MomentumOptionsTrading.com Morning Update for 6/12/2014
Bears Push Support/ Prior Resistance
The bears made some noise for the second-straight session on Wednesday but once again, the damage was minimal. The talking heads were blaming the early morning pullback on an upset victory in DC but the smarter traders were watching the geopolitical tensions heighten overseas with Iraq back in the spotlight.
Republican US House Majority Leader, Eric Cantor, lost a Virginia primary election to David Brat, a Tea Party-backed elective that surely has different views on how the zombies should operate. While it was a big loss for the Republican party to a degree, it is good to see new faces coming to DC with better ideas and energized to do what’s best for the country. It just means more gridlock down the road.
The Dow declined 102 points, or 0.6%, to end at 16,843 on Wednesday. The blue-chips traded to a low of 16,821 while holding near-term support at 16,800. There is additional help at 16,600 but a close below this level would be bearish. The bulls are looking to trip 17,000 ahead of the weekend.
The S&P 500 sank 7 points, or 0.4%, to settle at 1,943. The index traded down 1,940.08 and I mentioned yesterday near-term support at 1,940 could be tested on a continued decline. A close below this level gets 1,925-1,920 back in play and the bears came awfully close yesterday. The bulls will try to reclaim the 1,950 level by today’s or Friday’s close.
The Nasdaq dropped a 6-pack, or 0.1%, to finish at 4,332. Tech tested a low of 4,315 shortly after the open but held support at 4,325-4,300. A close below this level could lead to 4,275-4,250. The index did make a brief trip into positive territory by a fifth of a point shortly after the midday update before closing in the red. If the bulls continue to hold 4,300 there is still a good chance they push fresh 52-week peaks in June (or July).
The Russell 2000 pounded the other 6-pack and slipped 0.5% to 1,166 into the close. The small-caps 1,161 before recovering half their losses and holding support. I mentioned there was risk to 1,160-1,150 on continued weakness following the close back below 1,175 on Tuesday. A close above or below these aforementioned could set the tone for next week.
The S&P 500 Volatility Index ($VIX, 11.60, up 0.61) tested 11.50 throughout the day and ended slightly above this level after trading to a high of 11.87. I said the bulls had wiggle room to 12.50 but a close above this level would favor the bears. The recent 52-week and multi-year low is at 10.73 so the bulls likely need to hold the 11.50 level by the weekend. A close in between at 12 would be a coin-flip for next week.
Despite Wednesday’s pullback, I was able to lock-in profits on 2 more winners for the portfolio. I have been on a hot streak since late April and while I don’t say this to toot my horn, it has been important to stay positive (and confident) following the incredibly hard trading range in May. I said there would be a big breakout (or breakdown) once the war played out and the bulls have been the beneficiary. I waited for the clues to confirm the breakout in late April and it has paid off in spades.
There are still a few put option trades that are still in the mix and one of them, BBBY, has shown a nice comeback this week.
The suit-and-ties were calling yesterday’s pullback a selloff and were pushing the panic button but I said to remain calm and relaxed in May. I have outlined some of the clues for when a possible top would be in but I believe the bulls still have a few more good days left in them as I have called for this rally through mid-June.
Despite my fluff targets triggering, picking EXACT market tops and bottoms are a little more difficult and why the slick talking pros have no idea what the heck is going on. The charts tell a better story of where a stock or the market is headed than the flip-flopping talking heads and I’m excited about how the rest of the week might play out.
Heading from desk to press, futures look like this: Dow (xx); S&P 500 (xx); Nasdaq 100 (xx).