Pre-Market for 12/4/2017

Bulls Get Weekly Win Despite Volatility/ Profit Alert (BAC)

8:00am (EST)

U.S. markets closed lower on Friday after recovering steep losses midday while managing to close the week higher. The Dow has its best week of the year after surging 2.9% but giving back 0.2% to snap a 5-session win streak. The S&P 500 also slipped 0.2% while adding 1.5% for the week, its biggest weekly gain since September.

The Nasdaq stumbled 0.4% to extend its weekly loss to 0.6% while closing below the 6,900 level for the 3rd-straight session. The Russell 2000 fell 0.5% but jumped 1.2% for the week and is just 1% below last Thursday’s all-time high.

Energy was the sector standout after rising 0.8% while Consumer Staples added 0.3%. Industrials got whacked with the sector falling 1.2% followed by Materials which declined 0.8%.

For the week, sector leaders included Financials, Consumer Discretionary and Industrials with gains of 2%, 1.9% and 1.8%, respectively. Technology took it on the chin after sinking 1.2% with Real Estate the only other sector to finish in the red following a drop of 0.5%.

Over the past month, all sectors are in the green with Consumer Discretionary and Consumer Staples leading the way after surging 4.1%. Real Estate was a close second after rallying 4%.

The Q3 earnings season is mostly complete, with results from 494 of the S&P 500 members already in the books. Total earnings are up 6.5% from the same period last year on 5.8% higher revenues, with 72.5% topping EPS estimates and 67.2% beating revenue forecasts.

Excluding the Finance sector, Q3 earnings growth improves to 10.3% from 6.3%. The Energy sector has the opposite effect, with Q3 earnings growth declining to 4.3% on an ex-Energy basis.

For full-year 2017, total earnings for the S&P 500 index are expected to be up 7.6% on 5% higher revenues, which would follow 0.7% earnings growth on 2.2% higher revenues in 2016. Index earnings are expected to be up 11.6% in 2018 and 9.5% in 2019.

Earnings growth turned positive in Q3 for the small-cap S&P 600 index, with total earnings for the index expected to be up 5.2% from the same period last year on 5.8% higher revenues. This follows persistent earnings declines for the small-cap index as growth was negative in 3 of the last 4 quarters.

Looking ahead, total Q4 earnings are expected to be up 8.6% from the same period last year on 6.6% higher revenues.

In economic news, U.S. Markit’s manufacturing PMI fell 0.7 points to 53.9 in the final print for November versus expectations of 54.5.

The ISM manufacturing index dipped 0.5 points to 58.2 in November from 58.7 in October. Expectations were for a print of 58.4. The employment component was little changed at 59.7 from 59.8. New orders rose to 64 from 63.4 while new export orders slid to 56 from 56.5. Prices paid fell to 65.5 from 68.5.

Construction spending jumped 1.4% in October, marking a third straight monthly increase. Expectations were for a gain of 0.5% for the month.

Baker Hughes reported the rig count was up 6 rigs from last week to 929, with oil rigs up 2 to 749, gas rigs up 4 to 180, and miscellaneous rigs unchanged.

In Fed News, St. Louis Fed James Bullard warned of material risk of yield curve inversion next year if the Fed continues to hike rates, which would be a naturally bearish signal for the economy, he stated. He views it as unlikely that long-term rates will increase to match or exceed the Fed’s expected pace of policy tightening and, given weak inflation, he sees no more need to continue raising short term rates. He doesn’t view the yield curve signal as inflallible, but says that it should be taken seriously by policymakers and investors.

Dallas Fed Robert Kaplan favors taking the next step on rates in the near future. He said he favors reducing the Fed balance sheet well below $3 trillion, for starters, while he has a lot of confidence that Governor Powell will do a superb job as Fed Chair.

Fedspeak will relax this week as the blackout period for policy-related remarks starts on Tuesday and a week ahead of the FOMC meeting on December 12th-13th. Minneapolis Fed Kashkari is scheduled to speak ahead of the quite period.

The VelocityShares Daily Inverse VIX (ZIV) traded lower throughout Friday’s action while bottoming at 75.93. Support to 78-77.75 and the 50-day moving average held into the closing bell but we have been warning of risk to 76 on a move below the latter. A close below this level would be a bearish development for the overall market and could lead to a retest of 74 and mid-November and late September lows. RSI closed below the 50 level with risk to 40-30 on continued selling pressure.

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The Spiders S&P MidCap 400 ETF (MDY) retraced seven sessions of gains after trading to a low of $337.71 on Friday with fresh support at $337.75 holding. A close below this level likely gets $335-$332.50 and the 50-day moving average in play. The close above $345 keeps near-term resistance at $347.50 and Thursday’s all-time high of $347.36 in the mix. RSI recently peaked near the 80 area and October resistance. A move below 70-65 would signal additional upcoming weakness.

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The Materials Select Sector (XLB) pulled back of its prior session 52-week and all-time high of $59.97 with Friday’s low tapping $58.62. Mid-November support at $58.50-$58.25 held with a move below the latter being a slightly bearish development. Fresh resistance remains at $59.50-$60. However, RSI is in a downtrend with support at 50 on additional weakness.

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Friday’s bullish stock picks:
Agco (AGCO) upgraded to Conviction Buy from Neutral at Goldman Sachs
Mellanox (MLNX) upgraded to Buy from Neutral at Longbow
Vantiv (VNTV) upgraded to Outperform from Neutral at Wedbush

Friday’s bearish stock picks:
Priceline (PCLN) downgraded to Hold from Buy at Argus
Regeneron (REGN) downgraded to Neutral from Buy at Citi
VMware (VMW) was downgraded to Hold from Buy at Gabelli

The S&P 500 Volatility Index ($VIX, 11.43, up 0.15) surged to a high of 14.58 on Friday while closing above its 200-day moving average. This was a slightly bearish development with continued closes above the 12.50 being a sign of continued market weakness. The close below 11.50 keeps the bulls in the game with rising support at 10.50-10.25.

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The VIX will be one of the most important indicators I watch this week, along with ZIV. Both measure volatility in opposite ways but should give us super clues on how this week’s action shakes out.

I have a Profit Alert for BAC following Friday’s volatile session. This gets the Track Record to 12-2 for trade recommendations since mid-July for an astounding win rate of 86%! For the year, we are at 72%, also an incredible win rate. I could have New Trades today so stay locked-and-loaded.

Momentum Options Play List

Closed Momentum Options Trades for 2017: 53-21 (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.

Viavi Systems (VIAV, $9.18, down $0.19)

VIAV January 9 calls (VIAV180119C00009000, $0.55, down $0.05)

Entry Price: $0.65 (11/29/2017)
Exit Target: $1.30
Return: -15%
Stop Target: None

Action: Support at $9 was stretched with Friday’s low tapping $8.93. Resistance is at $9.25.

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Twitter (TWTR, $20.71, up $0.13)

TWTR January 24 calls (TWTR180119C00024000, $0.30, flat)

Entry Price: $0.70 (11/22/2017)
Exit Target: $1.40
Return: -57%
Stop Target: None

Action: Support is at $20.50-$20.25. Resistance is at $20.75.

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Bank of America (BAC, $28.10, down $0.07)

BAC January 28 calls (BAC180119C00028000, $1.15, down $0.06)

Entry Price: $0.63 (11/16/2017)
Exit Target: $1.75 (closed half at $1.30 on 11/29/2017)
Return: 87%
Stop Target: $1.05 (Stop Limit)

Action: The Stop Limit at $1.05 triggered during Friday’s volatile session.

While disappointed, I will keep BAC on the Watch List for a possible reentry point.

TiVo (TIVO, $17.70, down $0.10)

January 20 calls (TIVO180119C00020000, $0.35, flat)

Entry Price: $0.60 (10/31/2017)
Exit Target: $1.20
Return: -42%
Stop Target: None

Action: Upper support at $17.75-$17.50 failed to hold on the backtest to $17.60. Resistance at $18.

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TherapeuticsMD (TXMD, $6.20, down $0.10)

TXMD December 7.50 calls (TXMD171215C00007500, $0.10, down $0.05)

Entry Price: $0.95 (8/17/2017)
Exit Target: $1.90
Return: -89%
Stop Target: None

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