The bulls gave a good effort but failed to keep last Friday’s momentum, as the bears won their third-straight Monday session. I mentioned this week could be a great clue for a pending trend, but getting through it could be volatile.

The Dow dipped 17 points, or 0.1%, to finish at 16,991. The blue-chips traded to a high of 17,099 and fell a point short of clearing resistance at 17,100. The bears pushed a low of 16,930, but the 169-point swing ended with neither side gaining a clear advantage. Support remains at 16,900-16,800, with backup at 16,600.

The S&P 500 slipped 3 points, or 0.2%, to end at 1,964. The index cleared resistance at 1,975 after trading to a high of 1,977 on the open but also faded by midday. Short-term support at 1,960 was breached after the low of 1,958, but the bulls held this level into the close. Additional support is at 1,950.

The Nasdaq fell 21 points, or 0.5%, to settle at 4,454. Tech tested a high of 4,496 at the start of trading but also had trouble with resistance at 4,500. The run to 4,496 faded an hour into the close, with the bears pushing 4,444 during the second half of trading. The bulls held 4,450 into the closing bell but face additional risk to 4,400-4,350.

The Russell gave back 10 points, or 0.9%, to close at 1,094. The small-caps traded up to 1,108 but turned negative 30 minutes after the open. The bulls came nowhere near challenging resistance at 1,120-1,125, which was a good indication the opening rally would fade. The bulls held the initial test to 1,100, but this level eventually failed an hour into the session. The bears made a move to 1,093 and are still looking to get below 1,075, as they held 1,100 into the closing bell.

The S&P Volatility Index ($VIX, 15.46, up 0.91) closed back above 15 after reaching a peak of 15.77. The VIX opened lower and traded down to 14.05, but the bulls failed at getting below 13.50 again. There is continued risk to 17.50 as long as the bears hold 15, with additional risk to 20-22.

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Heading from desk to press, futures look like this: Dow (-64); S&P 500 (-7.5); Nasdaq 100 (-15).

Momentum Options Play List

Closed Momentum Options Trades for 2014: 76-49 (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.

 

McDonald’s (MCD, $93.84, down $1.02)

MCD November 90 puts (MCD141122P00090000, $0.80, up $0.10)

Entry Price: $0.90 (10/2/2014)

Exit Target: $1.80

Return: -11%

Stop Target: None

Action: The 200-day moving average (MA) is just below $96, and I like the trade as long as this level holds. A close back below $93.50 and the 50-day MA should lead to a quick test to $90.

 

Krispy Kreme Doughnuts (KKD, $17.07, down $0.24)

KKD November 16 puts (KKD141122P00016000, $0.45, up $0.05)

Entry Price: $0.40 (10/1/2014)

Exit Target: $1.20

Return: 13%

Stop Target: None

Action: Resistance is at $17.50, and support is at $17-$16.50. I have a near-term target of $15 for shares, with a shot at $14-$12 on a break below this level. I like the trade as long as $18 holds.

 

Staples (SPLS, $11.80, down $0.16)

SPLS December 14 calls (SPLS141220C00014000, $0.15, flat)

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

Exit Target: $0.70-$0.90

Return: -67%

Stop Target: None

Action: Resistance is at $12.20 and the 200-day MA. Support is at $11.75-$11.50.

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. The open interest in these call options is over 18,000 contracts and continues to build.

 

Fortinet (FTNT, $25.13, down $0.42)

FTNT December 29 calls (FTNT141220C00029000, $0.60, down $0.05)

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

Exit Target: $1.90

Return: -37%

Stop Target: None

Action: There is risk to $24.50-$24 on a pullback. Resistance is at $25.50-$26.

 

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

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

 

Trade on!

Rick Rouse
Editor and Chief Options Strategist
Momentum Options