The bears continued their pressure from the prior Friday’s opening pop and drop to start the week, as the Dow fell triple-digits and the small-caps fell below key support at 1,140.

Last Tuesday’s pullback can be blamed on the U.S. airstrikes against Syria in a starting attempt to defeat ISIS, but the bulls held support despite the somber news.

The rebound on Wednesday was textbook, as the bulls avoided a possible four-session slide for the first time all year. However, Thursday’s damage made for the worst trading day since late July, as the bears pushed fresh lows for the week.

Friday’s rebound kept a possible trading range intact that I have talked about forming, but this week promises to be just as volatile.

The Dow jumped 167 points, or 1%, to finish at 17,113 on Friday. The blue-chips traded to a high of 17,148 late in the session and held 17,100 into the closing bell. This sets up another run to 17,350-17,500 over the near-term as long as shaky support holds at 17,000. There is additional risk to 16,800, with last week’s low reaching 16,945. For the week, the Dow dropped 166 points, or 1%.

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The S&P 500 soared 16 points, or 0.9%, to settle at 1,982. The index made a run to 1,986 on Friday but failed at holding 1,985. The close above 1,980-1,975 was bullish, but there is risk to 1,960-1,950 on a dip back below the latter. Stronger resistance is at 2,000, but, if cleared, could lead to 2,025-2,050 over the near-term. The S&P 500 slipped 28 points, or 1.5%, for the week.

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The Nasdaq zoomed 45 points, or 1%, to end at 4,512. Tech opened above 4,475 and cleared 4,500 shortly after midday to hold this level into the weekend. The bulls kissed 4,515 and held 4,500 into the closing bell, which keeps 4,550-4,600 in the mix. A drop below 4,475 again will likely lead to 4,425-4,400. The index fell 67 points, or 1.5%, last week.

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The Russell 2000 added 9 points, or 0.8%, to close at 1,119. The small-caps opened higher and held positive territory after a shaky start. The bulls made an attempt at clearing 1,120-1,125 late in the day but ultimately fell short. Monday’s break below 1,140 was the one of the main clues I said to watch for last week, as I said it would lead to a test to 1,125-1,100. Last Thursday’s low reached 1,107. If the bears get below 1,100 expect a test to 1,075. For the week, the Russell 2000 tanked 27 points, or 2.3%.

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The S&P Volatility Index ($VIX, 14.85, down 0.79) ended the week below 15 following Friday’s 5% pullback. The close above 13.50 to start the week signaled a test to 15 was coming, and I mentioned there would be risk to 17.50. Tuesday’s trip reached 14.94 before the bulls recovered 13.50 on Wednesday. Thursday’s wild ride reached 16.69, with the VIX ending at 15.67. Friday’s low touched 14.31. I will be watching all of theses levels again this week, but it will be important for the bulls to hold 15 today.

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From the beginning of September:

“Geopolitical concerns remain the main headline risk as tensions from around the world have heated up and are boiling over. Hopefully, things simmer down this week and into next as this would allow the global markets to breathe a sigh of relief.

From there, triple-witching and September option expiration week could cause volatility to creep back up, as well as heightened U.S. airstrikes.

Tan suits, twiddling thumbs and long vacations have encouraged the saber-rattling and violence in the world. In fact, things are at the point of no return for some countries. This is why I’m slightly cautious on the market over the intermediate-term and for the back half of September and into October.” (END)

I like to look back over my postings as reference points, and these were my thoughts heading into the month. I have been warning for much of the year that the market can go up during the threat of war, but it usually pulls back when bullets start to fly.

I also mentioned the perfect storm the bulls were approaching on the day Alibaba (BABA, $90.46, up $1.54) went public along with September option expiration day, and new highs triggered at the open the prior Friday.

The bearish close that day, Alibaba testing $90 on Monday and falling back below this level on Tuesday, the VIX stalling at 11.50 on the bulls and the quick back test to 15 by the bears on Tuesday were all great clues that volatility would return last week.

The “death-cross” I have said to watch for weeks also played out on the Russell 2000, with the 50-day moving average (MA) falling below the 200-day MA. I pointed out midweek that the last time this had happened was over two years ago when the small-caps were at 765 and the bulls held. This time might be different, so I charted the exponential moving averages (EMAs) for the Russell 2000, as they give a better weighting on recent action than the simple moving averages (SMAs). Market charters often use these two averages, as they are similar, but the EMAs can be more reliable if price fluctuations start to rise. The chart below shows the Russell 2000 50-day EMA holding above the 200-day EMA, but on the verge of breaking below the 100-day EMA.

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The decline in the small-caps this month and since July has been discouraging, as the Russell 2000 has underperformed the major indexes since peaking at 1,213. The index is down 73 points, or 6%, since July 1 and double-nickels (55 points), or 5%, for September. There are only two trading days in the month for a recovery, and I doubt the bulls will have the mustard to top 1,193 or 1,174 this quickly to get the quarter and monthly win, respectively. If not, it will be the first time in nine quarters, or more than two years, that the Russell will end the quarter with a loss. The current win streak of eight is the best performance ever including the two bull runs in the 1990s for the index.

The Russell 2000 will be the focal point for a possible fourth-quarter and year-end rally to continued all-time highs. If the bulls hold current support levels, then October could present a buying opportunity. If the bears do further damage and crack 1,100, the selling pressure could intensify.

The financial stocks will also need to hold support, and I covered the action in the Financial Select Spiders (XLF, $23.29, up $0.22) midweek. The break below prior support at $23.40 is now short-term resistance, with $23 and the 50-day moving average serving as backup. A close below $23 would be bearish, as it would likely setup a test to the 100-day moving average on continued weakness.

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The Monday/Friday closes on the Dow were mixed last week, with the recent action also suggesting a trading range could be setting up into third-quarter earnings season. However, the blue-chips experienced triple-digit price swings throughout last week, so a more volatile range could be in store.

This type of action can cause flip-flopping analysts that don’t do homework or chart work to panic, and that’s why it has been important for me to wait for all of my indicators to trigger before loading up on short positions. That hasn’t happened, yet.

Economic news will be back in focus this week along with geopolitical events, so the headlines will be there to sway the bulls and bears to act. Friday’s Nonfarm Payroll report and unemployment numbers will be the main focus along with the christening of October, which has historically experienced some of the worst bear market declines in history.

Trading ranges can be difficult to navigate, especially volatile ones, and during a trading range, I’ve found it’s best to use “cheap” options during these types of environments. By cheap options, I’m usually referring to options trading for 75 cents or less.

When a clearer trend develops, I like to trade closer in-the-money options on more expensive stocks, but I normally keep all of my options trades at $1.50 or less. Sometimes, I will trade options up to $2, but it represents four 50-cent option trades, and my odds are better playing four trades instead of one.

I mentioned last week if you are a new subscriber, to check out the 10-year charts from February and from a couple of weeks ago as I have updated them. This will give everyone a great overview of what I have expected from the market this year and where the indexes could be trading at by year-end.

Remember, if you haven’t already, you can sign up to receive text alerts delivered to your mobile device to stay on top of any actions to take during the trading day. Register for text alerts here.

Be sure to tell your carrier to allow texts from our number, which is 31279. It may take a few days for your registration to complete. While it’s free to register, keep in mind that your carrier might apply charges.

Ahead of this morning’s open, futures look like this: Dow (-97); S&P 500 (-12); Nasdaq 100 (-25).

Momentum Options Play List

Closed Momentum Options Trades for 2014: 73-46 (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 8:30 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, $98.78, up $1.04)

QQQ October 98 puts (QQQ141018P00098000, $1.09, down $0.51)

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

Exit Target: $2.20 (closed at $1.15 on 9/26/14)

Return: 5%

Stop Target: $1.15 (Stop Limit)

Action: The Stop Limit of $1.15 triggered Friday afternoon after the QQQs cleared $98.50 — a level I wanted to see hold. The whipsaw action took us out of the trade ahead of the weekend like planned. I could possibly use the QQQs later today for a New Trade. If $99.25-$99.50 clears, I might use the QQQ October 100 calls (QQQ141018C00100000, $0.80, up $0.20) to play another run to 52-week peaks.

If the QQQs fall below $97.70 and last week’s low, I may go short using these put options again.

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General Motors (GM, $33.17, up $0.30)

GM December 32 puts (GM141220P00032000, $0.95, down $0.15)

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

Exit Target: $1.90

Return: 0%

Stop Target: None

Action: Resistance at $33.50 held on Friday, and there is a further hurdle at $34 and the 50-day moving average.

Shares appear ready to trade down to $32.50 over the near-term, and I like the trade 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.

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Apollo Group (APOL, $25.39, up $0.39)

APOL November 24 puts (APOL141122P00024000, $0.95, down $0.15)

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

Exit Target: $1.70

Return: 12%

Stop Target: 90 cents, lower to 86 cents (Stop Limit)

Action: The puts traded to a low of 91 cents on Friday. I gave the trade some little wiggle room after lowering the Stop Limit to 90 cents. I’m lowering it again to 86 cents for today. If $25.50 clears, the trade will likely close.

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.

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Staples (SPLS, $12.48, down $0.12)

SPLS December 14 calls (SPLS141220C00014000, $0.30, flat)

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

Exit Target: $0.70-$0.90

Return: -33%

Stop Target: None

Action: Shares traded to a high of $12.76 on Friday. 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.

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Freeport-McMoRan (FCX, $32.87, up $0.20)

FCX November 36 calls (FCX141122C00036000, $0.21, flat)

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

Exit Target: $1.05-$1.40

Return: -70%

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.

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Flextronics (FLEX, $10.51, flat)

FLEX October 12 calls (FLEX141018C00012000, $0.03, flat)

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

Exit Target: $0.15-$0.25

Return: -57%

Stop Target: None

 

FLEX January 11 calls (FLEX150117C00011000, $0.42, down $0.03)

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

Exit Target: $1.50+

Return: -37%

Stop Target: None

Action: Support is at $10.25, and a close below this level would be bearish. Near-term resistance is at $10.75-$11.

I believe shares are going to make a strong move past $12 in the coming weeks and $14 by year-end.

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Fortinet (FTNT, $25.29, up $0.25)

FTNT December 29 calls (FTNT141220C00029000, $0.60, flat)

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

Exit Target: $1.90

Return: -37%

Stop Target: None

Action: Resistance is at $25.50 and the 50-day moving average. There is risk to $24.50-$24 on a close below $25.

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Trades on Hold — other 2014 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 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.

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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. Earnings are due out on Oct. 16 and will ultimately decide the fate of this trade, as the options expire two days afterwards — Continue to hold.

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Rubicon December 8 calls (from August) — Short interest is 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 — Continue to hold.

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