MomentumOptionsTrading.com Morning Update for 5/28/14
Bulls Have No Worries/ New Trade
The bulls continue to climb the wall of worry with no fear of slipping after pushing all-time highs again on Tuesday. The market clearly has momentum and some of the upside targets I have given since early December and reiterated again in March are starting to trigger.
The Dow added 69 points, or 0.4%, to end at 16,675. The blue-chips traded to a high of 16,688 and came within 47 points of triggering a fresh all-time high. I have said there is fluff to 16,800-17,000 on closes above 16,600 but I thought there would be a bigger breakout on Tuesday, or at least a close above 16,700. Support has moved up to 16,500 with backup at 16,400-16,350.
The S&P 500 surged 11 points, or 0.6%, to settle at 1,911. The index danced with my March 1,909 fluff target throughout the day and reached an all-time intraday peak of 1,912.28. I have said there could be additional fluff to 1,925 on a close above 1,909 but any closes back below 1,900 could jeopardize that target.
The Nasdaq zoomed 51 points, or 1.2%, to finish at 4,237. Tech easily won the “war” at 4,200 but remains a little more than 3% away from its 52-week high of 4,371. The index made a run at my initial December target of 4,400-4,500 in early March before the fade to 4,000 in late April. If the bulls keep their momentum, another run into this zone is possible. Any closes back below 4,200 bears watching.
The Russell 2000 soared 16 points, or 1.4%, to close at 1,142. The small-caps led Tuesday’s charge and tested 1,144 shortly after the open. Near-term resistance at 1,140 cleared but tougher hurdles at 1,150 and 1,175 remain. The index is 4% away from triggering 1,200 again.
The S&P 500 Volatility Index ($VIX, 11.51, up 0.15) spiked to 11.84 shortly after the opening bell but was in a steady decline afterwards. The VIX got more air time again yesterday as the slick talking pros weighed in on the 7-year low. Of course, some of the talk was “when the VIX is low it’s time to go” and these low levels heed warning. I have said the VIX could reach single-digits this year with the S&P at 2,100. It is too soon to tell if this happens sooner rather than later but any closes back above 12.50 and then 13.50 could be warning signs.
The portfolio is still light but I mentioned yesterday I didn’t want to chase the market until I saw how Tuesday’s close went. While I remain bullish up to the fluff targets I have given, I am turning cautious as more and more analysts flip-flop from turning bearish to bullish all of a sudden. However, there is a bullish trade I like for this morning on CVS. I usually wait until after 10am to initiate new trades but I think we can get into these call options for double-nickels or better.
From desk to press, futures look like this: Dow (+21); S&P 500 (+2); Nasdaq (+4).