Pre-Market Update for 5/29/2018

Bulls Keep May Momentum

8:00am (EST)

The market was weak for much of Friday’s session but showed some strength intraday before settling mixed. The Energy sector was the major news story following a report about higher output being planned from OPEC and Russia. 

There was little impact from earnings or economic news as the major indexes traded in a narrower range on light volume while closing higher for the week. Volatility traded below major support but a level that failed to hold.

The Dow fell 0.2% following a backtest to 24,687 while closing below the 24,800 level for the first time in five sessions. The S&P 500 also declined 0.2% after testing a low of 2,714 but has been holding major support at the 2,700 level for the past dozen sessions.

The Dow and the S&P 500 were up 0.2% and 0.3%, respectively, for the week with both indexes showing gains in two of the past three weeks.

The Russell 2000 slipped 0.1% after trading in a 5-point range while topping out at 1,628. The Nasdaq advanced 0.1% after reaching a peak of 7,452 intraday while closing above the 7,400 level for the 3rd-straight session. 

For the week, the Nasdaq was up 1.1% and Russell 2000 advanced a third of a point, respectively, with both higher in three of the past four weeks.

Real Estate and Utilities climbed 0.5% and 0.4%, respectively, while Consumer Discretionary and Consumer Staples gained 0.2% to show sector strength. Energy easily led the laggards after sinking 2.6% while Materials fell 0.5%.

For the week, the best-performing sectors were the Utilities and Real Estate after adding 2.7% and 1.6% while Industrials rose 1.3%. The weakest sectors were Energy and Financials with declines of 2.7% and 0.9%, respectively.

The S&P 500 Volatility Index ($VIX) tested 12.29 intraday and its lowest level of the month, aside from the May 4th “flash crash” to 10.91 intraday. At the time, I said this was a very interesting and slightly bullish signal and why I have remained mostly bullish on the market this month. 

The VIX failed to hold major support at 12.50 and will likely need multiple closes below 12.50-12.25 going forward for the overall market to make higher highs. Adjusted resistance at 13.50-14.50 and the 200-day moving average easily held on the pop to 13.52.

I have also been warning throughout month that a close above 15 on the VIX would be a very crucial warning sign for the market and this still holds true. The mid-month intraday highs reached 15.01 and 14.91 on back-to-back sessions. The last time the VIX closed above 15 was May 3rd and a level that held as major support throughout the back half of April.

RSI is back in a slight uptrend after clearing 40 with near-term resistance at 50. A move above this level would indicate a possible short-term top for the market. Support is at 35 with a close below this level signaling additional market strength into June.

The Spider Small-Cap 600 ETF (SLY) has been in a mini-trading range for three sessions after clearing $144 on back-to-back sessions to start last week. We mentioned a few weeks ago a possible push towards $144.50-$145 could come on continued momentum. Last Tuesday’s all-time high tapped $144.53.

Current support is at $142.50-$142 with continued closes below the latter signal a possible near-term top with risk to the $140 area.

RSI cleared but failed to hold July resistance at 70. Continued closes above this level would be a bullish signal. A move back below 65-60 would be a slightly bearish development.

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The Health Care Select Sector Spider (XLV) has been in a tight range since mid-month with a more defined range between $82.75-$83.50 last week. We have been highlighting and forecasted the bearish death-cross with the 50-day moving average still in a nasty downtrend after falling below the 200-day moving average.

Resistance is at $83.50-$84 with a move above the latter being slightly bullish. Current support is at $82.50-$82 with a close below the latter being a slightly bearish development.

RSI is trying to hold near-term support at 50 with risk towards 40 and the monthly low. Resistance is at 55-60 with a move above the latter signaling additional strength.

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The percentage of S&P 500 stocks trading above the 50-day moving average closed Friday at 59.52%. We mentioned last week resistance is at 60%-65% with continued closes above the latter being a bullish development. Last week’s high tapped 65.14%. Continued closes above the 65% level would be bullish for a possible push towards 70% and December and January support levels. Current support is at 55%-50%.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average settled at 61.16%. Current resistance is at 63%-65% with the latter representing the mid-April peak. Friday’s high reached 62.13% and a level that trigger two other times to start last week. Continued closes above the 65% level would be a bullish signal for a run towards 70%-75%. Support is at 56%-55% and early May support with a move below the latter being a slightly bearish signal.

First-quarter earnings season continues to wind down with 95% of the S&P 500 members having reported results. Earnings are up 24.2% from the same period last year on 8.5% higher revenues, with 77.6% beating EPS estimates and 74.5% topping revenue estimates.

Looking at Q1 as a whole, total earnings are expected to be up 24% from the same period last year on 8.5% higher revenues, the highest quarterly earnings growth pace in seven years. Net Income margins for the quarter are on track to expand by 1.5%.

Energy sector earnings increased 75.7% from the same period last year on 14.2% higher revenues. Excluding the Energy sector, total S&P 500 earnings growth eases from 24.2% to 22.5%.

For the small-cap S&P 600 index, Q1 results from nearly 90% of the index’s total membership are in. Earnings for these companies are up 20.9% on 9.6% higher revenues, with 59% topping EPS estimates and 72% beating revenue estimates.

For the quarter as whole, total S&P 600 earnings are expected to be up 18.2% on 9.2% higher revenues.

For full-year 2018, total earnings for the S&P 500 index are expected to be up 19.5% on 5.9% higher revenues. For full-year 2019, earnings are expected to be up 9.5% on 4.5% higher revenues.

I could have new trades today shortly after the open so stay close to your email inbox and a possible text alert.

Momentum Options Play List

Closed Momentum Options Trades for 2018: 21-11 (66%). 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 Daily updates.

AstraZeneca (AZN, $37.04, up $0.16)

AZN June 37.50 calls (AZN180615C00037500, $0.55, up $0.10)

Entry Price: $0.45 (5/21/2018)

Exit Target: $0.90-$1.35

Return: 22%

Stop Target: None

Action: Shares held  lower resistance at $37-$37.25 with Friday’s high tapping $37.15. Support is at $36.75-$36.50. An all-time high of $37.30 was set last week.

A massive block of 5,000 contracts traded in the AZN June 38.50 calls on Friday as a new position. This is a sweet signal as heavy call volome in AZN has persisted most of the year, with current call open interest nearly 4x that of puts.

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Imax (IMAX, $21.50, down $0.30)

IMAX June 23 calls (IMAX180615C00023000, $0.25, down $0.15)

Entry Price: $0.85 (5/21/2018)

Exit Target: $1.70

Return: -71%

Stop Target: None

Action: Fresh support at $21.25-$21 held on Friday’s pullback to $21.35. Lowered resistance is at $21.75-$22.

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Progenics Pharmaceuticals (PGNX, $7.52, up $0.01)

PGNX August 8 calls (PGNX180817C00008000, $1.35, flat)

Entry Price: $1.00 (5/9/2018)

Exit Target: $2.00

Return: 35%

Stop Target: $1.05 (Stop Limit)

Action: Resistance is at $7.50-$7.75 with Friday’s high tapping $7.55. Support is at $7.50-$7.40 and the 50-day moving average.

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Viavi Systems (VIAV, $9.90, up $0.03)

VIAV June 10 calls (VIAV180615C00010000, $0.25, flat)

Entry Price: $0.50 (5/9/2018)

Exit Target: $1.00

Return: -50%

Stop Target: None

Action: Resistance at $10 held on the run to $9.97. Support remains at $9.80-$9.75.

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Rambus (RMBS, $13.55, up $0.04)

RMBS June 14 calls (RMBS180615C00014000, $0.10, flat)

Entry Price: $0.50 (5/3/2018)

Exit Target: $1.00

Return: -80%

Stop Target: None

Action: Fresh resistance is at $13.75. Support is at $13.25-$13.

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