Protests in Hong Kong, political instability over in Spain and Italy and a number of other headlines rattled Wall Street on Monday, as the market pulled back, tried to recover and ultimately finished lower. The small-caps actually showed strength mid-day along with tech and held last week’s low, so there were some bullish signs to take away from yesterday’s session.
The Dow declined 42 points, or 0.3%, to settle at 17,071. The blue-chips traded down to 16,934 on the open and tried to recover after making a run back to 17,100 late in the session. However, the bears kept the pressure on and the close below this level keeps 16,800 in play. The bulls are still looking to push 17,350 again once volatility settles and they can hold 17,200.
The S&P 500 fell 5 points or 0.3%, to close at 1,977. The index tested a low of 1,964 at the start of trading before trying to get back to even the rest of the day. The bulls held 1,975, but a close below this level keeps 1,960-1,950 in play. A pop above 1,985 opens the door open for another run at 2,000.
The Nasdaq dropped a 6-pack, or 0.1%, to finish at 4,505. Tech opened at 4,465 and kissed 4,464 before holding the 4,500 level into the close. The bulls pushed a high of 4,515 and made it into positive territory before the second-half fade towards support. There is still risk to 4,450-4,400 on continued selling pressure. Watch the 4,475 level for clues of a pending breakdown or 4,525 for a breakout.
The Russell 2000 slipped a point and a half, or 0.1%, and went out just below 1,118. The small-caps tested a low of 1,107.81 but held last Thursday’s bottom at 1,107.51. Support at 1,100 would be in jeopardy on a break below this level, with further risk to 1,075. The bulls made a run past 1,120 but failed at making a serious threat to clear resistance at 1,125-1,130.
The S&P Volatility Index ($VIX, 15.98, up 1.13) opened above 15 at 16.96 and reached 17.08 before fading back towards prior resistance. The close above this level keeps 17.50 on deck, with nastiness up to 20-22 on panic selling like what we saw on Monday’s open. The bulls now have multiple layers of resistance to recover starting with 15 and then 13.50-12.50.
Today is the last trading day in September, and it has usually been a bearish day since the late 1990s. The Dow has fallen 75% of the time when wrapping up the current month, but there was a massive rally of nearly 5% in 2008. The first day of October has also been bearish in recent years, and the historical chance that the blue-chips will finish lower is north of 60%.
October should provide a much better trading environment, as the bears may or may not get their 15 minutes of fame. If the bulls continue to hold support, higher highs and my year-end target of 2,100 for the S&P and 4,800-5,000 for the Nasdaq (from February) will likely be in play.
With many new subscribers, I have fielded a lot of emails on when the next “big” trades are coming. Although my technical analysis of the market has been nearly flawless all year, I always say you’re only as good as your last trade.
Batting almost .500 in September isn’t shameless and, for the year, I’m at roughly 60% for my option trade recommendations. I usually go on hot streaks after a choppy month, so stay focused and we will know soon if the next boatload of trades will be mostly calls or puts.
In the meantime, while the trading range continues, I will continue to use both call and put options. Patience is key, and I have given all of the signs on when the next leg higher or lower will appear. We are almost there, and the long hours and homework I have done to this point will pay off.
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Heading from desk to press, futures look like this: Dow (+48); S&P 500 (+6); Nasdaq 100 (+24).
Momentum Options Play List
Closed Momentum Options Trades for 2014: 74-47 (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.
Walgreen (WAG, $59.60, down $0.58)
WAG October 10th expiration 56.50 weekly puts (WAG141010P00056500, $0.45, up $0.10)
Entry Price: $0.45 (9/29/2014)
Exit Target: $0.90-$1.30 (Limit Orders at $0.90 on first half and $1.30 on second half)
Stop Target: None
Action: Set Limit Orders to close the first half of the trade at $0.90 and the second half of the trade at $1.30. If shares clear $62, I will likely close the trade during the Mid-Market Update or with a Trade Alert.
I don’t take too many earnings trades because no matter how much chart work and homework you do, it all depends on what the company says about the recently ended quarter and what’s in store for the current and future quarters.
Walgreen had been scheduled to announce earnings this week and, while it was unconfirmed on exactly what day at first, they will be releasing their numbers this morning.
Analysts are expecting a profit of 74 cents, so this will be the headline number to watch along with revenues, which are expected to come in just above $19 billion. Any number south of these targets along with an earnings per share miss should send shares sinking. Walgreen has missed estimates the past two quarters by 2 and 3 cents, respectively.
This usually signals bad management, and there have been numerous analyst downgrades in recent weeks. The technical chart is a mess, which is why I believe shares could fall below $55. However, a run to $65 on a snap-back rally could come on better-than-expected results.
I recommended the trade late in the day on Monday, as I saw volume exploding, so hopefully we don’t get trampled by the herd. These were “cheap” options on a stock that I am expecting to move $5, so this will likely be an all-or-nothing gig.
General Motors (GM, $32.22, down $0.95)
GM December 32 puts (GM141220P00032000, $1.50, up $0.55)
Entry Price: $0.95 (9/22/2014)
Exit Target: $1.90 (Limit Order on half)
Stop Target: $1 (Stop Limit)
Action: Set Limit Orders to close the first half of the trade at $1.90 today. Also, place a Stop Limit order at $1.00 to protect profits.
Shares made the move below $32.50 I had been expecting on Monday and kissed $31.98.
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.
Staples (SPLS, $12.15, down $0.33)
SPLS December 14 calls (SPLS141220C00014000, $0.25, down $0.05)
Entry Price: $0.45 (9/18/2014)
Exit Target: $0.70-$0.90
Stop Target: None
Action: The next wave of support is at $12, and a break below this level would be bearish, with the 200-day moving average resting at $12.17. Resistance is at $12.40-$12.60.
I have a near-term target of $14 and a longer-term target of $17. The 52-week high is at $16.67.
Staples is turning the corner on a company turnaround and should be trading in the mid-teens by year-end. This is why I want to hang on to these options and why I used the December calls to give the trade plenty of time to play out.
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, $32.40, down $0.47)
FCX November 36 calls (FCX141122C00036000, $0.15, down $0.05)
Entry Price: $0.70 (9/16/2014)
Exit Target: $1.05-$1.40
Stop Target: None
Action: Resistance is at $34. There is risk to $32.50 on further selling pressure. These options have 52 days before they expire, and I like the trade as long as $32 holds up.
Flextronics (FLEX, $10.35, down $0.16)
FLEX October 12 calls (FLEX141018C00012000, $0.03, flat)
Entry Price: $0.07 (9/5/2014)
Exit Target: $0.15-$0.25
Stop Target: None
FLEX January 11 calls (FLEX150117C00011000, $0.35, down $0.08)
Entry Price: $0.68 (9/5/2014)
Exit Target: $1.50+
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.
Fortinet (FTNT, $25.55, up $0.26)
FTNT December 29 calls (FTNT141220C00029000, $0.65, up $0.05)
Entry Price: $0.95 (9/2/2014)
Exit Target: $1.90
Stop Target: None
Action: Resistance is at $25.50 and the 50-day moving average. A close above this level should lead to $26, which is where the fun begins again. There is risk to $24.50-$24 on a close below $25.
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 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 less than three weeks 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.
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. Earnings are due out late October — Continue to hold.