MomentumOptions.com Pre-Market for 4/10/2018
Bulls Rally but Gains Limited
8:00am (EST)
The market showed strength on the open and throughout the first half of action as the official start of 1Q earnings season heats up this week. Monday’s rebound from Friday’s drubbing was slightly bullish but the final hour pullback on light volume was more bearish with the indexes closing well off their intraday highs. The technical outlook remains shaky if the market can’t keep any momentum with volatility remaining slightly elevated.
The Nasdaq rallied 0.5% after reaching a peak just south of 7,075 intraday but closed below the 7,000 level for the second-straight session. The S&P 500 added 0.3% after trading to a high of 2,653 while holding the 2,600 level for a 5th-straight session.
The Dow advanced 0.2% after making a run to 24,373 but was unable to hold the 24,000 level for the second-straight session. The Russell 2000 was up 0.1% after tapping an intraday high of 1,533 and has been holding the 1,500 level for five-straight sessions.
Health Care hopped 1% higher to lead sector strength. Technology rose 0.7% while Financials, Energy and Material were up 0.5%. Industrials and Consumer Discretionary slipped 0.3% and 0.2%, respectively, to pace the laggards.
The S&P 500 Volatility Index ($VIX) was slightly higher on the open with the high tapping 22.02. Resistance at 22-22.50 held with continued risk to 24.50-25 on a close above the latter. Support at 20-19.50 and the 50-day moving average held on the midday backtest to 20.34.
The Spider S&P 500 ETF (SPY) traded higher for the fourth time in five sessions after reaching a late day top of $264.84. Near-term resistance at $265-$265.50 held with additional hurdles at $267.50-$268 and the 100-day moving average. The 50-day moving average remains in a nasty downtrend and is on track to fall below the 100-day moving average if weakness returns. This would be a slightly bearish development.
RSI is back in a slight uptrend after holding support at 40. A close below this level would be a bearish signal for a continued backtest towards the 30 level and February and late March lows. Resistance is at 50 from March and last Thursday’s peak.
The Dow Jones Transportation Average ($TRAN) has been in a relatively tight range between 10,150-10,350 the past 11 trading sessions. These levels have been slightly stretched on closes below and above these levels with last Friday’s low reaching 10,036.
Support at 10,000 and the 200-day moving average has been holding the past couple sessions following Monday’s bottom at 10,107. A close below 9,950-9,900 would be a bearish signal with risk towards the 9,800 area and February lows.
Resistance is at 10,450-10,500 and the 50/100-day moving averages that are on track to form a mini death-cross. A move above the latter would help the technical outlook but continued closes back above 10,600 would be a more bullish development.
RSI is trying to hold near-term support at 40-35 with risk to 30 and February lows on a close below the latter. Resistance is at 40-45-50. This will be an important sector to watch this week as the Transports tend to be an early signal on how the Dow might trend as the two usually like to trade in tandem.
Total Q1 earnings for the S&P 500 index are expected to be up 16% from the same period last year on 7.4% higher revenues, the highest quarterly earnings growth pace in seven years. It is important to note the reporting cycle has actually begun as 22 S&P 500 members with fiscal quarters ending in February have reported results already.
Earnings growth is expected to be in double-digit territory for the Technology and Finance sectors. Financials will be in focus on Friday and will get most of Wall Street’s attention. Energy sector earnings are expected to be up 60.2% from the same period last year on 15.6% higher revenues. Excluding the Energy sector, total S&P 500 earnings growth drops from 16% to 14.6%.
For the S&P 600 index, total Q1 earnings are expected to be up 14.1% from the same period last year on 10% higher revenues. This would follow 14.8% earnings growth on 7.7% revenue growth in the preceding quarter.
For full-year 2018, total earnings for the S&P 500 index are track to be up 17.9% on 5.3% higher revenues, with full-year 2019 earnings and revenues for the index expected to be up 9.4% and 4.1%, respectively.
The implied EPS for the index, calculated using current 2018 P/E of 17 times and index close is $153.80. Using the same methodology, the index EPS works out to $168.30 for 2019 (P/E of 15.5 times).
I was a little disappointed we could let our INTC trade ride for further gains as the calls traded to a high of 86 cents yesterday. However, regular April options expire in less than 2 weeks and we still have one more position to get out of the woods. I still like all of our current trades and could open additional trades today, especially in INTC if shares can clear $50 again.
Momentum Options Play List
Closed Momentum Options Trades for 2018: 14-8 (64%). 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, $29.87, up $0.24)
BAC May 32 calls (BAC180518C00032000, $0.35, up $0.02)
Entry Price: $0.45 (4/5/2018)
Exit Target: $0.90
Return: -11%
Stop Target: None
Action: Resistance is at $30.75-$31 with yesterday’s high tapping $30.62. Support is at $30-$29.75.
CVS Health (CVS, $63.31, down $0.07)
CVS August 70 calls (CVS180817C00070000, $1.70, flat)
Entry Price: $2.00 (4/5/2018)
Exit Target: $4.00
Return: -15%
Stop Target: 95 cents (Stop Limit)
Action: Resistance at $64-$64.25 held with Monday’s peak reaching $64.53. Support is at $63.25-$63.
Viavi Systems (VIAV, $9.67, up $0.02)
VIAV June 10 calls (VIAV180615C00010000, $0.45, up $0.02)
Entry Price: $0.45 (4/3/2018)
Exit Target: $0.90
Return: 0%
Stop Target: None
Action: Yesterday’s high tapped $9.82. Resistance remains at $9.75-$10. Support is at $9.60-$9.50.
Boston Scientific (BSX, $27.51, up $0.16)
BSX April 29 calls (BSX180420C00029000, $0.13, up $0.03)
Entry Price: $0.26 (3/16/2018)
Exit Target: $1.00
Return: -50%
Stop Target: None
Action: Lower resistance at $28-$28.25 held on Monday’s run to $27.96. Short-term support is at $27.25-$27.