Homebuilders in Focus

Spiders S&P Homebuilders ETF (XHB) pulled back off a recent 52-week high of $41.57 with current resistance at $41.25-$41.50. Continued closes above the latter could lead towards a surge to $43.50-$44 over the near-term. The all-time high high is north of $46 that was reached in February 2006 and when XHB started trading.

We mentioned earlier this month the breakout to multiyear highs above prior resistance at $39-$39.25 would be a bullish signal as this area represented June, August and early September resistance. Current support is at $40.75-$40.50 with a move back below $40.25 being a slightly bearish signal.

RSI is trying to clear resistance at 70 but is in a slight downtrend with a move above this level being a bullish development. The recent high cleared 80 and the 50-day moving average remains in a strong uptrend.

NextOptions.com Index and Earnings Options Play List for 10/13/2017

NextOptions.com Index and Earnings Options Play List for 10/13/2017

Financial Sector Pulls Back on Earnings

8:00am (EST)

The market traded mostly lower throughout Thursday’s session as the start of 3Q earnings season gets underway. The financials were in the spotlight and led the laggards despite upbeat earnings from the sector. The Dow and S&P 500 did show midday strength by setting fresh record highs but closed in the red along with the Nasdaq. The Russell 2000 also finished slightly lower but continues to hold the 1,500 level.

The Dow fell 31 points, or 0.1%, to finish at 22,841. The blue-chips opened lower but traded to an all-time high of 22,884 intraday. Lower resistance at 22,850-23,000 held before the fade to 22,821. Support at 22,600 easily held with risk to 22,400-22,350 on a move below this level.

The S&P 500 slipped 4 points, or 0.2%, to end just under 2,551. The index tested a record high of 2,555 at the start trading with with lower resistance at 2,560-2,575 holding. Support at 2,540 is back on play following the backtest to 2,548 into the closing bell. A close below this level could lead to a retest to 2,525-2,520.

The Nasdaq dropped 12 points, or 0.2%, to close at 6,591. Tech made an intraday run to 6,613 and another record high to keep resistance at 6,650-6,700 in the mix. The opening low of 6,586 held support at 6,575-6,550 holding.

The Russell 2000 gave back nearly 2 points, or 0.1%, to settle at 1,505. The small-caps bottomed at 1,501 at the start of trading with support at 1,500-1,490 holding. There is risk to 1,475-1,470 on a move below the latter. Resistance at 1,515-1,525 held on the brief trip into positive territory to 1,508.

The S&P 500 Volatility Index ($VIX, 9.91, up 0.06) tested a high of 10.33 on the open with lower resistance at 10.50-11.50 holding. Support at 9.75-9.50 was split following the low of 9.65 afterwards.

Exfo (EXFO) reported earnings after Thursday's close

Bank of America (BAC), JB Hunt (JBHT), Wells Fargo (WFC) are announcing numbers this morning.

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Our top triple-digit winning option recommendations for 2017:

+900% Lumber Liquidators August 27.50 calls (August 2017)
+300% JD June 37 calls (May 2017)
+300% Kate Spade March 20 calls (March 2017)
+300% Imax May 30 puts (May 2017)
+286% Fastenal May 49 puts (April 2017)
+246% Dick's Sporting Goods June 45 puts (May 2017)
+244% Starbucks February 57.50 puts (February 2017)
+200% GameStop April 22.50 puts (March 2017)
+173% Alibaba February 100 calls (January 2017)
+169% Amicus Therapeutics August 12 calls (July 2017)
+110% Amicus Therapeutics July 8 calls (June 2017)
+100% Cisco Systems October 32 calls (September 2017)
+100% Bank of America July 23 calls (June 2017)
+100% PowerShares QQQ ETF February 122 calls (January 2017)
+100% Array BioPharma January 8 calls (January 2017)

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Test

Ambarella (AMBA) Earnings on Deck

12:05pm (EST)

With second-quarter earnings season just a month away, earnings have been on the back-burner as Wall Street focuses on economic and geopolitical news in the meantime. Companies with different fiscal years fill the void during off months following the the rush at the start of the quarterly earnings announcements.

Ambarella (AMBA) will confess first-quarter results after today's closing bell with Wall Street looking for a profit of $0.36 a share on revenue of $63.5 million. The company has smashed estimates the past four quarters by 18, 17, 16, and 6 cents, respectively. The high estimate for the recently ended quarter has the company earning 41 cents a share.

Despite the impressive earnings beats, shares have struggled afterwards falling the past three earnings announcements. The pullbacks have been 4%, 11%, and nearly 7%. In the year ago period, shares rallied 9%.

Last week's sudden pullback from the $65 level to double-nickels ($55) came on drone launch concerns as the company's largest customer, DJI, may have dual-sourced video processing chips. DJI's Spark drone went on the market with a price tag of $499 and this concern could become a material headwind, if true.

Shares held the 100-day moving average on the punishment and are trying to hold shaky support at $59 and the 200-day moving average heading into the announcement. The 50-day moving average was in a solid uptrend but leveled off following the technical damage.

The recent action has juiced the option premiums in AMBA with weekly and monthly strikes available to trade. The regular AMBA June 60 calls (AMBA170616C00060000, $2.40, up $0.20) and the AMBA June 60 puts (AMBA170616P, $3.05, down $0.15) are pricing in a possible 8%-10% move in the stock during after-hours and into tomorrow's open.

I don't actively follow AMBA and I'm not sure if the recent volatility is an overreaction, or represents a buying opportunity ahead of earnings.

If shares were to make a run to $65 this week, the aforementioned call options would double from current levels as they would be $5 "in-the-money". If shares stay below $60 and falter on the news, the call options would expire worthless. If shares fell below $53.90, technically, by next Friday, the aforementioned put options would double from current levels.

I don't usually trade options that are priced over $2, especially with earnings trades, so I will be sitting on the sidelines watching the action. Other stocks in the chip sector could react in a positive or negative way based on AMBA's numbers and I'm looking to the possible upside in other names.

Today's action has been more of the same as yesterday with tight action to the downside. The market seems content to wait for the Thursday's fireworks showcasing a former head of the FBI's comments following his firing from a month ago and the outcome from the overseas election.

The Dow is down 5 points to 21,178 while the S&P 500 is off 2 points to 2,434. The Nasdaq is slipping a point to 6,294 and the Russell 2000 is declining 6 points to 1,390.

I have updated our current trades so let's go check the tape.

4Q Earnings Heat Up

4Q Earnings Season Heats Up

8:00am (EST)

The bears opened the shortened weak with a win as the recent bullish Tuesday's were outweighed by a shaky dollar. News that then President Elect, Donald Trump, said in an interview with the Wall Street Journal the US dollar was "too strong" led to some uneasiness and overall market weakness.

The rest of the week was shaky as December lows came into play but Friday's action kept the bottom of the trading ranges intact. With fourth-quarter earnings season coming into full swing, the bulls will need to show continued strength while trying to regain momentum for another possible run at all-time highs.

The Dow jumped 94 points, or 0.5%, to finish at 19,827 on Friday. The blue-chips held positive territory throughout the session with the high reaching 19,843. Resistance at 19,900-20,000 held tight with a close into this level a bullish start for the week. A move above the latter gets 20,200-20,350 in play. Support is at 19,800-19,725 with a move below 19,700 likely leading to 19,600-19,500 and the 50-day moving average. For the week, the index fell 58 points but is still up 65 points for the year.

The S&P 500 climbed 7 points, or 0.3%, to settle at 2,271. The index made a run to 2,276 shortly after the opening bell to clear lower resistance at 2,275-2,300. Although this level failed to hold, the close above 2,270 was semi-bullish. Support is at 2,260-2,250. A move below the latter could lead to a continued backtest to 2,240-2,235 and the 50-day moving average. The S&P 500 fell 3 points for the week, and is 33 points, year-to-date.

The Nasdaq added 15 points, or 0.3%, to close at 5,555. Tech raced to a high of 5,574 on the open with lower resistance at 5,575-5,600 holding by a point. Support remains at 5,525-5,500 with last week's lows reaching 5,527 on Tuesday and 5,528. If these levels hold throughout the week, we can say it was a "double bottom". However, a breech of either aforementioned numbers would be a bearish development. The Nasdaq fell 19 points last week and for 2017, is showing a 172-point gain.

The Russell 2000 popped a 6-pack, or 0.5%, to end at 1,351. The small-caps traded up to 1,355 midday but failed fresh resistance at 1,360-1,365. The lower highs and lower lows throughout last week pushed lower support at 1,345-1,340 and the 50-day moving average. There is additional risk to 1,325-1,320 if this level fails to hold over the near-term. Last week's 21-point dip led the overall market pullback with the index now showing a 6-point loss for the year.

The S&P 500 Volatility Index ($VIX, 11.54, down 1.24) stayed deflated throughout Friday's session with the low tapping 11.53. The 10% pullback and close just outside of support at 11.50-11 looked bullish. The 52-week low is at 10.93 with 10 and single-digits looking possible on a move below 10.75. Resistance is at 12.50-13.50 and the 50/100-day moving averages with continued closes above the latter leading to 14.50-15 and a breech of the 200-day moving average.

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How to Trade E*Trade’s Earnings

A sneaky play without taking the direct hit of an earnings announcement might be a bullish trade on E*Trade Financial (ETFC, $36.93, up $0.21). Shares have been in a strong, tight range for two weeks but have been setting higher highs and fresh 52-week peaks since mid-November.

Analysts are expecting a profit of $0.42 a share on revenue just shy of $502 million. The high estimate is pegged at $0.45 a share with the low at $0.39. The high revenue estimate is north of $517 million while the lowball is at $459 million. The company has topped estimates by 12 cents and 10 cents, twice, over the past three quarters.

The ETFC February 38 calls (ETFC170217C00038000, $0.95, up $0.15) look attractive at current levels and would give the trade a month to play out. If ETFC shares can clear $40 by mid-February, these options would easily double from current levels. Of course, an earnings miss, or lowered guidance, could cause a pullback in the stock.