Pre-Market Update for 10/22/2018

Dow/ S&P 500 Snap 3-Week Slides

8:00am (EST)

The market opened in positive territory to start Friday’s action as they tried to regain momentum following the prior session pullback. The blue-chips showed strength throughout much of the session while the other major indexes started slipping midday while struggling to regain positive territory.

The mixed closed showed nervousness ahead of the weekend with the height of 3Q earnings season starting to unfold. Volatility remains slightly elevated and is showing signs of higher highs with a major bullish technical pattern in play and a bearish signal for the market.

The Dow gained 0.3% while testing an intraday high of 25,608. Prior and lower resistance at 25,600-25,800 held with continued closes above 26,000 and the 50-day moving average being a more bullish development.

The S&P 500 slipped a point, or 0.04% after failing resistance at 2,800 by a couple of points. The slight close back below the 200-day moving average keeps risk open to backup support at 2,750-2,825 in play.

For the week, the blue-chip index gained 0.4% and the S&P 500 rose fractionally, successfully snapping a three-week retreat while 

The Nasdaq was down 0.5% after kissing a session low of 7,428. It was the 2nd-straight close below 200-day moving average with shaky support at 7,400-7,350 on a move below 7,425.

The Russell 2000 extended its losing streak to 3-straight session following the pullback to 1,538. Support at 1,540-1,535 held with a close below the May low of 1,532 being a very bearish signal.

Tech shed 0.6% for the week to extend its losing streak to 3-straight while the small-caps were down 0.3% to extend its weekly losing streak to 5-straight.

Consumer Staples jumped 2.3% to lead sector strength while Utilities and Real Estate were higher by 1.5% and 1%, respectively.

Consumer Discretionary fell 1% led sector laggards. Energy amd Health Care were off 0.9%.

For the week, Consumer Staples zoomed 4.4% while Real Estate jumped 3.3% and Utilities advanced 3.1%. Consumer Discretionary and Energy were down 2% while Materials and Technology gave back 1.2%.

The S&P 500 Volatility Index ($VIX) tested a morning low of 18.39 with support at 17.50-17 easily holding. Continued closes below the latter being a slightly bullish development but it was the 3rd-straight higher low. Additionally, 50-day moving average remains in an uptrend and appears on track to clear the 200-day moving average. This would form a golden cross and is technical pattern that can lead to higher highs.

The close on 20 keeps fresh resistance at 22-22.50 in play. A move above the latter could lead to a retest towards 25-27.50. A move above this month’s high of 28.84, or 30, could trigger a major round of selling pressure with risk to 50.

RSI is flatlining with resistance at 65-70. A move above the latter would be a bearish development for the market as it would signal additional strength in the VIX. Support is at 55-50 with a close below the latter being a slightly bullish signal.

Trading graph

The Spider Small-Cap 600 ETF (SLY) extended its losing streak to 3-straight sessions following the backtest to $68.19. The previous Friday intraday low tapped $67.96. Major support at $68 held with a close below this level likely signaling additional weakness towards $67-$66.50 and early May lows.

Resistance is at $69.50-$70 followed by $71 and the 200-day moving average. Continued closes above the latter levels would be a more bullish development and signal a possible bottoming process.

RSI is still looking a tad weak and is trying to clear resistance at 30-35. A close above the latter would signal additional strength and be a slightly bullish sign. Support is at 25-20 on continued weakness. 

Trading graph

The iShares PHLX Semiconductor ETF (SOXX) was weak for the 3rd-straight session following the pullback to $165.47. Near-term and upper support at $165.50-$165 held. A close below the latter would signal additional weakness towards $162.50-$162 and February support levels. 

Lowered resistance is at $167.50-$168 with continued closes above $170 being a more bullish development. The 50-day moving average has been rolling over to start the month and is on track to fall below the 200-day moving average. The would form a death-cross and is a technical signal for lower lows.

RSI is in a downtrend with support at 30. A close below this level gets 25-20 and the monthly lows back in the mix. Resistance is at 35-40.

Trading graph

The percentage of S&P 500 stocks trading above the 50-day moving average closed Friday at 22.42% with the low reaching 22.04%. Support at 17.5%-15% held with risk to 10%-9.50% on panic selling. The latter represent the monthly low with late February support at 7.5% on a move below this level. Resistance is at 27%-30% with continued closes above the latter signaling additional strength and being a more bullish development.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed at 45.63% with the session low tapping 44.66%. There is risk to the 40%-37% area with the 36.89% representing the monthly low. The June 2016 low also reached the latter with a move below this level signaling lower lows. A close back above resistance at 45%-50% would signal another possible short-term bottom.

This will be a very important week for the market as major 3Q earnings could shape the next trend for a few weeks. The technical outlook remains slightly bearish and the VIX is showing signs of wanting to go higher. 

The good news, we are in great position to add fresh bearish trades if there is a continued pullback, or select call options, if the action shows a continued push towards prior resistance levels. We will have to continue to be nimble as mid-term elections will also play a role thru the first few weeks of November. 

A blue wave could ruin what the President has accomplished with the economy, while a red wave would continue to push fresh tax cuts and a growing economy with easing regulations.

As I head to press, futures are pointing towards a slightly lower open.

Momentum Options Play List

Closed Momentum Options Trades for 2018: 40-16 (71%). 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.

Viavi Systems (VIAV, $12.04, down $0.10)

VIAV December 12 calls (VIAV181221C00012000, $0.78, down $0.07)

Entry Price: $0.70 (10/11/2018)

Exit Target: $1.40

Return: 11%

Stop Target: 70 cents (Stop Limit)

Action: Friday’s low tapped $11.98 with upper support at $12-$11.75 holding. Lowered resistance is at $12.15-$12.25.

Trading graph

Morgan Stanley (MS, $46.52, up $0.39)

MS November 50 calls (MS181116C00050000, $0.20, flat)

Entry Price: $0.60 (10/3/2018)

Exit Target: $1.20

Return: -67%

Stop Target: None

Action: Lowered resistance at $46.50-$47 held into the close following the run to $46.72. Support remains at $46-$45.50. 

Trading graph

Consumer Staples Select Spiders (XLP, $54.69, up $1.22)

XLP January 58 calls (XLP190118C00058000, $0.30, up $0.17)

Entry Price: $0.35 (9/20/2018)

Exit Target: $0.70

Return: -14%

Stop Target: None

Action: Fresh resistance is at $54.75-$55 following Friday’s surge to $54.85. Rising support is at $54.25-$54.

Trading graph