Although the bears split Thursday’s session with the bulls, the bear conspiracy theorists had to be upset with yesterday’s close, as the bulls technically avoided what would have been the first four-session slide on the S&P 500 all year.
The action was a textbook back-test to resistance or a sign the worst may be over. This morning’s Non-Farm Payrolls report could help or hinder the bulls efforts in reclaiming prior support, but another disappointing number could lead to further selling pressure.
The Dow declined 3 points, or 0.02%, to settle at 16,801. The blue-chips struggled to hold shaky support at 16,800 for the first hour of trading before a steep drop to 16,674 by noon. The index rallied off its low to push a high of 16,857 during the second half of trading, while holding support into the close. Additional support is at 16,600-16,500. Resistance is at 17,000-17,100.
The S&P 500 added 1/100 of a point (0.01) to finish at 1,946.17. The index tried to clear 1,950 and fresh resistance on the open before sinking to 1,926 shortly afterwards. Support at 1,925 stuck like Chuck before a late-day rebound to 1,952. A close above 1,950-1,960 would be bullish heading into next week, while anything below 1,925 would suggest continued weakness.
The Nasdaq advanced 8 points, or 0.2%, to close at 4,430. Tech held positive territory for the first 30 minutes of trading before plummeting to 4,367 and testing my near-term target of 4,350. The bulls held and eventually made a run at 4,450, while also holding shaky support into the close. The bulls will be trying to clear and hold 4,450 ahead of the weekend, while the bears would like to get below 4,400.
The Russell rebounded 11 points, or 1%, to end at 1,096. The small-caps held positive territory for much of the session despite a mid-day dip to 1,077. The bears came within 2 points of triggering my near- term target of 1,075 before a rapid recovery that reached a peak of 1,099.46 ahead of the closing bell. Fresh resistance and prior support at 1,100 held by half of a point and, if cleared, could lead to a back test to 1,115-1,125. A drop or close below 1,075 would be a bearish signal for next week.
The S&P Volatility Index ($VIX, 16.16, down 0.55) zoomed to a high of 17.98 at the height of the selling pressure but relaxed into the close. The bears held 15, as the low reached 15.90. A close below 15 would be bullish for next week, while a print above 17.50 keeps 20-22 in play.
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Heading from desk to press, futures look like this: Dow (+81); S&P 500 (+11); Nasdaq 100 (+20).
Momentum Options Play List
Closed Momentum Options Trades for 2014: 75-48 (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.
McDonald’s (MCD, $94.12, down $0.07)
MCD November 90 puts (MCD141122P00090000, $0.95, down $0.01)
Entry Price: $0.90 (10/2/2014)
Exit Target: $1.80
Stop Target: None
Action: I’m looking for a near-term test to $90 and possibly $85. Resistance is at $97.
Caterpillar (CAT, $97.41, down $0.20)
CAT November 90 puts (CAT141122P00090000, $1.05, flat)
Entry Price: $1.05 (10/1/2014)
Exit Target: $2.10 (closed half at $1.20 on 10/2/2014)
Stop Target: $0.95 (Stop Limit)
Action: I recommended closing half of the trade at $1.20 yesterday and set a stop of $0.95 on the other half. Resistance is at $100, but the other half of the trade will likely close if shares clear $97.75-$98.
Krispy Kreme Doughnuts (KKD, $17.04, up $0.28)
KKD November 16 puts (KKD141122P00016000, $0.45, down $0.05)
Entry Price: $0.40 (10/1/2014)
Exit Target: $1.20
Stop Target: None
Action: Shares traded to a low of $16.41, and the puts reached a peak of $0.70 before the rebound to $17.
I have a near-term target of $15 for the shares, with a shot at $14-$12 on a break below this level. I like the trade as long as $18 holds as resistance.
Walgreen (WAG, $59.76, up $0.72)
WAG October 10th expiration 56.50 weekly puts (WAG141010P00056500, $0.10, down $0.10)
Entry Price: $0.45 (9/29/2014)
Exit Target: $0.90 (Limit Order)
Stop Target: None
Action: If shares clear $60, I will likely exit the trade. I wanted to be out of the position by today, as these are weekly options. If shares can get below $58 today, there might be a chance this trade can turn a profit next week. We’ll see where the action is during the Mid-Market Update this afternoon.
Staples (SPLS, $11.92, up $0.06)
SPLS December 14 calls (SPLS141220C00014000, $0.15, flat)
Entry Price: $0.45 (9/18/2014)
Exit Target: $0.70-$0.90
Stop Target: None
Action: The next wave of support is at $11.75-$11.50. Resistance is now at $12 followed by $12.25.
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.
Fortinet (FTNT, $24.99, up $0.21)
FTNT December 29 calls (FTNT141220C00029000, $0.55, 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 and a possible breakout. There is risk to $24.50-$24.
Trades on Hold — other 2014 Portfolio Open positions (4): 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.
Flextronics October 12 calls and January 11 calls (from September 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.
Editor and Chief Options Strategist