Pre-Market Update for 11/20/2017

Small-Caps Show Strength

9:00am (EST)

The market closed mostly lower on Friday with the Dow and S&P 500 declining 0.4%, and 0.3%, respectively, to post their second-straight weekly loss. The Nasdaq pulled back from Thursday’s all-time high, after giving back 0.2%. For the week, the S&P posted a loss of 0.1%, while the Dow dipped 0.3%. The Nasdaq, however, saw a 0.5% weekly rise.

Meanwhile, the Russell 2000 rallied for the second-straight session after gaining 0.4% but fell shy of clearing the 1,500 level. For the week, the small-caps surged 2%.

Energy and Consumer Discretionary showed strength after rising 0.5% and 0.4%, with Materials the only other sector in the green after advancing 0.1%. Utilities paced the laggards after falling 0.7% followed by Technology, Industrials, and Real Estate with the sectors slipping 0.6%. For the week, Energy sank 3.2% while Consumer Discretionary rose 1.3%.

Total Q3 earnings for 94% of the S&P 500 companies that have reported already are up 6.6% from the same period last year on 6% higher revenues, with 72.3% topping EPS estimates and 66.5% beating revenue estimates.

Excluding the Financial sector, Q3 earnings growth jumps to 10.5% from 6.6%. The Energy sector is having the opposite effect, with Q3 earnings growth declining to 4.3% on an ex-Energy basis.

Overall, the 3Q earnings season has been solid for the Energy, Industrial Products, Technology, Construction, Business Services, and Medical sectors. The Financial sector results have lagged after coming in below average.

The revisions trend for Q4 estimates continues to be favorable, with earnings estimates holding up a lot better relative to other comparable periods. For full-year 2017, total earnings for the S&P 500 index are expected to be up 7.6% on 4.9% higher revenues, which would follow 0.7% earnings growth on 2.1% higher revenues in 2016. Index earnings are expected to be up 11.7% in 2018 and 9.6% in 2019.

Earnings growth is on track to turn positive in Q3 for the small-cap S&P 600 index, with total earnings for the index expected to be up 5.5% from the same period last year on 5.7% higher revenues. This would follow persistent earnings declines for the small-cap index – S&P 600 earnings growth was negative in 3 of the last 4 quarters.

Strong growth from the Financial, Technology and Energy sectors are driving the small-cap growth. The Financial sector’s role is particularly notable in the small-cap index, with Q3 earnings growth rising to 6.7% (up from 5.5%) on an ex-Financial basis.

The VelocityShares Daily Inverse VIX (ZIV) closed higher for the second-straight session after peaking at 77.60 reclaiming its 50-day moving average. Fresh resistance is at 78-78.50 with a move above the latter signaling continued market strength. Support remains at 76-75.50 with a move below 74 being a bearish development. RSI is back in an uptrend after holding early August support at 30. Continued closes above resistance at the 50 level would be a bullish development.

The Consumer Staples Select Spiders (XLP) recently formed a double-bottom near the $52.50 level. I mentioned at the beginning of the month the bearish death cross could lead to additional weakness with the 50-day moving average falling below the 200-day moving average. The technical setup has somewhat improved following the recent push towards resistance at $54.75-$55. Continued closes above $55.50 would represent a triple-top breakout and typically a bullish signal for higher highs. RSI is trying to hold near-term resistance at 60. Support is at 50.

The percentage of S&P 500 stocks trading above the 50-day moving average reached the 55% level last week and an area that represented August and September resistance. I mentioned there was risk to 60%-58% on continued weakness earlier this month. Friday’s close back above the 60% level was a slightly bullish development with further resistance at 65%.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average is currently north of 63% after retesting a 6-month low of 57.94% last Wednesday. This exact level was reached on November 2nd. I mentioned there is risk to the 55% level from last November on continued weakness but a temporary double-bottom might have been reached. Resistance is at 65% with Friday’s high tapping 65.42%. This exact level held twice earlier this month and once in late December with a close above 67.5% being a continued bullish development.

The market could trade in a tight range this week due to the holiday season but tends to be bullish during Thanksgiving week.

Momentum Options Play List

Closed Momentum Options Trades for 2017: 50-21 (70%). 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.

Bank of America (BAC, $26.62, down $0.14)

BAC January 28 calls (BAC180119C00028000, $0.52, down $0.06)

Entry Price: $0.63 (11/16/2017)
Exit Target: $1.25
Return: -17%
Stop Target: None

Action: Support is at $26.50-$26.25 with Friday’s low reaching $26.44. Resistance is at $26.75-$26.

Rambus (RMBS, $14.78, up $0.06)

RMBS January 15 calls (RMBS180119C00015000, $0.55, up $0.05)

Entry Price: $0.35 (11/16/2017)
Exit Target: $0.70
Return: 57%
Stop Target: None

Action: Lower resistance at $14.75-$15 was cleared with Friday’s high reaching $14.95 and a fresh 52-week peak. Continued closes above the latter would be a very bullish development. Support is at $14.50-$14.w5.

TiVo (TIVO, $17.42, down $0.28)

January 20 calls (TIVO180119C00020000, $0.55, flat)

Entry Price: $0.60 (10/31/2017)
Exit Target: $1.20
Return: -8%
Stop Target: None

Action: Support is at $17.25-$17. Resistance is at $17.50-$17.75.

TiVo’s patent fight against Comcast (CMCSA) has been postponed to November 21st, and when shares could make a substantial move. A move above $20 could come on good news.

Limelight Networks (LLNW, $5.72, down $0.13)

LLNW ‪December 4‬ calls (LLNW171215C00004000, $1.80, down $0.15)

Entry Price: $0.37 (9/21/2017)
Exit Target: $2.50 (Limit Order on half at $2.50)
Return: 386%
Stop Target: $1.70 (Stop Limit)

Action: Lower support at $5.75-$5.70 held with risk to $5.60-$5.50 on a move below the latter. The Stop Limit will also trigger. Resistance is at $5.90-$6.

TherapeuticsMD (TXMD, $5.85, down $0.05)

TXMD December 7.50 calls (TXMD171215C00007500, $0.15, flat)

Entry Price: $0.95 (8/17/2017)
Exit Target: $1.90
Return: -84%
Stop Target: None

Action: Support is at $5.75-$5.50. Resistance is at $6-$6.25.