MomentumOptions.com Pre-Market Update for 7/24/2017
VIX Records Historic Intraday Low
The market ended lower on Friday, but overall, had a good week on the run to fresh all-time highs. Lost in the shuffle was the Russell 2000 setting an all-time high shortly after the open. Although the Dow lagged for the week, the major indexes are trying to establish a new base of support above prior resistance coming into the biggest week of 2Q earnings for the S&P 500 companies.
The Dow declined 31 points, or 0.15%, to settle at 21,580 on Friday. The blue-chips traded in negative territory throughout the session with the low reaching 21,503 shortly after the open. Lower support at 21,600-21,550 held with backup help at 21,400-21,350 on a close below the latter. The steady rebound to 21,592 into the closing bell failed resistance at 21,675-21,700. A move above the latter keeps 21,800-22,000 in play.
The S&P 500 fell a point, or 0.04%, to end at 2,472. The index tested a low of 2,465 with support at 2,460-2,450 holding. Backup help is at 2,450-2,445. The close at the session peak fell shy of positive territory by a point. Resistance remains at 2,475-2,500 with the all-time just 15 points away.
The Nasdaq gave back 2 points, or 0.04%, to finish at 6,387. Tech tumbled down to 6,365 on the opening weakness with support trying to move up 6,350-6,325. A move back below 6,300-6,275 could lead to a continued backtest towards 6,200 and the 50-day moving average. Resistance is at 6,400 and the all-time high of 6,398 with fluff to 6,450-6,500 on a move above the latter.
The Russell 2000 dropped 6 points, or 0.45%, to close at 1,435. The small-caps opened a point higher at 1,443 and spiked to an all-time high of 1,452 within the opening minutes. I have talked about continued momentum to 1,450-1,460 but the fade to 1,433 afterwards was a yellow light. I specifically mentioned a close below the 1,435 level could lead to a backtest to support at 1,425-1,420. A move below the latter would be a red light for a possible market top.
The S&P 500 Volatility Index ($VIX, 9.36, down 0.22) bubbled to a high of 9.98 on the opening dust with lower resistance at 10-10.50 and the 50-day moving average standing strong. Fresh support is at 9.25-9 following the late day all-time low of 9.30 into the closing bell.
The Dow fell 57 points for the week while the S&P gained 13 points. The Nasdaq jumped 65 points, or 1%, and the Russell 2000 added 7 points. The Dow was weighed down my less-than-stellar earnings from Goldman Sachs (GS) and revenue struggling International Business Machines (IBM).
Nearly 200 companies on the S&P 500 are expected to report earnings in the coming week. Earnings for the S&P 500 are tracking at an estimated 7.2% growth for the second quarter with about 20% of companies having already reported. However, this figure is a little distorted given that energy earnings are expected to rise more than 300% from the year-ago quarter.
Moreover, only the Tech sector and the Financial sector are expected to post double-digit profit growth above 10%. Seven out of 11 sectors are expected to turn in year-over-year growth in the low single digits, or worse.
The VIX has closed below the 10 level for the 7th-straight sessions and went out at its second-lowest finish ever on Friday at 9.36. It marked the lowest close since the index ended at 9.31 in December 1993. The VIX tapped its lowest reading in history at 9.30, intraday.
I have mentioned throughout the year the VIX can and could trade near 10 and single-digit for weeks and months. The first test came in February as you can see from the aforementioned chart and did not come back into play until late April/ early May.
The VIX could hold trade into the 8’s by the end of the month, or early August, and where I would expect a bottom will be set. It would be hard to imagine volatility staying below 10 throughout the rest of the month and into next month, but, very possible. The major moving averages are still rolling over with a move above 11.50 and the 100-day moving average the likely signal a market peak is in.
Below is a 20-year monthly chart that shows a four-month range in late 2007/ 2008 where the VIX hovered around the 10 level. This chart also shows longer-term support at 15 and the major-moving averages are still trending lower.
The VIX has traded to a high of 16.28 in 2017 and it was during a 3-session stretch in mid-April. The only other time the 15 level has come into play was in late June when the VIX spiked from 10 to 15 while closing at 11.44. This is why I have specifically highlighted the 11.50 level as an area to watch in the coming weeks to lighten up on bullish positions, along with the possibility of getting aggressively short, if cleared.
This week earnings parade will feature some of Wall Street’s finest, starting with
Among the largest companies reporting are Google parent Alphabet (GOOGL) on Monday. McDonald’s (MCD) and AT&T (T) will announce numbers on Tuesday.
Boeing (BA) Coca-Cola (KO) and Facebook (FB) report on Wednesday; Amazon.com (AMZN), Comcast (CMCSA), Intel (INTC) and Procter & Gamble (PG) headline Thursday’s action.
The week wraps up with Chevron (CVX), Exxon Mobil (XOM) and Merck (MRK) reporting earnings ahead of Friday’s opening bell.
Follow through this week by the bulls could lead to continued momentum into August but any pullback in the market needs to hold short-term support and the major moving averages. Volatility also needs to stay relaxed with any sudden moves above 11.50 likely leading to additional selling pressure.
Momentum Options Play List
Closed Momentum Options Trades for 2017: 40-16 (7xx%). 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.
Imax (IMAX, $21.25, up $0.05)
IMAX August 21 puts (IMAX170818P00021000, $0.80, down $0.26)
Entry Price: $0.78 (7/21/2017)
Exit Target: $1.60
Stop Target: None
Action: Set an Exit Target at $1.60.
Resistance is at $21.50-$21.75. Support is at $21-$20.75. The major moving averages remain in a nasty downtrend with the recent 52-week low of $20.05. Earnings are due out on Wednesday and I’m expecting a possible miss along with lowered guidance. There is risk to $23.50-$24 on an earnings beat but I’m expecting shares to test the high teens and fresh multi-year lows.
Cypress Semiconductor (CY, $14.65, down $0.27)
CY August 15 calls (CY170818C00015000, $0.55, down $0.10)
Entry Price: $0.40 (7/12/2017)
Exit Target: $0.80
Stop Target: 42 cents (Stop Limit)
Action: Set a Stop Limit at 42 cents.
Support is at $14.75-$14.50 with Friday’s low reaching $14.51. Resistance at $14.75-$15.
Wendy’s (WEN, $15.86, up $0.02)
WEN August 16 calls (WEN170818C00016000, $0.45, flat)
Entry Price: $0.45 (7/12/2017)
Exit Target: $0.90
Stop Target: None
Action: Friday’s high reached $15.88. Resistance at $16-$16.25. Support is at $15.75 and the 50-day moving average followed by $15.50-$15.25.
TherapeuticsMD (TXMD, $5.69, up $0.32)
TXMD August 7.50 calls (TXMD170818C00007500, $0.25, flat)
Entry Price: $0.50 (6/22/2017)
Exit Target: $1.00
Stop Target: None
Action: Fresh resistance and Friday’s high is at $5.75 and the 200-day moving average. A close above $6 would be a bullish development. Support is at $5.50-$5.25 and the 100-day moving average.
iPath S&P 500 VIX Futures (VXX, 11.21, down 0.13)
VXX August 14 calls (VXX170818C00014000, $0.20, down $0.05)
Entry Price: $1.20 (6/15/2017)
Exit Target: $2.40
Stop Target: 10 cents (Stop Limit)
Action: Support is at 11.25-11. Resistance is at 11.50-11.75.