MomentumOptions.com Pre-Market Update for 7/20/2023
Dow Extends Winning Streak to Eight-Straight
8:00am (EST)
Video update:
https://us06web.zoom.us/rec/share/o6l30LjNdhs8cDNFh7f6KC10-uFJZ22q9Sp0KrX8W3VZAjisbjVwK13DvAsEQhOw.pPs2XFGMUWdAJHNw?startTime=1689820644000
Passcode: Qr+*zsV2
Commentary
The stock market showed continued momentum as the major indexes tripped another round of 52-week highs on Wednesday. Mostly positive and ongoing earnings beats have fueled the continued rally with the blue-chips extending their winning streak to eight-straight sessions.
The Nasdaq ended at 14,358 (+0.03%) with the intraday high at 14,446. Fresh and lower resistance at 14,450-14,600 was cleared but held. A close above the latter would indicate strength to 14,750-14,900 and levels from March 2022. Support is at 14,250-14,100.
The S&P 500 tested a 52-week high of 4,578 while finishing at 4,565 (+0.2%). August 2022 resistance at 4,550 was cleared and held. Continued closes above this level would imply ongoing upside towards 4,600-4,650. These are also levels from March 2022. Fresh support is at 4,500-4,450.
The Dow settled at 35,061 (+0.3%) after tagging a one-year high of 35,234. Prior and lower resistance from April 2022 at 35,000-35,250 was cleared and held. A pop above the latter would suggest momentum towards 35,500-35,750. New support is at 34,750-34,500.
Volatility Index
The Volatility Index (VIX) remains in a five session trading range with the afternoon high at 13.84. Lower resistance at 13.50-14 was cleared and held. A move above the latter would signal a retest towards 14.50-15. Support is at 13.25-12.75 with the June 52-week low at 12.73.
Thursday’s earnings announcements:
Before the open: American Airlines Group (AAL), Blackstone (BX), Johnson & Johnson (JNJ), KeyCorp (KEY), Philip Morris International (PM), Snap-On (SNA)
After the close: CSX (CSX), Intuitive Surgical (ISRG), Knight-Swift Transportation (KNX)
Economic news:
Initial Jobless Claims – 8:30am
Philadelphia Fed Business Outlook Survey – 8:30am
Existing Home Sales – 10:00am
Leading Indicators – 10:00am
Market Thoughts
The Financial sector produced mixed, but overall good earnings, that provided strength to start the week. This was a good omen for the blue-chips and the broader market with Tech outpacing both indexes.
The Financial Select Sector SPDR Fund (XLF) broke out of a mini-trading range on Tuesday and is making a run at early March levels. Yesterday’s peak reached $35.26 with lower resistance at $35.25-$35.50 getting cleared but holding. Rising support is at $35-$34.75.
The XLF August 35 calls (XLF230818C00035000) jumped 50% on Tuesday after closing at 65 cents, up 22 cents, on volume just south of 10,000 contracts. They closed at 68 cents yesterday. We likely won’t chase these call options but they were on our watch list had XLF shares remained in a trading range.
The one stock we said to watch this week was Morgan Stanley (MS) and the 200-day moving average. Shares zoomed 6.5% on Tuesday with the high at $92.56. Yesterday’s peak $93.86.
The regular MS July 90 calls (MS230721C00090000) that expire this Friday, closed at 35 cents ahead of Monday’s closing bell. They zoomed 518% after closing Tuesday’s session at $2.10 with volume north of 12,000 contracts. The high hit $2.66. Wednesday’s high was at $3.83.
On the flip side, the MS July 82 puts (MS230721P00082000) that expire this Friday also closed at 35 cents on Monday. They closed at two cents on Tuesday and at a penny yesterday as bearish bets got crushed.
Now, if you look at this trade closer, for both options, the total premium would have been 70 cents. By buying both options, it creates a strangle option trade, and you get to play the action up or down. The risk is that shares would have stayed in the trading range as both premiums could have collapsed.
If you had closed the MS July 90 calls at $2.10, and the MS July 82 puts at two cents, the payout would be $2.12. This is just over a 200% return from the 70 cents entry price. The return would have been even higher had the trade stayed open into Wednesday’s action. We could introduce these types of trades as earnings season heats up so stay tuned.
Moving on to the Transports, the Dow Jones Transportation Average ($TRAN) resumed its uptrend on Tuesday’s breakout and close above the 16,000 level. Yesterday’s fresh 52-week peak reached 16,283. Continued closes above 16,150-16,000 would suggesting a further run towards 16,500-16,650 and levels from March 2022.
The strength in the Transports typically indicates upside in the Dow as the sector can be an early indicator for the blue-chips as far as setting a trend. This was confirmed on the Dow’s push to 34,986 on Tuesday and close above 35,000 yesterday.
With the Financials and the Transports outperforming, it is also showing a broadening of the rally which is a healthy market sign. The big concern over the near-term is the RSI (relative strength index) levels on the Nasdaq and the S&P at 75, and the Dow’s just a shade below 70. Typically, a reading above 70 indicates overbought territory.
These current readings for the major indexes were also reached in mid-June before a slight pullback. With Netflix (NFLX) and Tesla (TSLA) down in after-hours trading last night on earnings, there will be weakness on this morning’s open.
We talked about our near-term price targets for the major indexes in today’s video. The chart work we have been showing has been money so be sure to check out this week’s visual update. Also, don’t forget to sign up for Text Alerts inside the Members Area if you haven’t already.
Momentum Options Play List
Closed Momentum Options Trades for 2023: 16-8 (67%). 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 “Stops” entered to close any trades or “Limit 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 Otherwise, follow instructions at all times in the updates on Monday’s and Thursday’s along with the Text Alerts throughout the week.
Iovance Biotherapeutics (IOVA, $7.80, down $0.35)
IOVA December 12.50 calls (IOVA231215C00012500, $0.75, down $0.10)
Entry Price: $0.80 (7/10/2023)
Exit Target: $1.60
Return: -7%
Stop Target: None
Action: Upper support at $7.75-$7.50 was kissed and held on the session low. Resistance is at $8-$8.25 and the 50-day moving average.
For new subscribers, here is the writeup from last Thursday’s (7/13 update) on why we are bullish on the stock.
We typically don’t go five months out on a call option but we wanted to give this trade enough time for an important FDA decision that isn’t due out until late November for its cancer drug, lifileucel. The drug targets metastatic melanoma and has the potential to become the first approved one-time cell therapy for a solid tumor cancer.
The drug is demonstrating promising clinical data across multiple solid tumors but there is always risks of a setback. The risk/ reward for these types of trades can be all-or-nothing but the upside could be great while the downside is defined to the premium paid.
There are indications the approval rate for FDA clearance is up to 90% for lifileucel but nothing is a given when it comes to investing in biotech. We didn’t mind using the 12.50 calls because our price target for the stock by December 15th is north of $15.
This is when the options expire and with the expectation the company gets FDA approval. Iovance Biotherapeutics also has a number of phase 1, 2, and 3 trials as part of a combination therapy in solid tumor cancers that is not limited to melanoma, but includes non-small cell lung cancer (NSCLC) and cervical cancer.
The pipeline is very intriguing and why we also went with longer-term options as there could be good news (or bad) on other drugs over the next five months. Takeover chatter could also come into play but we won’t speculate on a buyout offer.
Going back to our Price Target, if shares are at $15 by December 15th, these call options will technically be $2.50 ‘in-the-money”. This would give the trade over a 200% return from the recommended entry price.
Of course, any bad news could easily send shares back towards $5, or below, with the 52-week low at $5.28. The 52-week peak is at $13.44 with a possible run towards $15 coming if shares clear this area. Side note: the five-year high is north of $46 and the all-time high for the stock appears to be at $145 from June 1st, 2011.