Volatility Nears Multi-Month Lows

NextOptions.com Index and Earnings Options Play List for 7/16/2018

Volatility Nears Multi-Month Lows

8:00am (EST)

The market closed mostly higher on Friday despite mixed results from the Financial sector as 2Q earnings season officially got underway. The gains market the 6th positive session in the past 7 following the July 4th holiday, and is suggesting the market is shaking off much of the uncertainty surrounding trade policy.

The small-caps remain a slight concern after failing to participate in the rally in 3 of the past 4 sessions. However, the Russell 2000, did trade to a fresh all-time high earlier in the week. Volatility is approaching multi-month lows and continues to signal higher highs for the market.

The Dow advanced 0.4% after trading to an intraday high of 25,043 while holding positive territory throughout the session. Resistance from mid-June at 25,000 was cleared with fresh resistance at 25,250-25,350 on continued strength.

The S&P 500 climbed 0.1% following the run to 2,804. Resistance at 2,800 was cleared and held for the first time since the start of February. Continued closes above this level keeps 2,825-2,850 in play with January’s all-time peak north of 2,872.

For the week, the Dow rallied 2.3% and the S&P 500 soared 1.5%.

The Nasdaq was up 2 points, or 0.03%, after pushing a fresh all-time high of 7,843. Fresh support at 7,800 held on the morning weakness and pullback to 7,803. There could be a 200+ point swing this month, depending on Tech earnings, with reward toward the 8,000 level, or risk to 7,600-7,550 and the 50-day moving average.

The Russell 2000 tested a high of 1,697 shortly after the open before fading 0.2%. Resistance remains at 1,700 with continued closes above this level being a bullish development. A move below 1,680-1,675 would be a slightly bearish signal for lower lows.

The Nasdaq zoomed 1.8% while the Russell 2000 gave back 0.4%.

Consumer Staples gained 0.7% to lead sector strength while Energy and Industrials rose 0.5%.

Financials and Real Estate paced sector laggards after falling 0.5% and 0.3%, respectively.

Industrials jumped 2.2% for the week while Technology and Consumer Discretionary surged 2.1% to lead sector strength.

Utilities and Real Estate fell 1.2% and 0.8% for the week and were the only sector laggards.

Global Economy

European markets despite President Donald Trump saying U.K. Prime Minister Theresa May’s plan for a so-called soft Brexit would damage the likelihood of a trade deal between Britain and the United Staes.

Germany's DAX 30 and France’s CAC 40 rose 0.4% while the Stoxx 600 Europe was up 0.2%. UK's FTSE 100 and the Belgium20 added 0.1%.  

Asian markets were mostly higher on Friday. Japan’s Nikkei led the way after surging 1.9% while closing above its 200-day moving average as the yen hit a fresh six-month low.

Meanwhile, South Korea’s Kospi jumped 1.1%. Hong Kong's Hang Seng climbed 0.2% and Australia’s S&P/ASX 200 was up a tenth-point. China's Shanghai slipped 0.2%.

China June new yuan loans checked in at 1.84 trillion yuan, stronger than forecasts of 1.535 trillion yuan. June aggregate financing rose 1.18 trillion yuan, weaker than expectations of 1.40 trillion yuan.

The China June trade balance was in surplus by $41.61 billion, wider than expectations of $27.72 billion. June exports rose 11.3% year-over-year, stronger than expectations of 9.5%. June imports rose 14.1% year-over-year, weaker than estimates of 21.3%.

U.S. Economy

June Import and Export Prices were mixed, with a weaker than expected 0.4% import price decline and a stronger than expected 0.3% increase in export prices. 

The University of Michigan Consumer Sentiment survey was weaker than expected, falling 1.1 points to a 6-month low of 97.1 in the preliminary print for July.

Baker-Hughes reported the U.S. rig count was up 2 rigs from last week to 1,054, with oil rigs unchanged at 863, gas rigs up 2 to 189, and miscellaneous rigs unchanged at 2. The U.S. Rig Count is up 102 rigs from last year's count of 952, with oil rigs up 98, gas rigs up 2, and miscellaneous rigs up 2. The U.S. Offshore Rig Count was unchanged at 19 and down 2 rigs year-over-year.

Market Sentiment

Dallas Fed Robert Kaplan expects one more rate hike this year and could be convinced of the need for a fourth hike, depending on the outlook. He said he is getting a little nervous about the longer-term trade effects on CAPEX, FX and geopolitics. 

In fact, he says he has been calling out the risks of the trade spat in meetings with lawmakers and government officials, as the intensification of trade tariffs would downgrade 2018-19 U.S. economic forecasts. 

The iShares 20+ Year Treasury Bond ETF (TLT) held positive territory throughout the session while trading to a high of $122.87. Upper resistance at $122.50-$123 held. Continued closes above the latter would be a bullish development for a run towards $123.50-$124 and late January hurdles. Rising support is at $122.50-$122.

RSI is back in a slight uptrend with July and late May resistance at 70. A move above this level would signal continued strength. Support is at 60 with risk to 55-50 on a close below this level.

Volatility Index

The S&P 500 Volatility Index ($VIX) fell for the 7th time in 8 sessions with Friday’s low tapping 11.62. Fresh support is at 12-11.50 with continued closes below the latter signaling additional strength in the market. The June 7th low reached 11.22 and the May 4th flash crash low touched 10.91.

Lowered resistance is at 13-13.50 followed by 13.75-14.25 and 50/200-day moving averages. These levels provide great clues and warning signals as to when volatility could reverse course and when the market could cool off. The panic selling level remains at 15.

RSI is in a slight downtrend and is signaling further weakness towards support at 40-35 with the latter representing May lows. Resistance is at 45-50.

Market Analysis

The PowerShares QQQ (QQQ) was up for the 6th time in 7 sessions after trading to an all-time high of $179.90. Blue-sky resistance at $180 held with continued closes above this level getting $182-$182.50 in play.

We mentioned the breakout of a tight 2-week trading trading range from earlier this month would be a bullish development. The backtest and hold of the 50-day moving average were also key.

Rising support is at $178-$177.50 with continued closes below the latter signaling a short-term top with further risk towards $175.

RSI is pushing June resistance at 70 with continued closes above this level being a slightly bullish signal but representing overbought levels. Support is at 65-60 with a move below the latter suggesting additional weakness.

Sector

The Spiders S&P Homebuilders ETF (XHB) have been choppy over the past 5 sessions with Friday’s peak reaching $40.89. Near-term resistance is at $41-$41.50 and the 200-day moving average. Continued closes above $41.90 and the June 12-13th double top would signal renewed strength and a possible breakout.

Support is at $40.50-$40 and the 50-day moving average. A close below the latter would be a bearish development for lower lows.

RSI is approaching resistance 60 from earlier this month. A move above this level would be a bullish signal for a run towards 65-70 with the latter representing the early June high. Support is at 55-50.

The percentage of S&P 500 stocks trading above the 50-day moving average closed Friday at 65.67% with the session high tapping 66.46%. Current resistance is at 67.50%-70% with the latter representing the early week peak. The mid-June highs reached the 75% level. Support is at 60% with a close below this level signaling additional weakness.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed at 66.99% and Friday’s high. June resistance remains at 67.50% with the July 14th peak at 67.96%. Continued closes above the 68% area gets 70%-72.5%and early March highs in play. Support is at 65%-62.5% with a move below 60% being a bearish development.

We wanted to give a complete overview of the market as the overall headlines remains bullish. July is typically a bullish month and the strongest of the third-quarter. However, the bears are only a headline, or two, away from being relevant again but the VIX will provide good clues on when to lighten up on bullish positions.

There were no major earnings after Friday’s closing bell.

Bank of America (BAC), BlackRock (BLK), JB Hunt (JBHT), Supercom (SPCB) are announcing numbers this morning. 

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Our top triple-digit winning option recommendations for 2018:

+400% Spider Dow Jones February 250 puts (February 2018)

+400% PowerShares QQQ February 162 puts (February 2018)

+300% Intel February 47 calls (January 2018)

+225% CVS June 65 calls (May 2018)

+209% Boston Scientific BSX July 31 calls (June 2018)

+191% Sony February 48 calls (January 2018)

+175% Big Lots June 40 puts (June 2018)

+168% American Airlines July 40 puts (June 2018)

+133% Progenics Pharmaceuticals May 8 calls (March 2018)

+117% Energous May 17.50 calls (April 2018)

+100% Progenics Pharmaceuticals August 8 calls (June 2018)

+100% Spider Dow Jones February 258 puts (January 2018)

+100% Marvell Technology (March 2018)

Our top triple-digit winning option recommendations for 2017:

+900% Lumber Liquidators August 27.50 calls (August 2017)

+400% Limelight Networks December 4 calls (November 2017)

+300% JDcom 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)

+116% iShares Russell 2000 (November 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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Progenics Pharmaceuticals (PGNX, $8.32, down $0.05)

PGNX August 10 calls (PGNX180817C00010000, $0.75, flat)

Entry Price: $0.55 (7/3/2018)

Exit Target: $1.10-$1.65

Return: 37%

Stop Target: None

Action: Friday’s low tapped $8.27 with upper support at $8.25-$8 holding. Resistance is at $8.50-$8.60.

The 50-day moving average remains in a nice uptrend and RSI is holding support at the 50 level. We are still expecting major news by month’s end that could carry shares towards $10-$12.

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BlackBerry (BB, $10.20, up $0.11)

BB August 10 calls (BB180817C00010000, $0.45, flat)

Entry Price: $0.45 (7/10/2018)

Exit Target: $0.90

Return: 0%

Stop Target: None

Action: Support is at $9.80-$9.75. Lower resistance at $10.20-$10.25 held on Friday’s run to $10.22.

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Upcoming Earnings

Monday 

After the close: Avid Bioservices (CDMO), First Defiance Financial (FDEF), Netflix (NFLX), Nervo (NRVO), Tessco Technologies (TESS)

Tuesday

Before the open: Comerica (CMA), First Horizon National (FHN), Goldman Sachs (GS), Johnson & Johnson (JNJ), Mercantile Bank (MBWM), Nationstar Mortgage (NSM), Omnicom (OMC), Progressive (PGR), Prologis (PLD), UnitedHealth Group (UNH)

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