MomentumOptions.com Pre-Market for 12/11/2017
Dow/ S&P 500 Up 3-Straight Weeks
8:00am (EST)
U.S. markets ended the week with upside momentum with the S&P 500 and Dow gaining 0.6% and 0.5% while settling at record closing levels. Although fresh all-time highs weren’t reached, the moves turned the S&P 500 and Dow positive for the week, with both advancing 0.4%.
The Nasdaq Composite was up 0.4% but ended with a weekly decline of 0.1%. The Russell 2000 added a point on Friday, or 0.1%, but also closed the week with a loss of just over 1%.
Healthcare soared 1.1% and Energy rose 0.9% while the Financial sector climbed 0.6%. There were no sector laggards although Materials ended flat. For the week, Consumer Staples surged 2.6% while Financials were 1.5% higher. Utilities led sector laggards after sinking 1.5% for the week followed by Real Estate which fell 1.3%.
The FOMC is widely expected to hike rates 25 basis-points at next week’s meeting on Tuesday and Wednesday, that would raise the range to 1.25% to 1.50% while fulfilling the dot plot forecast for three tightenings this year. Along with Chair Yellen’s last press conference, the meeting will include a refreshed set of economic and price forecasts, as well as dot plots for 2018 and 2019.
The key will be whether Fed policymakers maintain their current outlook for three more tightenings in 2018. Many expect the Fed will trim the projection to two given the still-low trend in inflation. The biggest risk to the markets would be an increase in the number of hikes to four. While there are only a handful of Fedwatchers that are forecasting four, possibly five rate increases next year, this would surely take the market by surprise.
Q4 earnings season will not take center stage until the middle of January, but the reporting season is officially underway. Companies will releasing results for their fiscal November-ending quarters this week which gets counted as part of the Q4 tally.
Total Q4 earnings are expected to be up 8.8% from the same period last year on 6.8% higher revenues. This would follow the 6.9% earnings growth on 6% higher revenues in Q3.
The exact earnings impact of the tax legislation will become clear once it is signed into law, but preliminary estimates suggest a material earnings boost. S&P 500 earnings in 2018 are already expected to be up 11.7%, with the growth pace expected to roughly double as a result of the tax legislation. As meaningful as this impact on S&P 500 earnings is, it will be far more pronounced for small-cap companies.
The VelocityShares Daily Inverse VIX (ZIV) reached a 52-week and all-time high of 82.63 to get fresh resistance at 82.50-83 in play. A run towards 84.50-85 could come on a move above the latter. Rising support is at 82-81.50 followed by 80-79 and the 50-day moving average. RSI is in an uptrend and appears on track to test early and late October resistance at 70 on continued strength.
The Spider S&P 500 ETF (SPY) traded to a high of $265.52 with resistance at $266-$266.25 holding. Continued closes above the latter could lead to a run towards $267-$267.50 with the recent all-time high at $266.80. We previously warned backup support and a retrace of the late November breakout at $262-$260 could come into play on volatility. The previous Friday low tapped $260.76. Current support is at $264-$263.50 with a move back below $263 being a slightly bearish development.
RSI is back above 70 with recent late November and October resistance at the 78-80 area. A move back below 70-65 would be a bearish signal for additional upcoming weakness.
The Utilities Select Spider (XLU) is trying to hold near-term support at $55.50-$55.25 with a move below $55 and an up trending 50-day moving average being a slightly bearish signal. Current resistance is at $56-$56.25. The recent 52-week and all-time high reached $57.23 and would be in play on continued closes above $56.50.
The backtest to the double-top breakout from earlier November held and represented a bullish setup. RSI is back above 50 with a run past 55-60 being a continued bullish development.
I could have a New Trade on XLU so stay close to your email inboxes today.
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Momentum Options Play List
Closed Momentum Options Trades for 2017: 54-22 (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 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.
Bank of America (BAC, $29.05, up $0.27)
BAC January 30 calls (BAC180119C00030000, $0.53, up $0.06)
Entry Price: $0.50 (12/8/2017)
Exit Target: $1.00
Return: 6%
Stop Target: None
Action: Resistance is at $29.25-$29.50 with a run towards $30 coming on continued strength. The recent 52-week peak is at $29.31. Rising support is at $28.75-$28.50. Volume approached 12,000 contracts on Friday with open interest above 330,000. This is easily suggesting traders are expecting a run past $30 by mid-October.
Viavi Systems (VIAV, $8.82, up $0.01)
VIAV January 9 calls (VIAV180119C00009000, $0.35, flat)
Entry Price: $0.65 (11/29/2017)
Exit Target: $1.30
Return: -53%
Stop Target: None
Action: Resistance is at $9 with Friday’s peak reaching $9.02. Support is at $8.75-$8.50.
Twitter (TWTR, $21.10, up $0.09)
TWTR January 24 calls (TWTR180119C00024000, $0.25, flat)
Entry Price: $0.70 (11/22/2017)
Exit Target: $1.40
Return: -64%
Stop Target: 15 cents (Stop Limit)
Action: Resistance is at $21.25-$21.50 with Friday’s high tapping $21.40. Support is at $20.75-$20.50.
TiVo (TIVO, $16.00, up $0.05)
January 20 calls (TIVO180119C00020000, $0.15, flat)
Entry Price: $0.60 (10/31/2017)
Exit Target: $1.20
Return: -75%
Stop Target: None
Action: Support is at $16-$15.75. Resistance is at $16.25. A death-cross has formed with the 50-day moving average falling below the 200-day moving average and is typically a bearish signal for lower lows. This trade is unlikely to make a recovery and I could close the position if $15.75 is breached this week.