Bears Stay Aggressive Index and Earnings Options Play List for 10/11/2018

Bears Stay Aggressive

8:00am (EST)

The market showed continued weakness on Wednesday and gained downside momentum into the closing bell, leading to the market's worst trading day since June. Trade concerns and rising interest rates have been a headwind for the market over the past two weeks and finally reached a boiling point.

Fueling the selloff late was news that the U.S. Justice Department charged a Chinese intelligence officer of economic espionage for theft of trade secrets from leading U.S. aerospace companies. The news is hardly likely to tamp down rising Sino-U.S. trade/tariff animosity as volatility soared past a key level of resistance.

The Nasdaq plummeted 4.1% after tapping a low of 7,420. Fresh and upper June support at 7,400-7,350 held on the close below the 200-day moving average with a move below the latter being a continued bearish development.

The S&P 500 slumped 3.3% following the pullback to 2,784. Upper support at 2,775-2,750 and the 200-day moving average held with a close below the latter being a warning sign for lower lows.

The Russell 2000 sank 2.9% while closing on its session low of 1,575. May support at 1,570-1,560 held with a drop below the latter likely leading to 1,540.

The Dow tumbled 3.2% after testing an intraday low of 25,593. Fresh and upper support at 25,600-25,400 was stretched by a couple of points into the close with a move below the latter being a continued bearish signal.

There was no sector strength. Technology and Communications Services were slammed for losses of 4.9% and 4%, respectively. Utilities fell 0.6% and were the least affected.

The Russell 3000 Index ($RUA) recently broke down out of a trading range between 1,720-1,740 that lasted for two weeks and we highlighted. We mentioned the prior v-shape pattern was failing with a move above or below these levels leading to the next short-term trend.

Today’s plunge to 1,642 and session low held shaky support at 1,640 and the 200-day moving average. A close below this level would be a continued bearish development with risk to 1,620-1,600 and May/ June support levels.

Lowered resistance is at 1,660-1,680 and prior July support levels. 

The 50-day moving average had been in a solid uptrend but is showing signs of leveling out.

RSI is back in a downtrend following the pullback. Support is at 20 with a move this level being a bearish signal for lower lows. At current levels, RSI is way oversold but could remain that way for a few more sessions. Resistance at 25.

The Financial Select Sector Spiders (XLF) had been in a tight trading range over the past 4 sessions following the late September selloff and the early October rebound. The lower highs and lower lows between the 50/200-day moving averages was a slightly bearish signal.

Today’s plunge to $27.21 and session low held upper July support at $27.20-$27. A move below the latter would be a continued bearish development for lower lows.

Lowered resistance is at $27.40-$27.60.

RSI had been flatlining near the 50 area before today’s weakness with fresh support at 30 and the June low. Near-term resistance is 40.

We wanted to talk about the VIX last because it remains one of the most reliable indicators we watch and have done so for many, many years. Needless to say, when we hear market pros talking about it on a whim, or say it is broken, it tells us how little they really know about the market.

The S&P 500 Volatility Index ($VIX) zoomed to a high of 22.96 while finishing above the 22.50 level. There is risk to 25-26 and March/ April peaks on continued selling pressure. The early April high tapped 25.72 and the March top reached 26.01. 

We will be watching these levels intensely on Thursday’s open. A move above 27.50 would be an extremely bearish signal with risk to 30-50. The early February and 52-week high tapped 50.30.

Fresh support is at 20-19.50. A close below the latter by the end the week would be a slightly bullish development. A close back below 17.50 would signal a possible near-term top for the VIX.

Timing market tops and bottoms are extremely tricky but we have done well navigating the up and downs and ebbs and flows all year long. We have also prepared for the pullback and we mentioned there will be buying opportunities by the end of this week and into next. 

If the VIX clears 26-27.50 this week, there could be further and continued major technical damage and a red light to tap the brakes on bullish trades. There will be plenty of opportunities to play the downside on a continued selloff and market correction. However, we are hoping VIX 26 holds on a dime and the rebound can start after a slight bottoming process.

While others are panicking right now, we have been covering the game plan so we just need to be a tad more patient. Futures were pointing towards a 350-point plunge on Thursday’s open and at the time of this writing. 

The time to buy is when there's blood in the streets. - Baron Rothschild

National American University Holdings (NAUH), Richardson announced earnings after Wednesday’s closing bell.

Commerce Bancshares (CBSH), Delta Air Lines (DAL), Emmis Communications (EMMS), Endava (DAVA), Walgreens Boot Alliance (WBA) are reporting numbers this morning. 


Our top triple-digit winning option recommendations for 2018:

+414% Boston Scientific BSX September 36 calls (September 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)

+165% Okta September 65 calls (September 2018)

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

+117% Energous May 17.50 calls (April 2018)

+100% Papa John’s International August 40 puts (August 2018)

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

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

+100% Marvell Technology (March 2018)

+100% Viavi Systems September 11 calls (August 2018)


Viavi Systems (VIAV, $11.75, down $0.31)

VIAV December 12 calls (VIAV181221C00012000, $0.60, down $0.10)

Entry Price: $0.80 (10/9/2018)

Exit Target: $1.60

Return: -25%

Stop Target: None

Action: Fresh support is at $11.75-$11.50 with yesterday’s low tapping $11.72. Lowered resistance is at $11.90-$12.


iShares Russell 2000 ETF (IWM, $156.56, down $4.63)

IWM November 165 calls (IWM181117C00165000, $0.80, down $0.90)

Entry Price: $1.70 (10/10/2018)

Exit Target: $3.40

Return:  -53%

Stop Target: None

Action: Buy another half position to lower the average cost basis to $1.15. 

Fresh support is at $156-$155. Resistance is at $157-$158.


Upcoming Earnings


After the close: Exfo (EXFO)


Before the open: Citigroup (CITI), First Republic Bank (FRC), JPMorgan Chase (JPM), PNC Bank (PNC), Wells Fargo (WFC)