Pre-Market Update for 12/15/2020

Market Mixed as Small-Caps Tag Another Record Peak

8:00am (EST)

The stock market showed strength on Monday amid optimism that the coronavirus vaccine is starting to roll out but finished mixed as late day selling pressure returned. Uncertainty over another stimulus debate weighed on sentiment as a bipartisan $908 billion two-part deal hangs in the balance.

The Russell 2000 tagged an opening all-time high of 1,944 while ending at 1,913 (+0.1%). Near-term and lower resistance at 1,930-1,950 was cleared but held. A move above the latter would indicate a possible run towards 1,950-1,970.

The Nasdaq tested an intraday high of 12,543 before closing at 12,440 (+0.5%). Current and lower resistance at 12,500-12,600 was breached but held. A close below the latter and the all-time peak at 12,607 would suggest momentum towards 12,700-12,800.

The S&P 500 settled at 3,647 (-0.4%) following the late day pullback to 3,645. Current and upper support at 3,650-3,625 was tripped but held. A move below the latter would suggest a further backtest towards 3,600-3,575.

The Dow traded to an afternoon low of 29,849 before finishing at 29,861 (-0.6%). Near-term and upper support 30,000-27,750 was tripped and failed to hold. A drop below the latter would suggest a retest towards 29,500-29,250.

The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) extended its wining streak to four-straight sessions with the late day peak reaching 24.82. Current and lower resistance at 24.50-25 was cleared and held. A close above the latter would suggest additional upside towards 26-26.50 and the 50-day moving average.

Support is at 23.50-23 followed by 22-21.50.

The iShares Russell Growth 1000 ETF (NYSE: IWF) rebounded after testing a morning high of $235.14. Lower resistance at $235-$235.50 was breached but held. A close above last week’s all-time peak at $236.54 would signal additional upside towards $237-$237.50.

Current support is at $232.50-$232 followed by $231-$230.50.

RSI is trying to curl higher lower resistance at 60-65 holding. A move above the latter would suggest additional strength towards 70-75 and prior levels from late August. Support is at 55-50 with the latter holding since early November.

The Real Estate Select Sector SPDR Fund (NYSE: XLRE) fell for the fifth time in six sessions despite tapping an intraday high of $36.79. Current and lower resistance at $36.50-$37 was tripped but held. A close above the latter and the 50-day moving average would signal additional upside towards $37.50-$38.

Support is at $36-$35.50.

RSI is showing signs of rolling over with upper support at 45-40 failing to hold. A move below the latter would suggest weakness towards 35 and the late October low. Resistance is at 50.

I have updated our latest trade so let’s go check the tape.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 44-11 (80%). 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 “Stops” entered to close any trades or “Limit 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 and Text Alerts.

Boston Scientific (BSX, $33.45, down $0.15)

BSX February 31 puts (BSX210219P00031000, $0.90, down $0.05)

Entry Price: $0.85 (12/14/2020)
Exit Target: $1.70
Return: 6%
Stop Target: None

Action: Shares of Boston Scientific (BSX) have struggled throughout 2020 after coming into the year just above the $45 level and are currently down 25%. Although shares seem attractive at current levels, a death cross has recently formed and is typically a bearish technical signal for lower lows.

Despite topping earnings estimates in three of the past four quarters, including a 12-cent beat in October, shares have been hovering near longer-term support between the $33.50-$33 area. The late November low reached $33.15, the late October low tapped $33.50, and the late June low hit $33.28.

Of course, most stocks suffered steep selloffs in March as the coronavirus rocked the stock market with shares of Boston Scientific bottoming at $24.10. While this represented a good buying opportunity, and likely won’t be tested over the near-term, there is a good chance if shares fall below $33, selling pressure will return.

Aside from the technical setup, the company’s recent delay of its transcatheter aortic valve replacement launch overshadowed other positive developments. The disclosure back in mid-October that Boston Scientific has pushed back its U.S. Lotus Edge Intermediate Risk Valve and Acurate Neo 2 launch until 2024 dominated the headlines and pressured shares.

In mid-November, the company announced it was initiating a global, voluntary recall of all unused inventory of the Lotus Edge Aortic Valve System due to complexities associated with the product delivery system. The voluntary recall was related solely to the delivery system, as the valve continues to achieve clinically effective performance post-implant.

Boston Scientific said there is no safety issue for patients who currently have an implanted Lotus Edge valve. However, given the additional time and investment required to develop and reintroduce an enhanced delivery system, the company chose to retire the entire Lotus product platform and that all related commercial, clinical, research & development and manufacturing activities would also cease.

The impact is expected to result in charges of approximately $225-$300 million due to inventory, fixed asset, intangible asset and certain other exit charges. Additional, another $100-150 million of the charges would impact the company’s adjusted results for the current quarter.

Following the news, there were a few analysts that lowered their Price Targets from the $46-$47 range to $43-$44 but kept overall “Buy” ratings on the stock. Currently, there are 24 analysts that cover Boston Scientific with 15 Strong Buys ratings, six Buys, and three Holds.

The next earnings report is scheduled for early February with current expectations looking at the company earning 32 cents a share on revenue of $2.88 billion. The high estimate is for a profit of 39 cents a share with the low at 26 cents. This could mean a seven-cent beat, or a six-cent miss. If an earnings miss occurs, analysts could downgrade the stock.

These options do not expire until February 19th and would provide nearly two months to play a further backtest towards the $30-$29 area. If shares trade to the latter, these options would more double from current levels as they would be $2 in-the-money.

The risk of this trade would be if shares can reclaim the $36-$36.50 area and the downward sloping 50-day and 200-day moving averages. If this were to happen, the technical outlook would improve and the aforementioned put options could be closed to save the remaining premium.

Grocery Outlet Holding (GO, $38.11, up $0.11)

GO January 40 calls (GO210115C00040000, $0.95, unchanged)

Entry Price: $1.00 (11/30/2020)
Exit Target: $2.00
Return: -5%
Stop Target: None

Action: Lower resistance at $38.50-$38.75 was cleared but held with yesterday’s peak reaching $38.61. A close above the latter and the 200-day moving average would be a more bullish signal for a retest towards the $39 level. Support remains at $37.75-$37.50.