MomentumOptionsTrading.com Morning Update for 7/9/2014
Bears Push Second Waves of Support
The bears made some more noise on Tuesday as the market tumbled for the second-straight session. The talking heads are calling the 2-day pullback a “selloff” but there were bullish signs ahead of the close that suggest the bulls may be taking a breather. However, if they continue to nap and the bears get more aggressive, further support levels could come into play. (read more…)
The Dow dropped 117 points, or 0.7%, to settle at 16,906. The blue-chips traded to a low of 16,874 but held the 16,900 level. There is further help at 16,800-16,600 but the index is only down 1% from its all-time intraday high of 17,074 set last Thursday.
The S&P 500 sank 14 points, or 0.7%, to end at 1,963. The bears pushed a low of 1,959.46 but the bulls held 1,160. There is additional support at 1,950-1,940 but a close below these levels would be very bearish. The bulls need to reclaim 1,970-1,975 today.
The Nasdaq tanked 60 points, or 1.4%, to finish at 4,391. Tech opened below the 4,450 level and fell below 4,400 to a low of 4,372. I mentioned a test to 4,400-4,350 could come on another break below near-term support but the bulls made a push back above 4,400 off the lows before getting “stretched” into the close. A close above 4,425 keeps 4,500 alive while a close below 4,350 could spell further weakness.
The Russell 2000 was ripped for 14 points, or 1.2%, to close at 1,172. The small-caps kissed a low of 1,166 but held the 1,175-1,170 zone. The bears would love to get below 1,160 this week which could easily lead to another 2% dip to 1,140. However, the bulls are still in the hunt for new all-time highs but probably need to nail a close above 1,180 today or Thursday.
The S&P 500 Volatility Index ($VIX, 11.98, up 0.65) jumped another 6% and traded to a high of 12.51. I have repeatedly talked about the bulls needing to hold the 12.50 level and since late May they have for the most part. Interestingly, Tuesday’s high matched the June 26th high of 12.51. This could signal a short-term double top as I have said a close above this level could lead to 13.50-15. Today’s action will crucial on how the rest of the week might play out.
Needless to say, the action so far this week has been bearish as the major indexes have made lower highs and lower lows. In fact, the bulls have been underwater all week as the market has failed to trade in positive territory.
I have said July could get extremely volatile. The recent triple-digit moves on the Dow and the 1% swings in the small-caps and Tech are sure signs of bigger moves to come.
As option traders, this is exactly what we like to see. However, this environment can be fast moving as the opportunity for profits (and losses) could come on a daily basis and perhaps intraday.
This means there could be additional Trade Alerts or New Trades outside my normal print times. I try to get updates at 9am and 12pm-1pm on a daily basis but if the action heats up, expect additional updates outside these time frames.
I mentioned there would be some beautiful earnings trades coming over the next 6-8 weeks and I will profile a huge winner today. I didn’t make this an official recommendation as the bid/ask was a little wide but it will help new subscribers understand how options work.
My goal is to find stocks that will move 5%-10% and even 20% on earnings that often produce gains of 100%, 300%, and even 500% or more on the right options.
With the portfolio having another great year, I can afford to open up the playbook a little bit.
Heading from desk to press, futures look like this: Dow (+1); S&P 500 (+1); Nasdaq 100 (+1).