 and the 50-day moving average holding. A move below 1,395 this week would be a signal to possibly go short the index. The rebound north of 1,420 into the closing bell was a tease with lower resistance at 1,425-1,430 standing strong. A move above the latter keeps fresh lifetime highs and a possible run to 1,440-1,450 on the radar.

The S&P 500 Volatility Index ($VIX, 11.18, down 0.26) tested a low of 10.40 during the first half of action with upper support at 10-9.75 holding for the first time in five sessions. Lower resistance at 11.50-12.50 and the 100/200-day moving averages was breached but held into the close with warnings signs of possible nastiness coming at 14.50-15. A move back below 10.75-10.50and the 50-day moving average would be a bullish signal.

The Dow gained 197 points in June while the S&P 500 added nearly 12 points. The less than 1% gains might not seem like much, but it was a good show of strength following the sector rotation in stocks and the volatility in oil. The Nasdaq fell 58 points, or 1%, and the Russell 2000 jumped 45 points, or 3%.

With prior all-time highs and my February Price Targets for the major indexes still in play, it has been easy to stay longer-term bullish despite some of the stretch the indexes and VIX experienced last week. I covered this subject in detail throughout June and how Nasdaq 6,150 needed to be recovered on Wednesday’s open. Mission accomplished.

Just as important, I mentioned the small-caps needed the 1,395 level to stand strong during Wednesday’s action and they answered the bell, as well, while leading the charge and rebound to higher highs. However, Thursday’s backtest to lower lows set the stage for Friday’s action.

This type of whipsaw action could have been traded but timing it would have had to come into the closes with an unestablished trend. Trading the trend, up, or down, is so much easier than trying to forecast this type of white-knuckle trading. While the Dow and S&P 500 are good trading vehicles, the Nasdaq and Russell 2000 have led this year’s ups and downs, for the most part. This is why I favor QQQ and IWM index trades over SPY and DIA options.

A big part of last week’s action was the strength in the Financial stocks that helped save the bulls. The rotation out of technology-rich growth stocks into value stocks was led by the Financials. Healthcare also chipped-in but the end of month weakness needs to be watched. In fact, the 10 major sectors in the S&P were split for June with five up and five down.

The Federal Reserve Board completed its CCAR review, or Comprehensive Capital Analysis and Review, and gave approval to capital plans of all 34 banks that participated. This is what sparked last week’s rally as it allows the banks to raise dividends and announce share purchases.

Capital One (COF) got slightly snubbed on its approval as it was required to submit a new capital plan within six months that addresses identified weaknesses in its capital planning process. Shares are currently holding the 200-day moving average with support at $81-$80.50 and a flattening 50-day moving average. Resistance is at $84-$84.25 and the 100-day moving average.

Bullish traders can target the COF August 87.50 calls (COF170818C00087500, $0.90, up $0.20) if shares clear $84.50 over the next week or so. The regular July options expire in less than three weeks and the aforementioned options allow the trade an extra month to play out.

Bank of America (BAC) pounced on the CCAR news by boosting its quarterly dividend 60% while authorizing a $12 billion share buyback program. The chart for BAC looks more bullish and the options pits are more active than COF. Shares of BAC face near-term resistance at $24.50-$25 with a move above the latter possibly leading to fresh 52-week highs. Support is at $23.75-$23.25 and the 50/100-day moving averages. The 200-day moving average is also in a rising uptrend.

The BAC August 25 calls (BAC170818C00025000, $0.55, down $0.01) traded over 6,300 contracts on Friday and can be targeted if shares clear and hold $24.50 over the near-term. These options would double from current levels if shares clear $26.10, technically, by August 18th.

BAC is mirroring the chart of the Financial Select Sector Spiders (XLF) with current resistance $24.75-$25. The 52-week peak from early March is at $25.30. Support is at $24.50-$24 with a move below $23.75 and the 50/100-day moving averages being a yellow flag.

Options are available to trade on XLF and they are slightly less volatile than individual stocks. The action in the XLF August 25 calls (XLF170818C00025000, $0.40, down $0.05) on Friday was staggering with over 45,000 exchanging hands. Bullish traders can target these call options if XLF clears $24.75 over the next week or so.

Crude Oil settled at $46.25 on Friday, up nearly 3%. Meanwhile, Brent Oil closed at $48.77 with resistance at $49.75-$50 and a downward sloping 50-day moving average. Additional hurdles are at $52 and the 100/200-day moving averages. The death-cross from early June with the 50-day moving average falling below the 200-day moving average lead to the recent double-bottom just south of $45.

The rebound in both Crude and Brent have been encouraging but a move above $50 for both remain major hurdles. A move below $45 in Crude, or $47 in Brent, could start the domino to lower lows.

Bigger moves in the market and the major indexes closed out June and are signaling much larger moves to come this month. The day after Independence Day can be very volatile and the market is closed on Tuesday. Today’s shortened action could be a preview on how the middle of the week plays out and it will be important to wait for clearer signs before going long on another breakout, or short on a possible breakdown.

I will not be doing a Mid-Market update this afternoon as Wall Street closes at 1pm (EST). However, I could have a New Trade if I see something I like into the closing bell. If you don’t hear from me again, we will chat Wednesday morning, and Happy 4th!

From desk to press, futures look like this: Dow (+40); S&P 500 (+4); Nasdaq 100 (+14).


Momentum Options Play List

Closed Momentum Options Trades for 2017: 38-15 (72%). 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.


AT&T (T, $37.73, up $0.11)

T August 37 puts (T170818P00037000, $0.75, down $0.08)

Entry Price: $0.78 (6/29/2017)
Exit Target: $1.60
Return: -4%
Stop Target: None

Action: Shares traded to a $37.54 on Friday with support at $37.50-$37.45 holding. Resistance is at $38-$38.25 with the intraday high tapping $37.87.

Amicus Therapeutics (FOLD, $10.07, up $0.14)

FOLD July 10 calls (FOLD170721C00010000, $0.55, up $0.05)

Entry Price: $0.70 (6/22/2017)
Exit Target: $1.40
Return: -21%
Stop Target: None

Action: Upper resistance at $10-$10.25 was nearly cleared on the run to $10.24. Support is at $9.75-$9.50.

TherapeuticsMD (TXMD, $5.27, down $0.08)

TXMD August 7.50 calls (TXMD170818C00007500, $0.35, flat)

Entry Price: $0.50 (6/22/2017)
Exit Target: $1.00
Return: -30%
Stop Target: None

Action: Upper support at $5.25-$5 held on Friday’s bottom. Near-term resistance is at $5.50 and the 100-day moving average.

iPath S&P 500 VIX Futures (VXX, 12.76, down 0.17)

VXX August 14 calls (VXX170818C00014000, $0.90, down $0.10)

Entry Price: $1.20 (6/15/2017)
Exit Target: $2.40
Return: -25%
Stop Target: None

Action: Lower support at 12.75-12.50 held with the intraday low kissing 12.52. Resistance is at 13-13.50.