MomentumOptions.com Pre-Market for 2/9/2018
Fresh 2018 Lows in Play
8:00am (EST)
The market traded to the downside for the second-straight session with heavier losses and a backtest towards Tuesday’s monthly and 2018 lows. Some of these levels were breached into the closing bell and likely signals additional weakness and a steeper correction in the coming sessions.
The Dow dropped 4.2% after testing a low of 23,849 while closing below the 24,000 for the first time since late November. The index held its previous session low of 23,778 with risk to 23,500-23,000 on continued selling pressure. The S&P 500 sank 3.8% after testing a fresh 2018 low of 2,580 to get November support levels in play.
The Nasdaq tanked 3.9% while tapping a 2018 low of 6,776 with early December support levels holding. The Russell 2000 gave back 2.9% after bottoming at 1,463 but was able to hold its 200-day moving average and Tuesday’s low of 1,461.
Financials swooned 4.4% while Technology and Consumer Discretionary tumbled 4.1% and 4%, respectively, to lead sector weakness. There were no sectors that closed in positive territory.
The VelocityShares Daily Inverse VIX (ZIV) tapped a fresh 2018 low after trading down to 62.52. May 2017 support at 62.50-62 is in play with a close below the latter getting 60 and March 2017 levels in the mix. Lowered resistance is at 64.50-65.
The Russell 2000 ETF (IWM) tested a low of $145.45 with near-term support at $144.50-$144 and the 200-day moving average holding into the closing bell. A move below the latter and Tuesday’s low of $144.24 would be a bearish development. Resistance is at $146-$146.50 holding.
RSI is trying to hold August support near 30. Continued closes below this level would be a bearish development with risk to 20.
The Utilities Select Spider (XLU) is testing March support levels at $47.50-$47 with today’s low tapping $47.62. Tuesday’s low reached $47.37. There is risk to $46.50-$45 on a close below $47. Near-term resistance is at $48-$48.50.
RSI is back in oversold territory with support at 20 holding. Resistance is at 30 with continued closes above the latter signaling a possible near-term bottom is in. The 50-day moving average has fallen below the 200-day moving average to form a death cross. This is typically a bearish signal for lower lows.
The premiums for put options have been extremely elevated this week on out-of-the-money strikes. While there has been an opportunity to trade index put options, they are trades I would also close on a daily basis. When doing so, some brokerage firms will freeze trading accounts for a day or so until the transactions settle due to opening a d closing a position the same day.
Margin calls have also played a big role in this week’s continued volatility and test to lower lows. This whipsaw type of action will likely continued for another week into next Friday and when February options expire.
The 10% pullback can now officially be labeled a correction. A 20% drop is considered a bear market. The good news is that a further plunge should give us great buying opportunities although we may have to use longer-term call options. The portfolio is light after warning we would have a late January and February pullback.
I’m not ready to load up on bearish positions, yet, but could do so if the small-caps show continued weakness. However, with this week’s flush out, and possibly next week, the opportunity to go long is looking tremendously bullish given the economy. The lessening possibility of a fourth interest rate hike this year has also cooled with three hikes widely expected.
Momentum Options Play List
Closed Momentum Options Trades for 2018: 5-5 (50%). 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.
Viavi Systems (VIAV, $9.77, down $0.06)
VIAV March 10 calls (VIAV180316C00010000, $0.35, down $0.03)
Entry Price: $0.45 (2/6/2018)
Exit Target: $0.90
Return: -22%
Stop Target: None
Action: Upper support at $9.75-$9.50 held into the closing bell on yesterday’s backtest to $9.67. Resistance remains at $10.
Marvell Technology (MRVL, $20.74, down $0.59)
MRVL May 24 calls (MRVL180518C00024000, $0.65, down $0.10)
Entry Price: $0.83 (2/6/2018)
Exit Target: $1.70
Return: -24%
Stop Target: None
Action: Fresh support is at $20.50-$20 with Thursday’s low tapping $20.37. Lowered resistance is at $21-$21.25.