Dow/ S&P On 5-Week Winning Streaks

Dow/ S&P On 5-Week Winning Streaks

8:00am (EST)

The market was slightly weak following Friday’s open after China announced a fresh round of $60 billion in new tariff counter-measures and a lackluster U.S. jobs number. The import taxes would range in rates from 5% to 25% with many of the goods are agricultural-related, with others on metals and chemicals. 

The broader market showed more strength from the start with Tech and the small-caps remaining in a downtrend throughout much of the session. The mixed close was offset by the continued drop in volatility which is approaching the early May flash-crash low north of 10.

The Dow advanced 0.5% after making a steady run to 25,467 ahead of the closing bell. The move back above 25,400 was a bullish signal with July resistance at 24,600 being a more crucial level in holding.

The S&P 500 also added 0.5% after holding positive territory throughout Friday while going out at its high of 2,840. Late July resistance at 2,850 is back in play with a move above this level signaling continued momentum.

Both the S&P 500 and Dow were up for the 5th-straight week after rising 0.8% and 10 points, or 0.04%, respectively.

The Nasdaq rose 0.1% to extend its winning streak to 4-straight sessions with the high tapping 7,824. Fresh resistance is at 7,850-7,900 with a move above the latter getting fresh all-time highs in play with a possible chance at 8,000 triggering.

The Russell 2000 failed resistance at 1,690 on the opening pop to 1,687 before declining 0.5%. Lower support at 1,675-1,670 and the 50-day moving average held with the index showing higher highs and higher lows to end the week despite the pullback.

The Russell 2000 soared 1.3% for the week and the Nasdaq rose 1% to snap a 2-week losing streak. 

Sector Focus – Spider Small-Cap 600 ETF (SLY)

The Spider Small-Cap 600 ETF (SLY) tested a low of $74.55 with support at $74.50-$74 holding. A prior trading range between $74-$75 lasted throughout July with the lows tapping $73.65 and $73.68 on back-to-back sessions to end the month.

A close below $73.75 and the 50-day moving average would likely lead to additional weakness towards $73 and shaky early July support. 

Friday’s early morning peak reached $75.49. This level was tapped twice previously following the 52-week and all-time high of $75.55 in late July. Continued closes above $75.50 would be a bullish development for a run towards $77-$77.50.

RSI is back in a slight downtrend with support at 55-50. A close below the latter would be a bearish development for lower lows. Resistance is at 60-65 with the latter representing the early July top.

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Sector Leaders/ Laggards

Real Estate was the strongest sector after rallying 1.1% followed by Consumer Staples and Utilities with gains of 1.2% and 1.1%, respectively. Energy was the only sector laggard after falling 0.5%.

Real Estate surged 3.4% for the week while Health Care jumped 2.1% and Consumer Staples advanced 1.7% to round out sector winners. Communications Services sank 2.6% to pace sector weakness with Energy off 1.7% and Technology down 0.9%.

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5 Key Indicators for Landing Top Profits

5 Key Indicators for Landing Top Profits

At Next Options, we make stock and options recommendations based on what the charts are telling us — not the talking heads and suit-and-ties on financial TV networks. We spend tons of hours every week analyzing stock charts, support and resistance levels, moving averages and numerous other technical indicators of the major indices to ensure that we’re bringing you recommendations that are set up for success.

Today, we’d like to share with you the top 5 key technical indicators we use every day when we’re trying to determine which trades are best for our Next Options subscribers. We talk about these indicators in our Daily updates and we wanted to give you our insight into the ways that you can use each of them to become a more successful, disciplined trader.

 

1. Volume

Volume is one of the most basic, yet most important, technical indicators that traders have at their disposal when analyzing different stocks. Volume bars are included at the bottom of almost every stock chart out there, and certainly all of the charts we include in our Daily Updates, but this technical indicator is often unwittingly disregarded by many new traders.

Volume is simply the number of stock shares or options contracts traded during a given period of time. Volume is extremely important, as it helps determine a stock’s momentum. On charts, you can see the volume indicator by going to the settings. Each vertical bar represents one day’s trading volume.

The taller the volume bar, the greater the number of shares traded that day. Volume can also be useful when determining whether a stock is getting ready to breakout or breakdown.

If a stock is increasing in price while volume remains low, it could mean that the move is unsustainable, as there will not be enough buyers to support the stock at a higher price. On the other hand, if a stock is decreasing in price while volume remains low, it could mean that buyers are simply absent from that stock on a given day, and the stock might not actually deserve to be declining.

However, if you see above-average volume on a stock that is either gaining or declining, this could be confirmation that the breakout or breakdown process is beginning, as it shows strong demand from large institutional traders.

When it comes to buying options, we always make sure there is plenty of open interest. Open interest is basically the same as a stock’s average daily volume. This is a measurement of options contracts changing hands between buyers and sellers.

When an option has low open interest, it can be harder to get the trade executed at the price you want, so we look for high volume as an indicator of strong liquidity, and you should, too. When there’s a lot of volume and/or open interest, you’ll know you aren’t the only one buying in and, when you want to close the trade, you’ll have someone to whom you can sell your securities.

 

2. Support and Resistance

Support and resistance are two different levels on a chart that indicate where a stock’s share price might experience an inflection point. The easiest way to think about support is as a “floor” for a stock's price, while resistance can act like a “ceiling.”

If a stock continually bounces off of a clearly defined price level when falling from prior highs, that level is called “support.” It is a temporary floor for the stock. The more times the stock touches this area and fails to continue down through this level, the stronger this support level becomes.

Once a stock’s price starts to rise, it will often climb back to the prior high that had been reached before. A stock will usually continue to rise until it hits a price level called “resistance.” This is a temporary “ceiling” for the stock. The more times the stock touches this area and fails to continue up through this level, the stronger this resistance level becomes.

After you discover support and resistance levels for a stock, you can lay the foundation for most of your trades. This is very important. As mentioned above, if these support and resistance levels break, it is likely that the stock has reached an inflection point. If a stock breaks down through its support level, its role reverses and that level will now act as a new resistance level for the stock the next time it starts to make its way higher again.

Conversely, if a stock breaks out above its prior resistance level, that level then becomes support. This new support level will come back into play if that stock starts to decline again. If the stock begins to decline again and the support level is strong, the stock is likely to stop falling at or possibly bounce off of that level.

While it doesn’t take long to learn how to spot support and resistance levels on a stock’s chart, there are many, many, many software programs that will use an algorithm to do it for you. But save yourself some money as most of the major online brokers have resources that tell you the support and resistance levels of individual stocks that should be no charge.

These levels are extremely useful when evaluating a stock, as the way a stock acts around either its support or resistance levels can give us great insight as to which way the stock is likely to move next. If a stock breaks below support, we may recommend a bearish put option call option position. If a stock breaks above resistance, we may recommend a bullish position.

 

3. Moving Averages

Moving averages are technical indicators that can help you identify the “support” and “resistance” levels mentioned above for a stock or index. A moving average (MA) is the average price of a stock over a specified time period. Some of the most common time periods used are 20, 50, 100 and 200 days. Moving averages are used to help spot price trends and are perhaps the most commonly used chart indicator. All good stock charting software includes built-in moving average indicators, and most of the financial sites have them as well.

On the daily, monthly, and yearly charts of the major indexes, you can see the trend of the index along with the 20-day, 50-day, 100-day and 200-day moving averages. These moving averages help me determine if the index (or stock) is above or below support or resistance levels. 

These indicators are so important because each time we see one of these levels being tested and violated, we’re able to evaluate trades so that my profit targets of making a 100% return with options that are sync with the underlying trend of the major indexes. This also goes to show why we often say “Don’t fight the momentum,” as it takes strong support or resistance to stop a market that is already on the move.

 

4. Monday/Friday Closes

We use the Monday and Friday closing prices for each of the major indices as a way of looking at whether money is flowing into or out of the market. You are not likely to hear this in any other financial publication, as it is an exclusive indicator that we have developed over our years trading the market.

In general, Monday/Friday up sessions are bullish and indicate that money is still “flowing” into the market. Negative Monday/Friday closes are bearish and usually mean cash is leaving the market. Mixed Monday/Friday closes can signal a choppy market or a trading range.

A quick glance at these charts is all it takes to see that the Monday/Friday closes are very helpful in predicting possible breakouts or sharp corrections in the market.

While they are not always going to be spot-on accurate — no technical indicators are — the Monday/Friday closes provide a broad overview of the money flow trend either entering or exiting the market and can give us good clues as to when the market may be ready to reverse higher or lower.

 

5. Futures

You can get a brief overview of the futures-trading activity that happens in pre-market trading hours. While futures are not direct indicators of where the market will end up on a given day, they can be used to predict where the major indices may open for trading.

Keep in mind that my goal is not to predict where the market will trade on a given day, but to predict the trends and ride the momentum of the market. If we have a general idea of what direction the market is going to move in, we will be better prepared to capture profits when they are available by using call or put options.

Again, there are hundreds — if not thousands — of indicators that traders can use to help navigate the market. It would be senseless to learn or use them all, but the handful we have reviewed in this report are some of the key ones that we use and talk about most often. 

Because we do all the homework for you at NextOptions.com, you’re never required to put them to work for yourself. However, we’re always interested in teaching those who want to know what’s helped us become a successful trader over the past two decades.

Volatility Focus – VIX Near May Low

The S&P 500 Volatility Index ($VIX) traded to a fresh multi-month low of 11.07 after cracking the early June test to 11.22. The May 4th bottom reached 10.91 with a session range high of 16.92 and action I intensively talked about at the time that could be a bullish signal for the summer.

Fresh support is at 11.50-11. A close below 10.75-10.50 would signal a possible market breakout with a possible trip into single-digits. However, and this is very important, continued closes back above 12-12.50 followed by higher highs would represent a possible “triple-bottom”. 

Resistance is at 13-13.50 and the 50-day moving average on continued closes above 12.50. Volatility won’t become a major issue until continued closes above 14.50-15 and the 200-day moving average are back in play. 

There will be a debate among the talking heads that when the VIX is low..."it’s time to go". It is important to remember the VIX can trade at low levels for weeks and months. From the early September 2017 run into early January, the VIX basically traded below 12.50 and 10 for long periods of time. 

It is hard to say if this type of action will occur throughout August, or longer, but it is important to remember there were a couple of spikes to 15 over this 5-month time period. I mentioned throughout July it was imperative this level needed to hold with last Thursday’s spike to 14.53 representing the highest peak in nearly a month.

RSI has been in a nice downtrend following last week’s lower lows with near-term support at 40-35. A close below the latter would be a continued bullish development for the market. Resistance is at 45-50. A move above 55 would be a bearish signal for a possible near-term market top.

50-Day MA’s Back in Play

NextOptions.com Index and Earnings Options Play List for 4/16/2018

50-Day MA’s Back in Play

8:00am (EST)

The market started the week with strong gains as traders shrugged off the air strikes on Syria over the weekend and instead, focused on the earnings season, which will pick up in earnest this week. Volatility continues to subside with the major indexes making a strong run towards key resistance levels.

The Russell 2000 closed higher for the fifth-time in six sessions after rallying 0.9% while making a late session run to 1,566. The Dow also gained 0.9% after testing a high to 24,675 to clear its 50-day moving average but a level that failed to hold into the close.

The S&P 500 added 0.8% after trading to an intraday high of 2,686 while falling a half-point shy of clearing its 50-day moving average. The Nasdaq was higher by 0.7% after reaching an intraday peak of 7,178 but fell shy of challenging its 50-day moving average just south of the 7,200 level.

Utilities jumped 1.4% and Materials soared 1.3% to led sector strength. Consumer Staples were up 1.1% while Energy and Industrials rose 1%. There were no sectors that closed in the red.

The S&P 500 Volatility Index ($VIX) fell for the fifth-straight session after testing a low of 16.38. Fresh support at 16.50-15 held with a close below the latter being a continued bullish development. Lowered resistance is at 17-17.50 followed by 19.50-20.

The Spiders Dow Jones Industrial Average ETF (DIA) traded to a high of $246.67 while clearing, but failing to hold, its 50-day moving average for the first time since early March. Near-term resistance is at $247-$247.50 with continued closes above the latter being a bullish development. Support is at $245-$244.50 following the slight breakout of last week’s mini-trading range. A close below $242.50 would signal a possible short-term top.

RSI is back in slight uptrend after clearing resistance at 50. Continued closes above this level could lead to a possible run towards 60 and late February highs. Support is at 45-40 on a close back below 50.

The Spider S&P Retail ETF (XRT) has traded in a tight range between $44.50-$45.25 following the strong move off the $43 level earlier this month. Today's high tapped $45.15 with continued closes above $45.25-$45.50 being a bullish signal. Support is at $44.50-$44 with a move below the latter likely signaling additional weakness.

RSI is holding 50 with multi-month resistance at 55. A move above this level would be a bullish development for a possible run towards 60 and prior support from January. Current support is at 45-40 on a close back below 50.

Celanese (CE), First Defiance Financial (FDEF), Lakeland Industries (LAKE), Netflix (NFLX), Pinnacle Financial Partners (PNFP), SeaChange International (SEAC), Wintrust Financial (WTFC) reported earnings after Monday’s closing bell.

Comerica (CMA), Goldman Sachs (GS), Johnson & Johnson (JNJ), Mellanox Technologies (MLNX), Mercantile Bank (MBWM), Northern Trust (NTRS), Omnicom (OMC), Progressive (PGR), Prologis (PLD), UnitedHealth Group (UNH) 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)

+191% Sony February 48 calls (January 2018)

+133% Progenics Pharmaceuticals May 8 calls (March 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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Viavi Systems (VIAV, $10.04, down $0.31)

VIAV June 10 calls (VIAV180615C00010000, $0.55, down $0.20)

Entry Price: $0.50 (3/26/2018)

Exit Target: $1.00

Return: 10%

Stop Target: 55 cents (Stop Limit)

Action: The Stop Limit at 55 cents tripped on yesterday’s pullback.

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RadNet (RDNT, $14.35, up $0.25)

RDNT June 15 calls (RDNT180615C00015000, $0.60, up $0.10)

Entry Price: $0.45 (4/10/2018)

Exit Target: $0.90

Return: 33%

Stop Target: None

Action: Resistance is at $14.50. Support is at $14.

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Energous (WATT, $19.99, up $1.81)

WATT May 17.50 calls (WATT180518C00017500, $2.80, up $1.20)

Entry Price: $1.15 (4/10/2018)

Exit Target: $2.30

Return: 143%

Stop Target: $1.15 (Stop Limit)

Action: Fresh resistance is at $20.50-$21. Rising support is at $19.50-$19.

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Upcoming Earnings

Tuesday 

After the close: Adtran (ADTN), Badger Meter (BMI), CSX (CSX), Fulton Financial (FULT), Hancock Holding (HBHC), Interactive Brokers (IBKR), International Business Machines (IBM), Intuitive Surgical (ISRG), Lam Research (LRCX), United Continental (UAL), WesBanco (WSBC)

Wednesday

Before the open: Before the open: Abbott Laboratories (ABT), Fred’s (FRED), Morgan Stanley (MS), QCR Holdings (QCRH), Texteon (TXT)

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