Pre-Market for 4/9/2018

Bears Get Weekly Win of Friday Pullback

8:00am (EST)

The market suffered steep losses on Friday to erase weekly gains following another round of tough tariff talk ahead of the open. President Trump is considering whether to add tariffs on another $100 billion worth of Chinese goods as punishment for China’s reciprocal tariffs on $50 billion of U.S. goods. The market weakened further following a speech from Fed chair Jerome Powell, who said the U.S. budget was on an unsustainable course and the Fed should stay on a patient path of rate hikes.

The Nasdaq tumbled 2.3% after trading to an intraday low of 7,877 while closing back below the 7,000 level for the fifth time in 10 sessions. The Russell 2000 stumbled 1.9% following the backtest to 1,502 while holding crucial support at the 1,500 level.

For the week, the Nasdaq was lower by 2.1% while the Russell 2000 was off 1.1% with both indexes currently below their 100-day moving averages.

The Dow tanked 2.3% after testing a low of 23,738 while closing back below  the 24,000 level for the first time in four sessions. The S&P 500 sank 2.1% after tapping a low of 2,586 but closed above the 2,600 level for the eighth time in nine sessions. 

The Dow was down 0.7% for the week while the S&P 500 fell 1.4%. Both indexes remain below their 100-day moving averages with the 50-day moving averages on track to breach these levels. This would form a mini-death cross and is typically a bearish signal.

Industrials and Technology led sector weakness after sinking 2.8% and 2.5%, respectively. Materials, Health Care and Financials were down 2.4%. There were no sectors that finished in the green. 

For the week, Technology and Industrials fell 2.1% while Health Care was lower by 1.9%. There was no sector strength for the week.

Fed chairman, Jerome Powell reiterated the Fed’s gradual path on rate increases are the best way to promote the Fed’s goals. He supports a patient approach to policy and said risks to the economy are generally balanced, but the Fed must balance between hiking too quickly or too slowly. He said a few measures, including moderate wage gains, show the labor market is not excessively tight and is expected to remain strong.

The Fed chairman also said the U.S budget is not on a sustainable path but added it’s a longer run problem and it’s not really an issue for the conduct of monetary policy or financial supervision. He said the budget deficit affects growth expectations only at the margin and that over time the budget deficit is important for potential growth.

Powell went on to say tariff discussions are at a relatively early stage and it’s too early to say what the talks mean for the outlook. He said tariffs can push up prices, but it’s too early to say whether that happens or not. On wages and inflation, Powell commented that it’s hard to find a connection between immigration and wage inflation. He also said the U.S. financial system is incomparably stronger and he feels good about the strength of the financial sector, adding, the time has come to look for more efficient financial regulations.

The S&P 500 Volatility Index ($VIX) spiked 13.5% after testing a high of 23.12 while closing back above the 20 level and its 50-day moving average. Prior resistance at 22-22.50 held into the close with additional risk to 24.50-25 on continued moves above the latter. Support is at 20-19.50 with additional held at 18-17.50 and level we said need to clear before a possible breakout rally could be trusted.

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The Spiders Dow Jones Industrial Average ETF (DIA) traded down to $237.24 with shaky support at $237-$236.50 holding. A close below $235 would be a very bearish development with continued risk to $233-$232.50 and the 200-day moving average. Lowered resistance is at $239.50-$240.

RSI is back in a downtrend after failing resistance at 50. Support is at 40 with a close below the latter confirming additional weakness towards 30 and February/ March lows.

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The Consumer Staples Select Spiders (XLP) bottomed at $52.16 with near-term support at $52.25-$52 holding. A close below the latter would signal additional weakness towards $51.50-$51 and prior March lows. Resistance remains at $52.75-$53. 

The technical outlook remains weak with the 50-day moving average falling below the 200-day moving average to form a death cross. RSI is struggling to clear resistance at 50. Support at 40 with a close below this level leading to a retest of 35-30 and February lows.

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The percentage of S&P 500 stocks trading above the 50-day moving closed Friday at 24.4% down from an opening of 34.92%. Support is at the 20%-15% level with risk to 10% and February lows on continued weakness. Near-term resistance is at 30%-35%. 

The percentage of Nasdaq 100 stocks trading above the 200-day moving average is currently at 52.42% with Friday’s low reaching 50.48%. Early April support reached a low of 49% with a close below this level leading to a possible retest of 40% and early July 2016 levels. Lowered resistance is at 55%-60%.

Futures were up throughout the night but Monday’s have been somewhat bearish as the Dow has fallen in three of the past four. I still believe we can get a short-term 2-3 week rally if key support levels hold and Friday will be an important session with a a number of key financial companies reporting earnings. The VIX needs to hold 25 this week, or we could be adding short positions.


Momentum Options Play List

Closed Momentum Options Trades for 2018: 13-8 (62%). 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, $29.63, down $0.69)

BAC May 32 calls (BAC180518C00032000, $0.33, down $0.12)

Entry Price: $0.45 (4/5/2018)

Exit Target: $0.90

Return: 27%

Stop Target: None

Action: Fresh support is at $29.50-$29.25 following Friday’s backtest to $29.37. I still like the trade as long as $28.75 holds. Near-term resistance is at $29.75-$30.

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CVS Health (CVS, $63.38, down $1.28)

CVS August 70 calls (CVS180817C00070000, $1.70, down $0.30)

Entry Price: $2.00 (4/5/2018)

Exit Target: $4.00

Return: -15%

Stop Target: 95 cents (Stop Limit)

Action: Prior support at $63-$62.75 in back in play with Friday’s low tapping $62.86. Resistance is at $63.75-$64.

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Viavi Systems (VIAV, $9.65, down $0.11)

VIAV June 10 calls (VIAV180615C00010000, $0.43, down $0.02)

Entry Price: $0.45 (4/3/2018)

Exit Target: $0.90

Return: -7%

Stop Target: None

Action: Friday’s low reached $9.57 with support at $9.60-$9.50 holding. Lower resistance is at $9.75-$10.

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Intel (INTC, $48.79, down $1.59)

INTC April 52 calls (INTC180420C0005200, $0.30, down $0.40)

Entry Price: $0.60 (4/3/2018)

Exit Target: $1.20

Return: -50%

Stop Target: None

Action: Prior support at $48.75-$48.50 and the 50-day moving average held with Friday’s low reaching $48.50. Lowered resistance is at $49.25-$49.50. 

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Boston Scientific (BSX, $27.35, down $0.74)

BSX April 29 calls (BSX180420C00029000, $0.10, down $0.14)

Entry Price: $0.26 (3/16/2018)

Exit Target: $1.00

Return: -62%

Stop Target: None

Action: Shares traded to a low of $27.07 on Friday with fresh support now at $27.25-$27. The close above the 50-day moving average was slightly bullish but lowered resistance is at $27.75-$28.

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