Pre-Market Update for 7/5/2018

Market Stays Nervous Ahead of FOMC Minutes

8:00am (EST)

The market closed mostly lower on Tuesday, reversing earlier gains as Technology and Financials stocks struggled. Trading volume dropped following the morning highs, and as the news flow slowed, the major indexes drifted lower. 

The small-caps showed strength but volatility remained slightly elevated with the market closed on Wednesday and ahead of today’s FOMC minutes.

The Dow declined 0.5% after giving up a 137-point gain while testing a late day low of 24,150. The index closed below its 200-day moving average for the 6th-straight session.

The S&P 500 sank 0.5% after trading in a 25-point range and making a late day pullback to 2,711. Consecutive closes below 2,700 would be a very bearish development.

The Nasdaq made a run to 7,594 before giving back 0.9% on the fade to 7,498. A move below 7,450 and the 50-day moving average would be a bearish signal.

The Russell 2000 gained 0.3% after testing a high of 1,667 and holding positive territory throughout the shortened session. Near-term resistance is at 1,670-1,675 with a close above the latter being a continued bullish development.

Energy and Real Estate rose 0.6% to pace sector leaders while Utilities were up 0.3%.

Communication Services and Technology were down 1.2% and were the weakest sectors while Financials fell 0.9%.

The S&P 500 Volatility Index ($VIX) tested a low of 14.68 with support at 14.50-14 and 50/200-day moving averages holding. The final hour surge to 16.45 held key resistance at 17.50. A close above this level would be a bearish signal with risk to 19.50-20.

Trading graph

The Spider S&P 500 ETF (SPY) made a push to $273.21 shortly after the open with resistance is at $273-$273.50 holding. A close above the latter would be a bullish signal for a possible run towards $274.50-$275.

 Trading graph

The fade to $270.42 into the closing bell and close below the the 50-day moving average was a slightly cautious signal. Short-term support is at $269.50-$269 with a move below the latter signaling additional weakness.

A mini trading range has formed over the past 7 sessions with a close below $268 or move above $274 signaling the next possible major trend.

RSI is back in a downtrend with current support at 40. There is risk to 35-30 and February/ March lows on a close below this level. Near-term resistance at 45-50.

The Spider Gold Shares (GLD) have been in a nasty downtrend since mid-June following the break below major support at the $122 level. A short-term bottom is trying to form at $118-$117.50 with a close below the latter signaling additional weakness towards $115-$114.50.

The beginning of the week low tapped $117.40 and the 52-week bottom is at $114.80.

We mentioned in early June the 50-day moving average has been in a downtrend since late April and was on track to fall below the 200-day moving average. This formed the death cross we warned of and said it was typically a bearish technical setup for lower lows.

Near-term resistance is at $119-$119.50 with Tuesday’s peak reaching $119.08. Continued closes above $120 would be a more bullish signal a near-term bottom is in.

RSI is in a slight uptrend with resistance at 40. Continued closes above this level would be a slightly bullish signal. Support is at 30-25 and represented recent oversold levels.

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The FOMC minutes should provide a more in-depth view of the June 12-13th meeting, where the funds rate was hiked 25 basis points, as expected. Some economists say the shift in the dot plot to 4 rate increases was somewhat surprising, although it was consistent with the upgraded assessment of the economy and inflation. 

While the FOMC again is widely expected to tighten in September, skipping the July 31st-August 1st meeting, analysts will look to gauge the extent of the hawkishness of the policymakers and the potential for a fourth move later in the year. 

Fed Chairman Powell played down the dots, however, in his comments last month, and analysts suspect the overall leaning of the Committee will remain toward gradualism.

I could have 1-2 new trades today so stay locked-and-loaded in case I take action.

Momentum Options Play List

Closed Momentum Options Trades for 2018: 26-13 (67%). 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.

Spider Dow Jones Industrial Average (DIA, $241.66, down $1.07)

DIA August 255 calls (DIA180817C00255000, $0.45, down $0.15)

Entry Price: $0.80 (6/29/2018)

Exit Target: $1.60

Return: -44%

Stop Target: None

Action: Tuesday’s low tapped $241.35 with support at $240.50-$240 and the 200-day moving average holding. Lowered resistance is at $244.50-$245.

Trading graph

Energy Select Sector Spider (XLE, $75.29, up $0.47)

XLE July 77 calls (XLE180720C00077000, $0.60, up $0.10)

Entry Price: $1.00 (6/29/2018)

Exit Target: $2.00

Return: -40%

Stop Target: None

Action: Shares tested a high of $76.46 with resistance at $75.50-$76 holding. Support remains at $74.50-$74. 

Trading graph