MomentumOptions.com Pre-Market Update for 9/25/2017
Late September Weakness Possible
8:00am (EST)
U.S. markets rebounded off their lows on Friday to finish mostly higher aside from the Dow which traded lower for the second-straight session. The blue-chips and the S&P 500 ended the week with slight gains while the Nasdaq gave back 0.3%. The Russell 2000 quietly made a run at its all-time high of 1,452 from July and fell shy by just over a half-point after gaining 0.5%. For the week, the small-caps were up 1.3%.
The Dow slipped 9 points, or 0.04%, to finish at 22,349 on Friday. The blue-chips traded up to 22,364 shortly after the open with resistance at 22,400-22,500 holding. The midday pullback to 22,299 held support at 22,200-22,100. Backup help is at 21,950-21,900 and the 50-day moving average on a move below the latter.
The S&P 500 added over a point, or 0.1%, to end at 2,502. The index kissed a low of 2,496 intraday with short-term support at 2,490. A move below this level could lead to 2,475-2,470 and the 50-day moving average. Resistance remains at 2,510-2,525 with the high reaching 2,503 into the closing bell.
The Nasdaq climbed 4 points, or 0.1%, to close at 6,426. Tech was weak throughout the session but held lower support at 6,425-6,400 during the session. There is further weakness to 6,350-6,325 and the 50-day moving average on a move below the latter. Resistance is at 6,450-6,475.
The Russell 2000 gained 6 points, or 0.5%, to settle at 1,450. The small-caps kissed a morning low of 1,441 with rising support at 1,440-1,435 holding. A close below the latter would be a slightly bearish development. The close above upper resistance at 1,445-1,450 came a half-point shy of the all-time high of 1,452. Continued momentum is setting up a near-term run towards 1,460-1,465 in play.
The S&P 500 Volatility Index ($VIX, 9.5(, down 0.08) tested a high of 10.20 with lowered resistance at 10.50-11 holding and the 50-day moving average holding. The intraday low reached 9.50 with upper support at 9.50-9.25 standing tall. The 52-week and July low is at 8.84.
VIX
Sector action for the week was mixed with Energy, Industrials and Consumer Discretionary leading on the upside. Losing sectors included Utilities, Real Estate, Basic Materials and Consumer Staples. The rotation out of safety, such as the Utilities (and gold), and into the small-caps could continue if market momentum stays strong.
The Industrial Select Sector (XLI) continues to show strength following the breakout above multi-month resistance at the $69 level. Friday’s high reached $70.82 with fresh hurdles at $71-$71.50. Current momentum and a close above the later could lead to $72-$72.50. However, RSI has tripped 75 and is signaling overbought levels. Current support is at $70-$70.25 with a move below $70-$69.50 likely confirming a near-term top.
XLI
The Health Care Select Sector Spider (XLV) recently topped out at the $83 level and is trying to hold support at $81.50-$81 and prior resistance on continued weakness. This area also represents the triple-top breakout that occurred earlier this month. Friday’s low reached $81.15 with risk to $80-$79 and the 50-day moving average on continued weakness. Resistance is at $81.75-$82 with a move above the latter signaling a return to fresh 52-week peaks. RSI is just above 55 after having backed off the 70 level with support at 50. Some of the recent nervousness could be due to an upcoming Health Care bill vote this week from Congress.
XLV
The Russell 2000 ETF (IWM) made a run to $144.67 and a fresh all-time peak with continued closes above $144 being a bullish development. This area served as prior resistance on the July highs and will try to hold as near-term support with IWM reaching $146-$147.50 on continued momentum. A move back below $143-$142.50 would be a slightly bearish development and would likely signal a short-term double-top. For the week, the largest single fund inflow was to the iShares Russell 2000 (IWM) which was over 20% on ETF fund inflows.
IWM
The iShares Transportation Average (IYT) has been volatile this month but is approaching fresh 52-week peaks with Friday’s push to $175.20. A move above $175.75-$176 could lead to a continued breakout towards the $180 level. Shaky support is at $174-$173.50. A move below $173-$172.50 would be a bearish development for continued weakness and would also signal a near-term double-top.
IYT
Fed speak returned last week with the FOMC announcing it would start its balance sheet runoff in October and left rates unchanged, as expected. The vote was 9-0. The FOMC also left a rate hike on the table for December, with 12 of 16 FOMC members projecting such. Also, 11 of 16 see three hikes next year. The hurricanes are not expected to have much impact on the medium term. The FOMC did lower the long run outlook on rates to 2.75% from 3.0%. The unwind of the portfolio will follow the path projected in June, at $10 billion per month, with $6 billion in Treasuries and $4 billion in MBS (mortgage-backed securities).
Fed Chair Janet Yellen reiterated the FOMC statement noting the economy will continue to expand at a moderate pace over coming years. Meanwhile, the labor market remains healthy and payroll gains are well above the rate needed to absorb entrants. Inflation has continued to run below the 2% goal, but the low rate doesn’t reflect broad economic conditions. In Q&A she noted the shortfall this year remains more a mystery, and is not really tied to cyclical items, though there have been some transitory factors impacting. If the shortfall is persistent, the Fed will have to adjust policy to address that. She added the usual caveat though, that policy acts with a lag, suggesting that argues for a cautious approach.
The percentage of Nasdaq 100 stocks trading above the 50-day moving average is currently at 56%. Last Thursday’s low reached 50% and represents the late August breakout above this level that led to a quick run to 75%. The is risk to the 45%-40% area on continued Tech weakness and mid-August support levels. A move back above 60% could signal a return of market strength.
Given the recent pullback in Tech, it could be an early warning sign of market weakness this week. The late part of September typically favors the bears and I wouldn’t be surprised to see a slight pullback ahead of 3Q earnings season. However, momentum could stay strong, especially if the small-caps breakout to fresh all-time highs and the VIX holds 10 throughout the week.
I have updated the parameters of our current trades so let’s go check the tape.
Momentum Options Play List
Closed Momentum Options Trades for 2017: 48-19 (72%). 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 8am and 12pm–2pm (EST) updates. Also, I will usually give you a heads-up if I think I’m going to send a Trade Alert outside of these time frames.
Limelight Networks (LLNW, $3.96, flat)
LLNW December 4 calls (LLNW171215C00004000, $0.37, flat)
Entry Price: $0.37 (9/13/2017)
Exit Target: $0.80-$1.20
Return: 0%
Stop Target: None
Action: Resistance is at $4-$4.10 with Friday high reaching $3.99. Support is at $3.80-$3.75 on a move below $3.90.
Cisco Systems (CSCO, $33.37, up $0.67)
CSCO October 32 calls (CSCO171020C00032000, $1.45, up $0.60)
Entry Price: $0.50 (9/13/2017)
Exit Target: $1.00, raise to $2.10
Return: 180%
Stop Target: 70 cents, raise to $1.20 (Stop Limit)
Action: Raise the Exit Target from $1.50 to $2.10. Raise the Stop Limit from 70 cents to $1.20 to lock in at least a triple-digit profit.
Fresh resistance is at $33.50-$33.75 following the run to $33.53. Rising support is at $33-$32.75.
TherapeuticsMD (TXMD, $6.16, down $0.07)
TXMD December 7.50 calls (TXMD171215C00007500, $0.70, flat)
Entry Price: $0.95 (8/17/2017)
Exit Target: $1.90
Return: -26%
Stop Target: None
Action: Support is at $6-$5.95 and the 50-day moving average with Friday’s,low tapping $6.06. Resistance is at $6.25-$6.30.
TiVo (TIVO, $19.15, up $0.15)
TIVO October 20 calls (TIVO171020C00020000, $0.45, flat)
Entry Price: $0.70 (8/8/2017)
Exit Target: $1.40
Return: -36%
Stop Target: None
Action: Friday’s high reached $19.33 with with resistance at $19.25 holding. Support is at $18.75 followed by $18.50 and the major moving averages.