MomentumOptions.com Pre-Market Update for 7/31/2017

Bulls Holding July Gains

8:00am (EST)

The market opened lower on Friday and spent most of the morning trying to gain traction. The Dow was the only index to make it into positive territory in the afternoon while notching a new all-time high and closing the week 1% higher. The Nasdaq, S&P 500, and Russell 2000 managed to pare their losses but ended the week slightly lower. The indexes held up well during the heaviest reporting week of the second quarter earnings season, but this week will be just as hectic with a number of marquee companies reporting.

The Dow added 33 points, or 0.2%, to settle at 21,830 on Friday. The blue-chips opened lower at 21,787 and traded to a low 21,756 shortly afterwards. Rising support at 21,700-21,600 held with a move below 21,500-21,450 being a bearish development. The run to 21,841 ahead of the closing bell set another all-time high while clearing lower resistance at 21,800-22,000.

Dow

The S&P 500 fell 3 points, or 0.1%, to end at 2,472. The index traded underwater throughout the session with the low reaching 2,464. Upper support at 2,460-2,450 held with backup help is at 2,440-2,435 and the 50-day moving average. Resistance is at 2,485-2,500.

S&P

The Nasdaq gave back 7 points, or 0.1%, to finish at 6,374. Tech was also weak to end the week after opening at 6,350 and kissing a low of 6,337. Lower support at 6,375-6,350 was stretched with a move below 6,300-6,250 and the 50-day moving average being a bearish development. Lowered resistance is at 6,400-6,425.

Nasdaq

The Russell 2000 dropped 4 points, or 0.3%, to close at 1,429. The small-caps stumbled to a midday low of 1,425 with fresh support at 1,425-1,420 holding. A move below 1,410 and the 50-day moving average could lead to a quick backtest to 1,400-1,395 and the 100-day moving average. Resistance is at 1,435-1,440 with a move back above the latter being a bullish development.

Russell

The S&P 500 Volatility Index ($VIX, 10.29, up 0.18) tested a morning peak of 11.30 with upper resistance at 10.50-11.50 and the 100-day moving average holding. Continued closes below 10.50 and the and the 50-day moving average keeps all-time market highs in play. Rising support is at 10-9.50.

VIX

Today is the last trading session for the month with the bulls holding leads across the major indexes. The Dow is up 481 points, or more than 2%, while this S&P 500 is higher by 49 points, or 2%, as well. The Nasdaq has advanced 234 points, or nearly 4%, after coming into the month at 6,140. The small-caps are up 14 points for the month but a 1% move lower would erase the current gains.

iShares Russell 2000 ETF (IWM) traded lower for the third-straight session after peaking at all-time highs above the $144 level. Current support is at $141.50-$141 with Friday’s low tapping $141.47. A move below the latter could lead to a continued backtest to $140 and the 50-day moving average that remains in a strong uptrend. Current resistance is at $142-$142.50. A move back above $143 will likely lead to another run at record highs.

IWM

The PowerShares QQQ ETF (QQQ) failed to rebound on Friday after briefly trading in positive territory midday. Fresh resistance at $144-$144.25 held. The more important picture with the chart below was Thursday’s reversal and plunge to $142.30 that created an outside reversal candlestick. Current support is at $143.50-$143 with a close below $142 confirming last week’s bearish development.

QQQ Chart

An outside candlestick is a two-bar pattern consisting of an open and a close that create a range that’s above and below the prior day’s open/close range. Additionally, a higher high AND a lower low on the second day compared to the first bar, is needed. Although one day doesn’t make a trend, current support at $142.50-$142 needs to hold into the weekend.

The Financial Select Sector Spiders (XLF) traded to a fresh decade peak of $25.32 last week to get historic highs in play. However, the pullback afterwards was slightly expected on the first attempt to clear major resistance.

XLF

Continues closes above $25 could lead to a push towards $26.25-$27.50. Rising support has moved up to $24.75-$24.50. Below is a 20-year monthly chart that shows the formation of a double-top in process. The meltdown from the 2008 financial crisis was the obvious reason for the first failure at the $25 level and why this level will be crucial in holding going forward.

Commodities have been rebounding of late with Gold ($GLD) getting a nice pop in recent weeks. The yellow metal has been struggling to clear the $1,260 level but did so last week with Friday’s peak reaching $1,277 an ounce. Closes above $1,280 would be a continued bullish sign for another possible run at $1,300.

GOLD Chart

While the short-term outlook is playing out, the longer-term outlook would be what happens if $1,300 does come into play on a triple-top formation. The 50/100-day moving averages are turning higher so there could be a bullish trade from $1,280-$1,300+ over the near-term.

The Spider Gold Shares (GLD) ate also showing a similar trading pattern with near-term resistance at $121-$121.50. Friday’s high reaching $120.86. A move above the latter gets $123 back in play and a triple-top formation in the mix, as well. Support is at $120-$119.50.

GLD chart

With regular August options in less than three weeks, the GLD September 123 calls (GLD170915C00123000, $1.10, up $0.27) can be targeted by bullish traders. This would allow more time for a run to $123 and a possible breakout towards $125 to play out.

Spider S&P Retail XRT (ETF) made a nice recovery last week after clearing both the 50/100-day moving averages. Current resistance is at $41.50 with Friday’s high reaching $41.36. Continued closes above this level would be a bullish development for a possible push towards $42-$42.50 and the 200-day moving average. Support is at $41-$40.75.

XRT

While daily volume is rather light in XRT options, there is open interest of over 8,000 contracts in the XRT September 44 calls (XRT170915C00044000, $0.17, up $0.03). While these options are relatively “cheap” on a price level basis, they are still nearly $3 out-of-the-money. However, if XRT does trade past $44.34 by September 15th, technically, the aforementioned call options would double from current levels.

The number of Nasdaq 100 stocks trading above the 50-day moving average dropped below the 60% level after testing 55% on back-to-back sessions to close out the week. This represents a crucial level of support as there is risk to 50%-45% on a continued Tech pullback.

Last week, this number reached 74.76% in back-to-back sessions and it represented a near-term double-top along along with a short-term market top in the Nasdaq. There was some sector rotation out of Tech last week and it will be important to see if it continues this week.

The start of August is typically bearish with some mid-month strength followed by possible back half weakness. Given the action from last week, lower lows are likely in the mix to start the week with the market focused on Apple’s (AAPL) numbers after the market close. This means Wednesday could be a make-or-break session for Tech, and the Dow, on if higher highs will still be in play, or if the summer rally has fizzled.

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

 

Momentum Options Play List

Closed Momentum Options Trades for 2017: 41-16 (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.

 

Alcoa (AA, $35.64, down $0.72)

AA August 39 calls (AA170818C00039000, $0.20, down $0.10)

Entry Price: $0.55 (7/25/2017)
Exit Target: $1.10
Return: -xx
Stop Target: None

Action: Support is at $35.50-$35.25 with Friday’s low reaching $35.54. A close below $35 will likely force an early exit. Resistance is at $35.75-$36.

 

Imax (IMAX, $21.95, up $0.85)

IMAX August 21 puts (IMAX170818P00021000, $0.50, down $0.40)

Entry Price: $0.78 (7/21/2017)
Exit Target: $1.60
Return: -xx
Stop Target: None

Action: Upper resistance at $21.75-$22 held on Friday’s peak. Support is at $21.50-$21.25.

 

Wendy’s (WEN, $15.54, down $0.31)

WEN August 16 calls (WEN170818C00016000, $0.30, down $0.15)

Entry Price: $0.45 (7/12/2017)
Exit Target: $0.90
Return: -xx%
Stop Target: None

Action: Support at $15.50-$15.25 was split on the trip to $15.33. The close below the 50-day moving average was a bearish development. Resistance is at $15.75. Earnings are due out August 9th.

 

TherapeuticsMD (TXMD, $5.62, up $0.20)

TXMD August 7.50 calls (TXMD170818C00007500, $0.25, flat)

Entry Price: $0.50 (6/22/2017)
Exit Target: $1.00
Return: -50%
Stop Target: None

Action: Resistance is at $5.75-$6 with Friday’s high tapping $5.70 and falling just shy of the 200-day moving average. Support is at $5.50-$5.25 and the 100-day moving average. Earnings are due out August 3rd.

 

iPath S&P 500 VIX Futures (VXX, 11.29, up 0.12)

VXX August 14 calls (VXX170818C00014000, $0.20, down $0.05)

Entry Price: $1.20 (6/15/2017)
Exit Target: $2.40
Return: -xx
Stop Target: 10 cents (Stop Limit)

Action: Lower resistance at 11.25-11.50 was cleared on the intraday rise to 11.58. Support is at 11.