MomentumOptionsTrading.com Morning Update for 11/11/2013
Blue-Chips, S&P Up 5-Straight/ Special 1-Year Subscription Offers – Guess the Dow, Win a NEW iPad!
“October has a history of big crashes but the bulls sailed through the month with minor scratches as they pushed all-time highs. The bears might be waking up but they have several layers of support to crack before there is a trend change.
The Dow came into October at 15,129 and gained486 points, or 2.8%, for the month. The S&P 500 was at 1,681 and was up 80 points, or 4.5%. The Nasdaq jumped 151points, or 3.9%, after starting the month at 3,771 while the Russell 2000 advanced 22 points, or 2.5%, after starting at 1,073. The Dow Transports surged 5.9%.
Last week we touched on 1 of the basic 6 Dow Theory technical analysis as we talked about the blue-chips and their relationship to the Dow Transports. The Dow Theory was created by Charles Dow who was the first editor of the Wall Street Journal and with the index being the last index NOT to trigger our year-end target (from February we remind you), we wanted to cover why the blue-chips are still on track to push 16,000.
We mentioned the Dow would need to trigger a new high sooner rather than later following the Dow Transports surge to fresh all-time highs. That was achieved in 3 days and was a bullish sign as we said the sooner it came, the stronger the signal.
Another Dow Theory we like to follow is volume as it confirms price trends. When the Dow (or market) moves on low volume, there could be a bevy of reasons why and can cause choppiness. However, when price movements are accompanied by higher volume, it usually represents a more accurate trend.
This could be where the classic Wall Street saying “the trend is your friend” comes from as it confirms the direction in which the market anticipates continued movement. Although volume is not at robust levels, it has improved since August and could explode in November and December on a continued breakout and a possible blow off top that has yet to come.
A third Dow Theory is that a trend exists until definitive clues prove that they have ended. We often talk about “clues” and “market noise” as there might be a temporary move in the direction opposite of the current trend but like we have seen all year, the trend will soon resume the prior move. In other words, the trend should be given the benefit of the doubt during reversals or tests to support and why we have stayed calm and bullish.
We talked about all of the noise last week and we mentioned determining whether a top or high for the market is or the start of a new trend is one of the hardest crystal balls to read. This is why we use a number of other, simple to follow technical analysis to confirm or refute the current action. We like to use Channels and the Moving Averages to help us predict where prices are headed along with market sentiment, history, the VIX and a few others.
The other 3 main Dow Theories that are also in play are “movement”, “phase” and the fact the market is discounting all news. We will talk more about the technical analysis of each of these theories next week to wrap up our lesson but the first 3 are still showing a continued uptrend.
The Dow is also at a triple-top and these types of chart patterns can be bullish or bearish but this one looks bullish. The blue-chips peaked in August and September and are on the verge of a triple-top breakout as the index is in an uptrend. These types of setups are usually reliable and a breakout on higher volume would confirm another rally that should carry the Dow towards our yearend target of 16,000.
Although the Monday/ Friday closes have been mixed in the past few weeks, the bears have not scored big on Monday’s and support has held while the bulls continue to make Friday’s a good ending to the week. A higher M/F close this week would be bullish.
The only bearish signal we are seeing is the small-caps as the close below 1,100 needs to be respected. There could be a shakedown to 1,075 to flush out the weaker hands but if there is a close below this level, the Dow fails at its triple-top, and a rising VIX would be cause for concern as a possible trend change would be developing.” (from 11/3/2013 Weekly Wrap…)
The bulls got a solid Monday win as the Dow ended higher for the first time in 3 to start the week. The small-caps also snapped out of their recent funk as they led the charge higher. Tuesday’s have been bullish of late but there was no follow through as the indexes traded flat ahead of Wednesday’s breakout.
The bulls pushed resistance and fresh all-time highs midweek but the divergence and sector rotation caused a dip in Tech and the small-caps. This hangover lasted on Thursday despite a European rate cut and ahead of Friday’s Nonfarm Payroll report. To Wall Street’s surprise, the economy added 204,0000 jobs and the bullishness flushed the weaker hands out of the pot as the suit-and-ties that were once again screaming for a market top. As a result, the bulls closed out another winning Friday to take 3-of-4 of the indexes and the weekly win. (continued…)
The Dow zoomed 168 points, or 1.1%, to close at 15,761 on Friday. The blue-chips came into the week needing to hold fresh support at 15,600 that served as prior resistance. Monday’s low of 15,588 was quickly bought as the index reached a peak of 15,658. The bears put up a good fight on Tuesday as they pushed a triple-digit loss and a low of 15,522 before the bulls recovered and held 15,600 by the close. This was a great clue the bulls were going to push the previous all-time high of 15,721 and they did with Wednesday’s run to 15,750. Thursday’s peak reached 15,797 on the open and came within 3 points of hitting our 15,800 target before the bears attacked and pushed support at 15,600. The low checked-in at 15,586 and kept 15,400-15,350 in play but Friday’s recovery kept the uptrend intact as the blue-chips reached a peak of 15,764. A close above 15,800 gets our yearend target of 16,000 on the map. For the week, the Dow added 146 points, or 0.9%, after starting at 15,615. For the year, the blue-chips are up 2,657 points, or 20.3%.
The S&P 500 soared 23 points, or 1.3%, to settle at 1,770. The index came into the week with a 1% cushion above solid support at 1,750. The S&P dipped to 1,761 shortly after Monday’s open but ended near its high of 1,768.78. Tuesday’s trip to 1,755 made Wall Street nervous but 1,750 held as the index went out at 1,762. Wednesday’s trip to 1,773 fell short of tripping our 1,775 target that gets 1,800 in play and the close at 1,770 was bullish. Thursday’s peak at 1,774.54 came within a half-point of making that happen but the bears took over and cracked support at 1,750 with the close of 1,747. There was further weakness to 1,725-1,700 on a continued pullback but Friday’s high reached 1,770.78 to keep 1,775 on the radar. The S&P 500 came into Monday’s session at 1,761 and was up 9 points, or 0.5%, for the week. Year-to-date, the index has surged 344 points, or 24.2%.
The Nasdaq jumped 62 points, or 1.6%, to finish at 3,919. Tech started Monday’s session needing to clear 3,925 while holding 3,900. The bears tried to make some noise with a 3-point basket to start the week but the bulls rolled up 14 points by the close and pushed 3,937. Tuesday’s opening drop to 3,909 shook out some of the weaker hands as the index recovered and pushed 3,950. The high came within 3 points of triggering our go target to 4,000. Wednesday’s peak reached 3,955 before the flush down to 3,920 and close at 3,931. We mentioned in the Daily the dip below 3,925 could lead to a back test to 3,900 and then 3,850 on a break below this level. The bulls tried to recover on Thursday but after reaching 3,939 the bottom fell out as the low reached 3,855. There was further downside risk to 3,825-3,800 but the second wave of support held and Friday’s close back above 3,900 looked good although we would have liked to have seen 3,925 clear. The Nasdaq began the week at 3,922 and was slipped 3 points, or 0.1%, by Friday’s close. For 2013, Tech has is up a cool 900 points, or 29.8%.
The Russell 2000 gained 21 points, or 1.9%, to end at 1,099.97 on Friday. The small-caps held positive territory all session long on Monday as they bounced back over 1% to reclaim the 1,100 after closing at 1,108. We mentioned a close above 1,110 would be a good clue another run to 1,125 would come but Tuesday was a struggle following another back test to 1,100 and close at 1,103. Wednesday’s high reached 1,109 but we mentioned the close at 1,098 opened the door for a test to 1,075. Thursday’s session was mostly red following a pop to 1,103 as the low checked-in at 1,078. Friday’s open was green and the high reached 1,101. A close above 1,110 on Monday would be bullish. The Russell 2000 was at 1,095 before Monday’s open and added 4 points, or 0.4%, for the week. YTD, the small-caps are higher by 251 points, or 29.5%.
The S&P 500 Volatility Index ($VIX, 12.90, down 1.01) came into the week at 13.28 and went on another wild ride but not as crazy as the week before. The index traded up to 13.92 on Monday’s open but fell to 12.93 by the close. We have been calling for a test to 12.50 on a continued rally or a breakout to new highs and by Wednesday’s session the VIX had dipped to 12.67 while closing at 12.68. Thursday’s high reached a peak of 14.14 but easily held resistance at 14.50 after finishing at 13.91. We have said for a few weeks not to flinch until the VIX CLOSES above 15 and its 50-day and 100-day MA’s. Friday’s close back below 13.50 and near its lows for the week still keeps our 12.50 target in play with a stretch down to 12.
The bulls and bears had a slugfest last week as both sides stretched support and resistance inside the current 2-week trading range. The chaos caused some of the weaker hands to fold as the market pros continue to say a top is in but the Dow and S&P 500 closed out a fifth-straight week of gains. The blue-chips are up 689 points, or 5%, while the S&P 500 is higher by 80 points, or 5%, as well, over that time period.
The small-caps are also up and Tech sneezed. The Russell 2000 got back on track following a dip the prior week and is up 4-out-of-5 weeks. The small-caps have advanced a double-deuce (22 points), or 2%. Meanwhile, Tech fell for the second-straight week but is up triple 1’s (111 points), or 3%, over the same 5-week time period.
The mini-trading range over the past few weeks has pushed the Dow and S&P to the top of their trading ranges while the Nasdaq and Russell 2000 are near the lower end of theirs. This type of “divergence” can look bearish but we warned not to get too emotional as we prepared for a possible pause and some sector rotation.
Of course, we do want to point out how fast the indexes can tank when momentum does slow as the bears can throw a 2% punch in a matter of hours like the one we witnessed last week. The rebounds can also be just as strong though as we have seen the dips bought for much of the year.
The puzzle will be figuring out when the dips won’t be bought.
The headline risk will be here shortly once the zombies get back together in DC but with earnings starting to wind down and an improving economy, the outlook is good for another week or two and possibly into December. It has been nice not to talk about the zombies and we will try to keep it that way until they force our hand.
We mentioned on Friday the Financial sector was showing some strength as we noticed a number of our favorite banking stocks getting pops. It could be time for us to enter another Bank of America (BAC, $14.32, up $0.52) trade as shares could be on the verge of a breakout if the sector itself can regain some momentum. The 52-week peak for BAC is just north of $15 and we have been riding shares higher from $5 for 2 years with Weekly Wrap recommendations.
The Finance Spiders (XLF, $20.86, up $0.28) are the best way to get an overall snapshot of the sector and it’s no secret they have been underperforming the broader market since peaking over a month ago. We wanted to do some homework before playing a possible breakout and buying options on Friday and here is our analysis.
After clearing resistance at $20 in mid-October, the index failed to hold the breakout and was making lower lows before Friday’s rebound. The XLF tested a low of $19.48 in early October and zoomed over 10% before the false breakout at resistance and a test to $21. The 50-day MA has easily held and the chart shows the Spiders now dancing with the 20-day MA. The huge move on Friday reversed a week of losses and another run past $20 could lead to $22-$23.
This part will be in our revised 2014 option trading manual (with a video) and is how we “find” trades. You should NEVER trade a stock or options unless you have done some kind of chart work.
We like to use a number of indicators to help us determine a trade setup and all signs are bullish for a possible call option trade. If the XLF can clear $21 then it would b a great signal to go long on a projected move to new highs.
The nearest month options (November) expire this week so it is important to give the trade enough time to work in your favor. An option that expires in less than a week is considered a lottery play but they can easily make triple-digits if there is a 3%-5% move in a few days.
The XLF November 21 calls (XLF131116C00021000, $0.08, up $0.05) jumped 167% from the prior close and expire this week. As you can see from the Yahoo Finance quote below, the options are very liquid as over 6,600 contracts traded on Friday and Open Interest is north of 47,000.
These call options expire this Friday, or 5 days from Monday’s open. The calls could make money, or be “in-the-money” if shares are above $21 by Friday’s close. If the XLF closes at $21.08 the trade would break even, technically, if you paid 8 cents and got in prior to Friday’s close. If the XLF trades to $20.16 the trade would be a double (100%) and at $20.24 a triple (200%).
The XLF also trades WEEKLY options and the November 21 WEEKLY calls (XLF131129C00021000, $0.15, up $0.08) were up 114% from the prior close and would give you nearly 3 weeks of time if opened on Monday (11/11/13).
If you get in at 15 cents on Monday, the XLF would need to get to $21.15 for the trade to break even by the end of the month. At $21.30 the trade would be a double and at $21.45 the calls would triple.
A safer play would be the December 21 calls (XLF131221C00021000, $0.31, up $0.14) as they provide 6 weeks before expiration. The break even point is $21.31 if purchased at Friday’s close. A triple-digit return would come at $21.62 and if our Price Target of $22 trips the trade would return 200% by Christmas.
As we wind out the last 2 months of the year, the bullish case is there are another 12-18 months of gains and the market is still underpriced. The bearish case is that the market is at bubblious levels as valuations are at their highest levels in 3 years. We have been bullish all year long and we can’t wait until there is a major correction but until that time comes we will continue to ride the wave.
For those of you that are new subscribers and may not know how to play a down market, don’t get nervous as the profits can be just as explosive. At some point in 2014 (or sooner) things will get ugly and there will be a 10%-20% correction. The suit-and-ties will say we told you so but this will be when we start using put options to make even more profits that promise to be just as explosive as the call options plays we have banked on all year long.
In 2008, when the Dow was following 300, 500 and 700 points on any given day we used put options to make our subscribers an incredible amount of money and you can view our 2008 track record to see the types of gains that were made.
These days are in the future and we remind you of support on a daily basis because the market can turn on a dime. Investors get scared and the pros will tell you to stay out of the market when it is violent and like they are now.
For those of you that have followed us for a long time, you know we are not bullish or bearish by heart because if you are it limits your trading ability and you have wiped out half your playbook for possible option trades if you don’t like playing the downside or pullbacks and corrections.
While we continue to enjoy the bullish ride, there will be plenty of possible put option trades in 2014 as Obamacare and another possible zombie battle over the budget starts to take shape in December and into January. The good news for now is that we are still bullish and since 1928, 82% of the time the market has closed higher over the last 2 months of the year.
We have all the clues we need and plenty of warning signs to prepare for the eventual pullback but we continue to see higher prices through November and possibly into December until the charts tell us otherwise.
As we head to press, futures look like this: Dow futures are off 17 points to 15,683 while the S&P 500 futures are lower by 2 points to 1,763. The Nasdaq 100 futures are down a six-pack to 3,354.
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To be a successful trader of the market, you must do your homework every day and every weekend. It requires 100 hours a week of hard work as you have to plan for events, draw charts, prepare for earnings, watch overseas markets, the political picture and to identify trends before they develop or how long they will last.
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“If you are ready to give up everything else – to study the whole history and background of the market and all the principal companies… as carefully as a medical student studies anatomy – … and, in addition, you have the cool nerves of a great gambler, the sixth sense of a clairvoyant, and the courage of a lion, you have a ghost of a chance.”
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We often hear the Average Joe can’t make money in the market bit what we don’t hear is the reason they failed is because they didn’t do their homework. Luckily you have us and we enjoy what we do.
However, we do like to teach investors about stocks and the market because we believe everyone has the potential to manage their own money and to find there own trades.
We have written an option trading manual that explains how to become a successful option trader that includes bi-monthly videos. By taking charge of your financial investments it will empower you to learn the market in a way you never knew was possible.
Would you like to tell your friends about a $4 pizza stock that is now and $8 and could go to $20 over the next 12-24 months. You can if you are a member of our Weekly Wrap. Or how about telling your friends about an earnings trade that returned 200% in a day? Or a biotech that made you 400%. You can if you are a subscriber to our Daily.
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The Weekly Wrap is a “safer” way to play options as we use a mixture of different strategies to play the market. We have a Track Record of nearly 70% for all of our option trades but this newsletter has a 95% success rate!
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In December 2012, we acquired NextOptions.com – a successful options website with hundreds of subscribers and thousands of readers. Our goal has been to get more coverage of our Weekly Wrap to give our research team the credit they deserve. The newsletter has posted an amazing 84-5 Track Record since 2011. We are 40-4 this year.
We offered NextOptions subscribers an incredible discount to stay with us through the transition and you have been well rewarded as we have doubled a $10,000 trading account this year for the Weekly Wrap. NextOptions subscribers, Thank You for your trust in us. Current Momentum Options subscribers, Thank You for supporting us from the start.
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We are also giving away one American Eagle Silver coin a month by guessing the Dow. Details are on the NextOptions.com website and it does not cost anything to enter but you do have to be a member.
As far as winning the iPad, once you have signed up for BOTH the 1-year Daily subscription and the 1-year Weekly Wrap you will need to have your entry on where the Dow will close at the end of DECEMBER by November 30, 2013 by midnight.
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– with the subject line “Dow iPad Guess”. We will also send you an email to verify your guess in case those of you have problems. You will need to enter 2 decimals as well to your end of year guess for the Dow.
For current MomentumOptionTrading Weekly Wrap readers, you can still keep your subscription with us but you will have to visit NextOptions.com to enter the monthly contest to win a shiny silver dollar. However, you cans still signup for the iPad contest and have the emails from MomentumOptionsTrading.com. All of the trades are the same and are released at the same times with updates as needed for both sites.
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You can also email us to view all of our Track Record results and here are some of the monster trades we have recommended over the past few months:
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+213% OPK (LEAP) call options
+103% NPSP call options
+319% JCP put options
+182% NPSP (LEAP) call options
+67% KOG (LEAP) call options
+172% NPSP call options
+201% CRM call options
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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: 126-63 – the Weekly Wrap is 40-4 for 2013 (84-6 since 2011) and is designed for traders that want to use options with less risk.
JC Penney (JCP, $8.23, up $0.10)
January 10 calls (JCP140118C00010000, $0.65, up $0.05)
Entry Price: $0.65 (11/7/13)
Exit Target: $1.30
Stop Target: None
Action: Short-term resistance is at $9 and a move past this level should get $10 in play. A close back below $7 would be bearish and would likely force us out of the trade.
H&R Block (HRB, $27.85, up $0.49)
December 30 calls (HRB131221C00030000, $0.35, up $0.05)
Entry Price: $0.60 (10/29/13)
Exit Target: $1.20
Stop Target: None
Action: We got into this trade just as shares looked as though they would clear $30 but resistance held followed by a sharp pullback to the 200-day MA. Shares closed above this level but there is still risk down to $27-$26.50. A close below the latter could force us out the trade but we still believe $30 trips and a run to $35 is coming over the next 6 months.
Millennial Media (MM, $6.71, down $0.17)
December 7.50 calls (MM131221C00007500, $0.60, down $0.05)
Entry Price: $0.65 (10/25/13)
Exit Target: $1.30
Stop Target: None
Action: Shares tried to hold the 50-day MA at $7 all week and traded up to $7.13 on Friday. Resistance is at $7.25 and a close above this level could lead to a run to $8. Support is at $6.75-$6.50. Earnings are due out on Wednesday.
DuPont (DD, $62.00, up $1.15)
December 62.50 calls (DD131221C00062500, $0.85, up $0.30)
Entry Price: $0.60 (10/24/13)
Exit Target: $1.20
Stop Target: None
Action: Shares closed at their high on Friday and the 52-week high is at $62.69. Support is at $60.
Other 2013 Portfolio OPEN positions (3): 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.
Boston Scientific November 12 calls (from October 2013) – HOLD
Aruba Networks November 20 calls (from October 2013) – HOLD
Catamaran November 52.50 calls (from October 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.
Peabody Energy (BTU, $20.87, up $0.81)
December 22 calls (BTU131221C00022000, $0.58, up $0.23)
January 23 calls (BTU140118C00023000, $0.58, up $0.18)
March 24 calls (BTU140322C00024000, $0.82, up $0.18)
Thoughts: Shares appear headed to $22 and a break above this level could lead to $25-$27.
Opko Health (OPK, $10.31, up $0.27)
December 11 calls (OPK131221C00012000, $0.65, up $0.05)
January 12 calls (OPK140118C00012000, $0.70, up $0.10)
Thoughts: We could be getting real close to getting back into this name. We want to confirm the chart work we will be doing this morning and we will watching the open. We could take action today so be ready. Earnings are also due out on Monday.
NPSP Pharmaceuticals (NPSP, $24.26, up $0.59)
December 27 calls (NPSP131221C00027000, $1.00, up $0.10)
December 20 puts (NPSP131221P00020000, $0.40, down $0.15)
Thoughts: The close below the 50-day MA was a sign further weakness could be ahead for the stock. Earnings were a disappointment to Wall Street this week and Wednesday’s low checked-in at $21.60. We did extremely well playing the stock’s run to $35 in early October and we are tempted to short shares for a possible drop below $20. We have listed some call options as well we can use to make this a strangle option trade for our Weekly Wrap portfolio but we are favoring the puts if we open a position.
Cliff’s Natural Resources (CLF, $27.34, up $0.57)
December 30 calls (CLF131221C00030000, $0.70, up $0.10)
Thoughts: We could go long on a break above $29 with these call options. We were following the 31’s.
ViroPharma (VPHM, $39.38, up $1.05)
December 45 calls (VPHM131221C0004500, $0.50, up $0.15)
January 45 calls (VPHM140118C00045000, $1.15, up $0.20)
Thoughts: We could add these calls on a pop past $40.
AbbVie (ABBV, $48.03, up $0.81)
December 47.50 calls (ABBV131221C00047500, $1.65, up $0.40)
Thoughts: We could get into these call options on a move past $50.
iShares Russell 2000 (IWM, $109.23, up $1.95)
December 112 calls (IWM131221C00112000, $1.05, up $0.40)
December 102 puts (IWM131221P00102000, $0.60, down $0.30)
Thoughts: We could go long on a pop above $111 or short on a close below $108.
Salesforce.com (CRM, $55.49, up $1.14)
December 60 calls (CRM131221C00060000, $1.45, up $0.25)
Thoughts: We believe shares will make a run past $60 as long as $50 holds and $55 is cleared. These options opened at $1.20 on Monday.