MomentumOptionsTrading.com Morning Update for 7/8/2013
New Sheriff in Town
The bulls opened with a strong run to the 50-day MA’s (moving averages) on Friday and were met with a right hook by the bears that knocked them back down to even shortly afterwards. However, unlike what we saw the bears do a few weeks ago with their failure at holding down the 100-day MA’s, the bulls cleared resistance while holding their ground.
The bears penetrated the 100-day MA’s in mid-June but they didn’t have the force or momentum to push the 200-day MA’s (at least not yet). The charts clearly show the break above the 50-day MA’s but many of the pros today are likely to say it was on low volume.
We were slightly surprised by the 1% move and the fluff past resistance but the last time Wall Street got caught flat-footed on a trading day after the July holiday resulted in a 3% pop. This means there could be another 2% push higher that will likely lead to a test of this year’s highs, or, it was a classic head fake in what could be a continued trading range. With 2Q earnings starting this week, a 2% move is possible, either way.
The Dow surged 150 points, or 1%, to close at 15,135 ob Friday. The blue-chips traded to a high of 15,137 and we would be convinced a test to new highs, or 15,500, could be coming if 15,200 clears. A drop below 15,000 today would be bearish and 14,800 would be even worse.
The S&P 500 gained 16 points, or 1%, to settle at 1,631. The index closed near its high for the session and the finish above 1,625 could lead to a run to 1,650. A close above this level would be very bullish and could cause a wave of short covering. A close back below 1,625 and more specifically, 1,614, would get 1,600 back in the mix.
The Nasdaq added 36 points, or 1%, to finish at 3,479. We mentioned last week a close above 3,450 would be bullish for a possible push to 3,475 to 3,500. A close back below 3,450 today or this week would be troubling for a retest of 3,400.
The Russell 2000, zoomed 14 points, or 1.4%, and finally closed above 1,000 at 1,005. The bulls had cleared this level 5 previous times but failed in each attempt before Friday’s victory. The New Sheriff led the rally and we have been mentioning a trip to 1,025 could come into play if the small-caps cleared 1K on a close. A back test to 990 is possible on any weakness and a close back below 980-975 would be bearish.
The S&P Volatility Index ($VIX, 14.89, down 1.31) tanked 8% and close below our magical 15 level. We said if the bulls could get the VIX back under the mid-teems there could be a test to new highs but there are a few more hurdles they must clear. A rebound back above 16 and then 17.50 would mean a classic bull trap was set by the bears.
We will have to see how the first part of Monday’s session and the next few days play out but if the 50-day MA’s hold, we could be adding New Trades for both the Daily and Weekly Wrap newsletters.
As we head to press: Dow futures are up 5 points to 15,081 while the S&P 500 futures are higher by a point to 1,628. The Nasdaq 100 futures are advancing 7 points to 2,964.
Do not risk more than 5% of your trading account on any one trade but do try to take ALL of the trades. Please remember, ALL “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless we list one. We will send out a “Profit Alert” or “New Trade” if we want you to close a position OR if a new trade comes out. Otherwise, follow instructions at all times in the 9am and 1pm updates. Also, we will usually give you a heads-up if we think we are going to send an email outside of these time frames. Closed Trades for 2013: 78-40, including the Weekly Wrap that is 26-3).
Special Note: We apologize for not having charts for you this week as we have been on the road for much of the weekend. We have been working though and there are a ton of trades we found in our Saturday morning research that look like great possibilities. We are doing the chart work ahead of the European open and we will be up at dawn on Monday morning to get ready for the open here at home.
We have been trading extremely light since mid-June as we try to work our way out of this trading range. While the volatility has been great, range bound markets are the most difficult to trade. We could be on the verge of a test to new highs or a breakout with the key word being could. Going short, or buying insurance this year has also cost us a little as we have seen the multi-year uptrends lines hold. This could change, of course, at a moments’ notice, if the bears do hold current levels and gain some momentum and it is still good to have. Our GLD put option trade was a great example. We still have a few bullish trades left over from May that made great comebacks last week and the two put position on hold only have a few hundred bucks in premium so we are leaving them open.
We are still showing a strong return for 2013 and we hope to be at triple-digit returns once the July options we have open, close. We are starting to nibble on August options and possibly September plays but let’s see how the next week or two plays out before getting too excited.
Apollo Group (APOL, $17.94, up $0.27)
August 16 puts (APOL130817P00016000, $0.55, down $0.10)
Entry Price: $0.65 (6/26/13)
Exit Target: $1.30
Stop Target: None
Action: Resistance is holding at $18 but there is risk up to $20 given the current volatility. We will stick with the trade as long as this level holds. A close below $17.25 this week should get this trade back on track and these are August puts so we have plenty of time to wait for the breakdown.
Rambus (RMBS, $9.40, up $0.19)
August 9 calls (RMBS130817C00009000, $0.80, up $0.05)
Entry Price: $0.55 (6/18/13)
Exit Target: $1.10
Stop Target: None
Action: Shares were knocking down fresh 52-week peaks all last week and we are looking for double-digits this week. At $10, these options will be worth at least $1-$1.10 for a 100% return.
Solazyme (SZYM, $11.73, up $0.02)
July 12.50 calls (SZYM130720C00012500, $0.25, flat)
Entry Price: $0.60 (6/4/13)
Exit Target: $1.20
Stop Target: None
Action: This trade will likely come down to the wire if we roll with it until expiration. Our breakeven point is $13.10 and a close above $12 this week would be bullish. If shares fall back below $11.50, we may cut the cord and look into August if support holds.
Scientific Games (SGMS, $12.29, up $0.19)
July 12.50 calls (SGMS130720C00012500, $0.25, flat)
Entry Price: $0.20 (5/31/13)
Exit Target: $0.60
Stop Target: None
Action: Set limit orders to close HALF the trade at 60 cents or better today. We may get filled, we may not.
Shares hit a new 52-week high on Friday of $12.35 and we would like to see continued strength into this week. We would like to get 60 cents or better for these options for a 200% winner and a run to $13 should get us there. We have to be careful too as these are July options that expire in less than 2 weeks. If shares slip back below $12, we will likely close the trade for a scratch.
Other 2013 Portfolio OPEN positions (4): These are trades that are still open in the portfolio but are down over 50%. They have longer expiration dates and are on “hold” but are not worth mentioning until they turn around. This means we would not open any new positions. We are still keeping track of the trades and we will record the results, accordingly, when we close them or if the options expire. Click on the 2013Portfolio link in the Members Area to view ALL open/ closed trades.
MGM Resorts International July 17 calls (from May 2013)– HOLD
Clean Energy Fuels July 16 calls (from May 2013) – HOLD
Spiders Dow Jones July 141 puts (from June 2013) – HOLD
iShares Russell 2000 Index July 90 puts (from June 2013) – HOLD
WATCH LIST SECTION
These trades are NOT recommendations. They are trades that we like but have not added to the portfolio as an official recommendation because of market conditions or because we are waiting for better entry prices. We try not to have more than 12-15 open trades at any one time which is why we created a Watch List. We will not list entry prices because these stocks are on the verge of breaking out or they could sell off but these are the trades we are watching as new candidates.
Riverbed Technology (RVBD, $15.89, up $0.21)
August 17 calls (RVBD130817C00017000, $0.80, up $0.05)
September 18 calls (RVBD0921C00018000, $0.75, up $0.05)
Thoughts: There is risk down to $15 but if this level can hold, shares could challenge $18-$20 over the next 3-6 months. The company is also a takeover target.
Applied Materials (AMAT, $15.22, up $0.22)
August 15 calls (AMAT130817C00015000, $0.70, up $0.10)
September 16 calls (AMAT130921C00016000, $0.40, up $0.05)
Thoughts: We think shares can test $17 over the next month. Support is at $15.
Domino’s Pizza (DPZ, $61.01, up $0.78)
July 60 calls (DPZ130720C00060000, $1.70, up $0.60)
August 60 calls (DPZ130817C00060000, $3.25, up, $0.60)
Thoughts: The July 60 calls were at 65 cents to start the week and the August 60 calls were at $1.80. We mentioned a surge past $60 was coming and if you are in these trades, sweet, and protect profits on a drop back below $60.
Sony (SNE, $21.76, up $0.11)
July 21 calls (SNE130720C00021000, $1.20, down $0.10)
August 23 calls (SNE130817C00023000, $0.90, down $0.05)
Action: A close above $22 could lead to $24. Support is at $20 with risk down to $18 on an overshoot.
Salesforce.com (CRM, $38.94, up $0.39)
July 40 calls (CRM130720C000400000, $0.50, up $0.10)
August 42.50 calls (CRM130817C00042500, $0.60, up $0.10)
Thoughts: Support is at $36. We are waiting for $40 to clear before possibly getting into a trade. If resistance is taken out, we could see shares make a quick run to $42-$43 with a shot at $45.
Yahoo (YHOO, $25.68, up $0.09)
August 26 calls (YHOO130817C00026000, $0.95, flat)
Thoughts: Support is at $25 and a close below this level would get $24 in play. A close back above $27 would be bullish for a run to $30.