MomentumOptions.com Pre-Market Update for 7/13/2023
Nasdaq, S&P Tag Fresh Highs
8:00am (EST)
Commentary
The stock market rallied on Wednesday to fresh 52-week peaks as better-than-expected economic news helped sentiment. Specifically, the Consumer Price Index rose 3% in June versus expectations for a 3.1% increase. Month-over-month, the index was up 0.2%, also less than forecasts.
The Nasdaq tagged a 52-week high of 13,963 before ending at 13,918 (+1.2%). Fresh and lower resistance at 13,850-14,000 was cleared and held.
A pop above the latter would likely lead to further strength towards 14,100-14,250. Support is at 13,750-13,600.
The S&P 500 settled at 4,472 (+0.7%) with the intraday 52-week peak kissing 4,488. Key resistance at 4,450 was cleared and held. Continued closes above this level would signal upside towards 4,500-4,550. Support is at 4,400-4,350.
The Dow made a run to 34,586 while finishing at 34,347 (+0.3%). Prior and lower resistance at 34,500-34,750 was topped but held. A close above the latter and last December’s high at 34,712 would indicate additional gains towards 35,000-35,250. Support is at 34,250-34,000.
Volatility Index
The Volatility Index (VIX) was down for the second-straight day after trading to a low of 13.51. Upper support at 14-13.50 was reclaimed. A move below the latter would suggest another fade towards 13-12.50. Resistance is at 14.50-15.
Thursday’s earnings announcements:
Before the open: Cintas (CTAS), Conagra Brands (CAG), Delta Air Lines (DAL), Fastenal (FAST), PepsiCo (PEP), Wipro (WIT)
After the close: Aehr Test Systems (AEHR), OrganiGram (OGI), Washington Federal (WAFD)
Economic news:
Initial Jobless Claims – 8:30am
Producer Price Index – 8:30am
Federal Budget Balance – 2:00pm
Market Thoughts
We have been talking about August 2022 resistance levels coming into play with yesterday’s mini breakout and fresh one-year highs also getting our near-term price targets squarely in focus.
On July 2nd we stated:
“The key support levels we said to watch for last month were at: Nasdaq 13,500; S&P 4,350; and Dow 33,750. These remain areas to watch going forward. As far as possible market tops during earnings season this month and next: Dow 35,250-35,500; S&P 4,550-4,600; and Nasdaq 14,350-14,500.”
The heart of earnings season doesn’t happen until the first week of August and when we expect the aforementioned backend targets will be reached. Apple (AAPL), for instance, will announce numbers on August 3rd and that week will also include a number of high profile Tech companies.
Afterwards, there will also be a ton of companies reporting throughout next month and into early September. While there could be even high highs than our near-term price targets at some point this year, we believe there will be a market pause and consolidation period after the first week of August.
As far as this month, Friday will be a big day for the Financial stocks and when Wall Street will start to analyze 2Q results. BlackRock (BLK), Citigroup (C), JPMorgan (JPM) and Wells Fargo (WFC) all report before the opening bell.
Next Tuesday, Bank of America (BAC), Charles Schwab (SCHW), Morgan Stanley (MS), and PNC Financial Services (PNC). The Financial Select Spiders (XLF) is showing signs of breaking out and could be a good omen for the sector. On the flip side, RSI is pushing 70 and is suggesting overbought conditions.
The close back below 15 by the VIX on Tuesday was a good indication prior resistance levels for the major indexes would be coming back into play. The June 22nd 52-week low on the VIX is at 12.73 and we said throughout June, a test to 12.50 could come.
The bulls are once again targeting this area with continued closes below 12.50 on the VIX likely conforming our current upside price targets for the major indexes.
As far as the RSI (relative strength index) levels for the major indexes, the Nasdaq and the S&P are making another push towards 70 and where overbought conditions come into play. However, as we saw last month, another push to 75-80 could be in the works.
Bottom line: the trend remains bullish until key support levels come back into play on the major indexes. These are the same levels from our July 2nd note and will likely come back into focus with continued closes above 16 on the VIX.
We have a lot to cover with our current positions so let’s go check the tape.
Momentum Options Play List
Closed Momentum Options Trades for 2023: 16-6 (73%). 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, $7.87, down $0.06)
IOVA December 12.50 calls (IOVA231215C00012500, $0.80, unchanged)
Entry Price: $0.80 (7/10/2023)
Exit Target: $1.60
Return: 0%
Stop Target: None
Action: Shares tested a low of $7.77 with upper support at $7.75-$7.50 holding. Resistance is at $8-$8.25.
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.
These calls were at 80 cents Monday and we were targeting the December 10’s last week before Monday’s 21% pop in the stock. Tuesday’s pullback came after the company announced a spot secondary offering at $7.50-$8 for 20 million shares that will help fund ongoing costs.
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.
Walt Disney (DIS, $90.15, up $0.66)
DIS July 85 puts (DIS230721P00085000, $0.15, down $0.07)
Entry Price: $0.90 (6/21/2023)
Exit Target: $1.80
Return: -83%
Stop Target: None
Action: Close the trade this morning to save the remaining premium.
Monday’s weakness was attributed to a report that wait times at Disney’s theme parks are significantly less, suggesting attendance is down. Toss in recent high-dollar movie busts, layoffs at ESPN, and subscriber loss for its Disney channel, an earnings miss is very likely.
However, Tuesday’ rebound towards $90 and yesterday’s close above this level crushed the premium in these puts.
Verizon (VZ, $34.86, down $0.13)
VZ July 38 calls (VZ230721C00038000, $0.03, down $0.01)
Entry Price: $0.40 (5/19/2023)
Exit Target: $0.80
Return: -93%
Stop Target: None
Action: Close the trade this morning to save the remaining premium.