The see-saw battle between the bulls and bears reached a feverish pitch last week as the bears came close to causing panic on Monday, while the bulls held a parade by pushing fresh all-time highs on the Dow by Tuesday’s close.
Wednesday’s action had the Fed back in the game, and it didn’t (did) upset the applecart, as it made the market happy with its “considerable time” statements.
Wall Street didn’t seem too worried over Thursday’s action overseas on the vote if Scotland should stay or go, and instead focused on Friday’s debut of Alibaba (BABA, $93.89, up $25.89).
The Scots voted to stay with England, and Alibaba held $90. These were bullish signs, but I mentioned September option expiration was historically a bearish day and to watch for an opening pop-and-drop by the close on Friday. Although the action felt bearish, new highs were set, and the clues for a downside correction will become clear if key support levels start to crack.
The Dow gained 13 points, or 0.1%, to close at 17,279 on Friday. The blue-chips traded to an all-time intraday high of 17,350 shortly after the open before fading into negative territory to 17,257 in the afternoon. I have been calling for a run to 17,350-17,500 over the near-term and, while the first wave triggered, I warned to watch for an opening pop and drop on Friday. The bulls held green by the close, but there is risk to 17,100-17,000 on a back test this week. Back-up support is at 16,800. For the week, the Dow jumped 292 points, or 1.8%.
The S&P 500 dipped a point, or 0.05%, to finish at 2,010. The index traded to an all-time intraday high of 2,019 on Friday before slipping into the red throughout the second half of trading. The bears pushed a low of 2,006, but the bulls easily held 2,000, which is now serving as fresh support. There is risk to 1,985-1,975 on a close below this level. I have talked about a run to 2,025-2,050 over the near-term, and this level is still in play as long as 2,000 holds. The S&P jumped 25 points, or 1.3% last week.
The Nasdaq fell 13 points, or 0.3%, to settle at 4,593. Tech opened above the 4,600 level and reached a 52-week peak of 4,610 before tumbling to a low of 4,563. The bulls’ inability to hold 4,600 all this month has been a bearish signal but, if cleared, a run to 4,700-4,800 is in the mix. Near-term support is at 4,550-4,500. The week ended with the bulls popping a 12-pack.
The Russell 2000 dropped 12 points, or 1.1%, to end just below1,147. The small-caps opened above the 1,160 level and traded to a high of 1,163.86 before falling nearly 2% to a late day low of 1,143. Near-term support at 1,140 held, but the close below 1,150 has the bulls playing with fire in between these levels. A close above 1,160 keeps 1,170-1,175 in play but further, stronger resistance remains at 1,180. The Russell fell 14 points, or 1.2%, for the week — something the talking heads overlooked.
The S&P Volatility Index ($VIX, 12.11, up 0.08) traded down to 11.52 on Friday’s open, and I said all last week a close below 11.50 would confirm continued all-time highs. The bears made a run past 12.50 afterwards and reached 12.61 before the see-saw battle was somewhat split in the middle. These two levels will be important to watch on Monday’s close.
My homework from last week paid off in spades, as Monday’s pullback had more suit-and-ties calling for the mother of all pullbacks, but the technical indicators and patterns I watch told me otherwise.
The action in Tech, the small-caps, the VIX, and the blue-chips kept my emotions in check, as support on the indexes were rock solid, while resistance on the VIX held like a brick.
The summer rally from mid-August through mid-September played out like a fiddle with a mini-pullback and strong rebound that shook out more of the weaker hands. However, the time-frame to “time the bottom” was less than 24 hours.
It has been amazing to see some of the technical indicators I have said to watch for play out, and that is why I spend a dozen hours over the weekends to try and stay one step ahead of Wall Street.
The Monday/Friday closes on the Dow were positive last week following the first negative M/F close since April the prior week. The market overall was a wreck on Monday, with Tech and the small-caps getting spanked, but the positive close by the blue-chips was a bullish clue in an overall dismal day. For new subscribers, positive M/F closes on the Dow usually mean that money is staying in the market. Negative M/F closes can signal that money is moving out of the market, while mixed ones usually signal trading ranges.
The bears pushed a low of Dow 16,951 and came nowhere near 16,900-16,800 on Monday’s pullback. Tuesday’s close above 17,100 by the blue-chips was a bullish sign the market would have a good week, as I mentioned a close above this level could lead to a run to 17,350-17,500. Although the first wave triggered, Friday’s close was a bummer.
On the bright side, the Dow has held the 17,000 level for 20 of the past 21 sessions. The first sign of a trend change would be consecutive closes below 17,000, but I would wait for the levee to break at 16,800 before getting aggressively short the blue-chips.
For new subscribers, I reviewed my February Price Targets for the indexes last week, and I have penciled-in Dow 19,000. While this might be a stretch at current levels, I mentioned in July that if Apple were to join the blue-chips, the Dow could achieve this level, and Alibaba will help the New York Stock Exchange overall. Either way, I still expect Dow 18,000 to trigger, but just how close we get to 19,000 is still up in the air.
For the S&P 500, I mentioned there was continued risk to 1,975 last week (with wiggle room down to 1,950), and Monday’s low touched 1,978. Tuesday’s low of 1,979 was a higher low before Wednesday’s finish back above 2,000. The close above 2,000 was another lucky charm that a run to my near-term fluff target of 2,025-2,050 might come. My year-end target from February for S&P 2,100 is also in play. The support floor at 2,000 is still shaky, as the bulls have only held this level 11 of the past 18 sessions. Any closes back below this level still need to be watched.
The 10-year chart I sketched for the Nasdaq had the uptrend (black) line right at 4,500. Tech traded down to 4,506 on Monday and closed below 4,550 before kissing 4,499.87 on Tuesday and reclaiming this level by the closing bell. This was also the market fairy telling us a run to 4,600 was still in play.
However, I warned of the possible pop and drop on the Nasdaq that needed to be watched, and the bears pushed a low of 4,563 on Friday. The downtrend (purple) line from last week’s 10-year chart showed risk to 4,400-4,350 on a close below 4,500-4,475. If the bulls can clear and hold 4,600 over the near-term, the big-wig fund managers that I have talked about all year that have lagged the market will be forced to show some gains for the third quarter. This would lead towards continued strength through the end of the month.
One of the biggest clues on near-term direction could lie with the small-caps. The short-term and 10-year charts showed wiggle room to 1,140 last week. Monday’s low reached 1,143 before Tuesday’s test to 1,141 and recovery above 1,150 by a point. Thursday’s high reached 1,160.30 before a 1-point close below this level at 1,159. I talked about Friday’s disappointing round-trip earlier, and a close below 1,140 likely leads to 1,125-1,100. I would think a drop to these levels in October (or sooner) would create an incredible buying opportunity for the rest of the year, but Wall Street may or may not get that chance.
The S&P Volatility Index tested a high of 14.19 to start the week after giving up the 13.50 level and ended at 14.12. Tuesday and Wednesday’s high reached 14.53, with closes at 12.73 and 12.65, respectively. Thursday’s close below 12.50 setup Friday’s test to 11.50, and the close below 12.50 was slightly bullish despite the whipsaw action. I mentioned the near-term chart is showing a major breakout or breakdown in the coming weeks. I covered the VIX in tremendous detail last week and have said all year that single-digits will trigger if 2,100 on the S&P is hit.
Historically, the last month of September has shown weakness. The volatile action can be nerve-wracking, but it is my job to calm the nerves and make us money. This is still a stock picker’s market and has been for a few years, and I don’t march to Wall Street’s drum.
One of the better quotes I heard last week from a suit-and-tie was “trade the market, don’t let the market trade you.” How true.
Rookie option traders often think that they have to be trading in order to be profitable. This is true to an extent, but the last thing you want to do is force trades. If my trading strategy isn’t giving any signals for a good trade, most times I do nothing.
I often say I wait for all of my trading signals to trigger before calling market trends, tops and bottoms. Impatient traders and other option newsletters (with no track records) fall into this trap of trying to pull trades out of thin air. This is why I make myself accountable for all of my trades and chart work. Option trading is an art and a science, and my goal has been to be the best in the industry.
I’m still cautious on the near-term outlook, as I do see a flat to lower market developing ahead of third-quarter earnings season, which is three weeks away. Trading ranges can be tricky, and I want to make sure I’m prepared for one until the next round of fireworks. Otherwise, continue to bet on the bulls as long as support holds.
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Ahead of the open, futures look like this: Dow (-37); S&P 500 (-6); Nasdaq 100 (-13.50).
Momentum Options Play List
Closed Momentum Options Trades for 2014: 71-44 (62%). All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.
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 I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the 9 a.m. and 12 p.m. — 1 p.m. updates. Also, I will usually give you a heads-up if I think I’m going to send an email outside of these time frames.
All prices given in this update are current as of 9:00 a.m. EST.
Every new Momentum Options recommendation is listed with the price at which I entered my own position. If the price is slightly different than my recommended entry or exit price when you receive the alert, don’t let that keep you from getting into or out of a trade. Occasionally, you might even get a better “fill” price than what is posted in the Open Trades and Closed Trades.
Aruba Networks (ARUN, $22.95, down $0.02)
ARUN October 23 calls (ARUN141018C00023000, $0.85, flat)
Entry Price: $0.75 (9/18/2014)
Exit Target: $1.50
Stop Target: 75 cents (Stop Limit)
Action: Shares traded to a high of $23.61 on Friday, and the 52-week peak is at $23.90. I’m looking for shares to make a run at $24 over the near-term, possibly $26 on a breakout. Support is at $22.50-$22. I like the trade as long as $21 holds, but I have put a new Stop Limit of 75 cents in place.
Staples (SPLS, $13.05, up $0.01)
SPLS December 14 calls (SPLS141220C00014000, $0.45, flat)
Entry Price: $0.45 (9/18/2014)
Exit Target: $0.70-$0.90
Stop Target: None
Action: Shares traded up to $13.28 on Friday, while the options reached double-nickels (55 cents). A close above $13.20 would be bullish. I have a near-term target of $14 and a longer-term target of $17. The 52-week high is at $16.67. The open interest in these call options is over 17,000 contracts and continues to build. The 50-day moving average (MA) recently crossed over the 100-day MA, and shares are in a nice uptrend. Support is at $12.60-$12.40 and the 200-day MA. If shares are at $15 by mid-December, these options will be worth $1+ for an easy double from current levels.
Freeport-McMoRan (FCX, $34.06, down $0.25)
FCX October 35 calls (FCX141018C00035000, $0.33, down $0.12)
Entry Price: $0.75 (9/16/2014)
Exit Target: $1.10-$1.50
Stop Target: 20 cents (Stop Limit)
FCX November 36 calls (FCX141122C00036000, $0.40, down $0.10)
Entry Price: $0.70 (9/16/2014)
Exit Target: $1.05-$1.40
Stop Target: None
Action: Following a 7-cent run to $34.82 on Friday’s open, shares tested a low of $33.80. I recommended the trade on the break above the 200-day moving average (MA) last week, but there is risk to $33.50. A close below this level might force me out of the trade. A close above $35 this week would be slightly bullish. I have placed a new Stop Limit of 20 cents on the FCX October 35 calls but plan to keep the November calls open through the volatility.
World Wrestling Federation (WWE, $14.69, down $0.29)
WWE October 16 calls (WWE141018C00016000, $0.20, down $0.10)
Entry Price: $0.45 (9/11/2014)
Exit Target: $0.90 (Limit Order on half)
Stop Target: None
Action: WWE kissed $15.14 on Friday’s open but gave back the $15 level an hour later. Support is at $14.75-$14.50. I like the trade as long as $14 holds.
Flextronics (FLEX, $10.85, down $0.09)
FLEX October 12 calls (FLEX141018C00012000, $0.05, flat)
Entry Price: $0.07 (9/5/2014)
Exit Target: $0.15-$0.25
Stop Target: None
FLEX January 11 calls (FLEX150117C00011000, $0.60, down $0.05)
Entry Price: $0.68 (9/5/2014)
Exit Target: $1.50+
Stop Target: None
Action: Support is at $10.75-$10.50. Near-term resistance is at $11.25. If cleared, shares could make another run at $11.75 and fresh 52-week peaks. I believe shares are going to make a strong move past $12 in the coming weeks and $14 by year-end.
Fortinet (FTNT, $26.42, down $0.36)
FTNT December 29 calls (FTNT141220C00029000, $0.95, down $0.10)
Entry Price: $0.95 (9/2/2014)
Exit Target: $1.90
Stop Target: None
Action: Shares traded to a 52-week high of $26.84 on Friday before fading. Support is at $26 with backup at $25.50 and the 50-day moving average.
Rubicon (RBCN, $5.01, down $0.11)
RBCN December 8 calls (RBCN141220C00008000, $0.20, flat)
Entry Price: $0.35 (8/25/2014)
Exit Target: $0.70
Stop Target: None
Action: There is risk to $4.75-$4.50. Resistance is at $5.25.
I still like the trade, as open interest is massive in these call options. The short-interest is also ballooning, with 30% of the float sold short. Analysts are expecting a terrible quarter, but the company has beaten loss estimates two of the past four quarters.
This is a sapphire play that has until December before the trade expires. These were “cheap” options, so stay patient, as a big payday, or buyout of the company, could be coming.
Trades on Hold — other 2014 Portfolio Open positions (2): 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 I would not open any new positions. I’m still keeping track of the trades and will record the results accordingly when the trade closes or if the options expire. Click on the Open Trades and Closed Trades pages to see all open and closed positions.
AKS Steel Holding October 12 calls (from August 2014) and January 13 calls (from August 2014) — Continue to hold.
Pool October 50 puts (from July 2014) — The break-even point for the trade is at $48.90, technically, by mid-October. These options have nearly a month before they expire — Continue to hold.