It only took a day, but the slick-talking pros quickly learned Wednesday’s rebound rally was a head-fake.

The bears returned with a vengeance on Thursday, and they had their best day since the end of July, with the major indexes falling 1.7% on average.

I mentioned at the start of the week that it was important for all of your trading signals to trigger before banking on a trend and, while yesterday was only one session, some serious technical damage was done.

The Dow declined 264 points, or 1.5%, to settle at 16,945. The blue-chips spent the entire session in negative territory after opening at 17,204 and falling below the 17,000 level a little over an hour into trading. The index ended at its session low and faces further risk to 16,800-16,600. A close back above 17,000 keeps a possible trading range intact.

The S&P 500 sank 32 points, or 1.6%, to close at 1,965. The index failed to make a run to resistance at 2,000 after opening lower and falling below 1,975 during the first half of trading. I have talked about risk to 1,950 on continued weakness, and the close below the 50-day moving average confirmed this possibility. A finish back above 1,975-1,985 would ease some concerns ahead of the weekend.

The Nasdaq got pummeled for 88 points, or 1.9%, to end at 4,466. Tech opened below the 4,550 level and never recovered. The breech at 4,500 happened within the first 30 minutes of trading and signaled it might be a long day for the bulls. The index faces further pressure down to 4,450-4,400 after closing below its 50-day moving average as well.

The Russell 2000 tanked 18 points, or 1.6%, to finish at 1,110. The small-caps opened a point above shaky support at 1,125 but folded like a cheap lawn chair after testing a low of 1,107. The bears matched the Aug. 1 low, and I have been warning of a drop to 1,100. Any dips below this level will likely lead to 1,075 and a retest of the May low of 1,082.

The S&P 500 Volatility Index ($VIX, 15.64, up 2.37) zoomed 18% after clearing 15 shortly after the open. The bears held this level for the first time since early August, and I have warned of risk to 17.50 if cleared. Thursday’s peak reached 16.69.

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From desk to press, futures look like this: Dow (+23); S&P 500 (+2); Nasdaq 100 (+5).

Momentum Options Play List

Closed Momentum Options Trades for 2014: 72-46 (61%). 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.


PowerShares QQQ (QQQ, $97.94, down $1.90)

QQQ October 98 puts (QQQ141018P00098000, $1.60, up $0.86)

Entry Price: $1.10 (9/25/2014)

Exit Target: $2.20

Return: 45%

Stop Target: $1.15 (Stop Limit)

Action: The QQQs broke $99 30 minutes into the session and, with a rising VIX, this trade was a no-brainer. However, the QQQ’s held their 50-day moving average, so I would like to see some follow-through today to feel good about holding this trade over the weekend.

I often talk about option with three weeks or less as “danger zone” trades because the premiums start to erode as time decay sets in. I have a near-term target of $97, possibly $95, on continued weakness, but I have set a new Stop Limit of $1.15 in case the bulls rebound again.


General Motors (GM, $32.87, down $0.78)

GM December 32 puts (GM141220P00032000, $1.10, up $0.25)

Entry Price: $0.95 (9/22/2014)

Exit Target: $1.90

Return: 16%

Stop Target: None

Action: Thursday’s low reached $32.83. Shares appear ready to trade down to $32.50 over the near-term as long as $34.50 holds. I believe GM could fall below $30 and test $28 in the longer term. If shares trade down to $30 by mid-December, these options will easily double from the entry price, as they will be worth at least $2.


Apollo Group (APOL, $25.00, down $0.24)

APOL November 24 puts (APOL141122P00024000, $1.10, up $0.05)

Entry Price: $0.85 (9/22/2014)

Exit Target: $1.70

Return: 29%

Stop Target: 87 cents, raise to 95 cents (Stop Limit)

Action: Thursday’s low reached $24.94. I have a near-term target of $24, with a chance of shares testing $22-$20. I have been bearish on this stock for years and have been targeting a test to the mid-teens at some point. A break below $24 is the last line of support and represents the 100-week moving average. There is risk to $28 on a back test, but resistance will try to hold at $26.


Staples (SPLS, $12.59, down $0.22)

SPLS December 14 calls (SPLS141220C00014000, $0.30, down $0.05)

Entry Price: $0.45 (9/18/2014)

Exit Target: $0.70-$0.90

Return: -33%

Stop Target: None

Action: Support is at $12.60-$12.40 and the 200-day moving average. Resistance is at $12.75-$13.

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 18,000 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. These options have three months before expiration, so we have plenty of time to ride out the short-term volatility.


Freeport-McMoRan (FCX, $32.67, down $0.58)

FCX November 36 calls (FCX141122C00036000, $0.22, down $0.05)

Entry Price: $0.70 (9/16/2014)

Exit Target: $1.05-$1.40

Return: -69%

Stop Target: None

Action: Resistance is at $34. There is risk to $32.50 on further selling pressure. These options have two months before they expire, and I like the trade as long as $32 holds up.


Flextronics (FLEX, $10.51, down $0.30)

FLEX October 12 calls (FLEX141018C00012000, $0.03, down $0.02)

Entry Price: $0.07 (9/5/2014)

Exit Target: $0.15-$0.25

Return: -57%

Stop Target: None


FLEX January 11 calls (FLEX150117C00011000, $0.45, down $0.10)

Entry Price: $0.68 (9/5/2014)

Exit Target: $1.50+

Return: -33%

Stop Target: None

Action: Support is at $10.75-$10.50. Near-term resistance is at $11-$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, $25.04, down $0.80)

FTNT December 29 calls (FTNT141220C00029000, $0.60, down $0.20)

Entry Price: $0.95 (9/2/2014)

Exit Target: $1.90

Return: -37%

Stop Target: None

Action: There is risk to $24 if $25 fails to hold. I would like to see shares recover $25.50 today.


Rubicon (RBCN, $4.51, down $0.23)

RBCN December 8 calls (RBCN141220C00008000, $0.10, down $0.05)

Entry Price: $0.35 (8/25/2014)

Exit Target: $0.70

Return: -71%

Stop Target: None

Action: There is risk to $4. Resistance is at $4.75-$5.

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.