MomentumOptions.com Pre-Market for 1/31/2018
Market Stays Nervous
8:00am (EST)
The market fell for the second-straight session on lower lows and a continued backtest towards near-term and mid-month support. The pullback comes ahead of tomorrow’s update from the Fed on interest rates and a likely reason for the continued nervousness.
The Dow dropped 1.4% after trading to a low of 26,028 while holding the 26,000 for the 10th-straight session. The S&P 500 fell 1.1% after testing 2,818 shortly after the open while holding the 2,800 level for the 8th-straight session.
The Russell 2000 tumbled 1% after kissing 1,579 with the January 18th and 19th lows at 1,576 and 1,575 holding. The Nasdaq stumbled 0.9%, as well, after bottoming at 7,373 within the first 30 minutes of action. The 7,400 level held for the 7th-straight session but the lower low over this time frame remains a slight concern.
Health Care and Energy were pounded for losses of 2.1% and 2%, respectively, while Financials slid 1.2% to lead sector laggards. Utilities rose 0.2% and was the only sector that closed in positive territory.
The VelocityShares Daily Inverse VIX (ZIV) fell sharply for the second-straight session with the low tapping 84.91. Backup support at 86-85 and the 50-day moving average held with a close below the latter likely leading to additional market weakness and possible panic selling. Resistance is at 87.50-88 with a close above the latter signaling a possible short-term bottom.
The PowerShares QQQ (QQQ) traded to an all-time high of $170.95 last Friday and $170.95 and $170.91 on Monday to form a temporary double-top following today’s 0.8% decline. Near-term support is at $167.75-$167.50 following the backtest to $167.82 with a close below the latter signaling a possible short-term top. Lowered resistance is at $169.50-$170.
RSI recently peak just above 80 before closing below this level on Monday with 1-year resistance at 85 holding. Support at 70 is now in play following today’s weakness. This level served as December and early January resistance with continued closes below this level being a bearish development.
The Consumer Discretionary Select Spiders (XLY) tested a fresh 52-week and all-time peak of $109.34 on Monday before today’s slight pullback. Near-term support at $108-$107.50 held following the low of $107.54 with a move below $106 likely signaling a possible short-term top. Lowered resistance is at $108.25-$108.50.
RSI had been pushing upper resistance in the 85-90 before falling below the former on Monday. Today’s close below 80 was a slightly bearish signal with continued risk towards 70 and a level of support that has been holding since mid-November.
The Fed’s two-day meeting began today with no major surprises likely, and Chair Janet Yellen’s last after four years in the position. The Fed is widely seen leaving interest rates unchanged at 1.25%-1.50%. We mentioned there would be no press conference, nor any updates to the dot-plot or economic forecasts as they are reported quarterly.
Some of this week’s market’s weakness can be attributed to widespread risk for more upbeat assessments of growth and inflation, especially now that tax reform is in place. These views would support expectations for a 25 basis point tightening at the next meeting on March 20th and 21st, as well as forecasts for additional moves later in the year.
The market is pricing in about 95% chance for a March hike, and sees about 65% chance for another bump in June, with a December increase better than 50-50, with the slim probability for a forth hike.
I have expected the two-days of nervousness ahead of the Fed news as I’ve been warning of a late January/ early February pullback. The severity of the pullback has been minor although the news is heightened due to the larger-numbers.
The so called selloffs over the past year have been short in nature and it remains to be seen if the start of this week’s decline is something more serious. Unfortunately, our current trades have suffered with February options expiring in a little over two weeks.
While timing market tops, and bottoms, is never easy but I have stuck with low-priced options and mentioned opening half positions since mid-month. However, I hate losing trades more than I love winning trades but there is time remaining and a couple of them will know their fate this week. Futures were up throughout the night showing a rebound on the open.
This will leave the portfolio where I wanted to be going into February. We can now wait for today’s Fed news and earnings the rest of the week to see if the trend remains bullish or if the recent decline continues.
On that note, I have a Trade Alert for CNX along with a Stop Limit for our current APA trade. Hopefully, I will have an update on the website this afternoon.
Momentum Options Play List
Closed Momentum Options Trades for 2018: 5-1 (83%). 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.
CNX Resources (CNX, $13.68, down $0.16)
CNX February 15 calls (CNX180216C00015000, $0.10, down $0.10)
Entry Price: $0.50 (1/23/2018)
Exit Target: $1.00
Return: -80%
Stop Target: 10 cents (Stop Limit)
Action: The Stop Limit at 10 cents tripped on yesterday’s pullback to $13.40.
Cypress Semiconductor (CY, $17.25, down $0.27)
CY February 18 calls (CY180216C00018000, $0.45, down $0.10)
Entry Price: $0.60 (1/23/2018)
Exit Target: $1.20
Return: -25%
Stop Target: None
Action: Upper support at $17.25-$17 held on Tuesday’s backtest to $17.20. Resistance remains at $17.50-$17.75.
Blackberry (BB, $12.58, down $0.42)
BB March 15 calls (BB180316C00015000, $0.15, down $0.10)
Entry Price: $0.47 (1/16/2018)
Exit Target: $1.00
Return: -67%
Stop Target: None
Action: Fresh support is at $12.50-$12.25 with yesterday’s low tapping $12.56. Lowered resistance is at $13.25-$13.50.
Apache (APA, $44.57, down $2.08)
APA February 50 calls (APA180216C00050000, $0.30, down $0.35)
Entry Price: $1.07 (1/16/2018)
Exit Target: $2.10
Return: -65%
Stop Target: 20 cents (Stop Limit)
Action: Set a Stop Limit at 20 cents to save the remaining premium.
Fresh support is at $44.50-$44.25. Lowered resistance is at $45.75-$46.
Cadence Design Systems (CDNS, $43.98, down $0.58)
CDNS February 48 calls (CDNS180216C00048000, $0.45, down $0.20)
Entry Price: $0.70 (1/16/2018)
Exit Target: $1.40
Return: -37%
Stop Target: None
Action: Support is at $43.75-$43.50. Resistance is at $44-$44.25 heading into earnings.