Pre-Market Update for 9/4/2018

Bulls Post Strong August Gains

8:00am (EST)

The market settled mostly higher on Friday as trade talks between the U.S. and Canada were continued into the upcoming week. The two sides were trying to reach a self-imposed deadline to get a new NAFTA deal done ahead of the holiday weekend and will met again Wednesday.

After the close, Canada’s foreign minister, Chrystia Freeland, said that progress on a trade deal with the U.S. has been made, and that the U.S. is negotiating with good faith. She also added that she has agreed with U.S. Trade Representative, Robert Lighthizer, not to make trade negotiations in public.

The Russell 2000 rose 0.5% after tapping another fresh record high of 1,742 ahead of the closing bell. Lower resistance at 1,740-1,750 held with a move above the latter being a continued bullish development.

The Nasdaq climbed 0.3% while trading to a first half high of 8,119. Resistance at 8,125-8,200 and the all-time peak at 8,133 from the prior session held.

For the week, Tech jumped 2.1% and the small-caps rose 0.9%. For August, the Nasdaq zoomed 5.7% while the Russell soared 4.8%.

The S&P 500 was up less than a point, or 0.01%, after testing a morning peak of 2,906. The index held the 2,900 level for a 3rd-straight session to keep blue-sky resistance open up to 2,925-2,950.

The Dow slipped 0.1% on the intraday backtest to 25,879. Support at 25,800-25,600 remains in play on continued closes below the 26,000 level.

The S&P 500 gained 0.9% for the week while the Dow climbed 0.7% with both indexes higher for the 3rd-straight week. For the month, the S&P surged 3% and the Dow jumped 2.2%.

Real Estate and Consumer Discretionary were higher by 0.4% and led sector strength. Technology and Consumer Discretionary were up 1.8% for the week with the former up 6.8% in August.

Consumer Services sank 1% to lead sector weakness while Energy was lower by 0.8%. Utilities, Consumer Services and Consumer Staples were down 0.5% for the week. Energy was the only sector laggard in August after giving back 2.9%.

The S&P 500 Volatility Index ($VIX) traded to its highest level since mid-August after tagging a high of 14.03. Resistance at 14.50-15 and the 200-day moving average held. A close above the latter will likely lead to a fresh round of panic selling in the market.

The backtest to 12.82 and close below the 50-day moving average still keeps the chance for higher market highs in play with support at 12.50-12.

RSI has been hovering around the 50 level for nearly a month. A close below support at 45 would be a bullish signal for the market. A move above 55 would signal additional strength in the VIX and a continued test towards early August resistance near the 60 area.

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The Spider S&P 500 ETF (SPY) tested an intraday low of $289.29 with support at $289.25-$288.75 holding. A move below the latter would be a slightly bearish development with risk towards the $287.50 area. 

Near-term resistance is at $290.50-$291 with last week’s all-time high at $290.81. A move above $291.25 could lead to a melt-up surge towards towards $292.50-$295.

RSI is struggling with resistance at 70-75 with continued closes above the latter leading towards 80-85 and January peak levels. A move below 60 would be a bearish development.

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The iShares PHLX Semiconductor ETF (SOXX) made a push to $190.61 with early June resistance at $190.50-$191 holding into the closing bell. A move above the latter could get $192.50-$195 in play, depending on momentum, with the latter representing the June peak.

Near-term support is at $189-$188.50 with a close below the latter signaling additional weakness towards $187.50-$187.

RSI is approaching resistance at 65-70 with a move above the latter signaling continued strength. Support is at 60-55.

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The percentage of S&P 500 stocks trading above the 50-day moving average closed Friday at 68.84% with the high reaching 69.84%. Resistance is at 70%-72.50% with last week’s peak falling just south of 76%. This area represented the mid-June peaks on back-to-back sessions. Support is at 65%-60% with risk to 57%-55% and August lows on a move back below the latter.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed at 68.93% and the session peak. Early July and August hurdles are at 70%-72%. A move above the latter would be a slightly bullish development for push towards 75%-77% and late February resistance. Support is at 66% and a level that held on 3 occasions last week. A move below 65% would likely confirm additional weakness towards the 60% area and the mid-August low.

I spent the majority of Friday researching a ton of trade possibilities into the close, both bullish and bearish, as this week’s action could sway either way. The VIX was the major indicator I was watching and will be the first thing I focus on during Tuesday’s session. A move above 14.50 or below 12.50 could be the early signals for a continued run to higher highs of a pullback to fresh support levels.

Momentum Options Play List

Closed Momentum Options Trades for 2018: 32-14 (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 Daily updates.

Cypress Semiconductor (CY, $17.21, up $0.68)

CY October 17 calls (CY181019C00017000, $0.90, up $0.30)

Entry Price: $0.65 (8/22/2018)

Exit Target: $1.30

Return: 38%

Stop Target: 70 cents (Stop Limit)

Action: Set an initial Stop Limit at 70 cents to protect profits.

Fresh resistance is at $17.25-$17.50 following Friday’s close on the session high. A close above the latter would be a continued bullish signal. Rising support is at $17-$16.75 and the 50-day moving average.

There was heavy volume in the CY October 18 calls as nearly 1,300 contracts traded. They closed at 45 cents and the action is suggesting traders are expecting higher highs. I could add these call options as a “piggy-back” trade if momentum stays strong this week.

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Boston Scientific (BSX, $35.56, up $0.16)

BSX September 36 calls (BSX180921C00036000, $0.65, flat)

Entry Price: $0.60 (8/20/2018)

Exit Target: $1.20

Return: 8%

Stop Target: None

Action: Resistance at $35.75-$36 held on Friday’s push to $35.58. A close above the latter would be a very bullish sign for higher highs. Support remains at $35-$34.75.

These options expire in less than 3 weeks so I would like to see shares clears and hold $36 over the next day or so.

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