Dear Momentum Options Subscriber,

The bulls ended a three-session skid, for the most part, on Tuesday after holding down another volatile and choppy session. The indexes still struggled with major resistance and, more importantly, holding Tuesday’s gains. The flat finish leaves us with a market that can’t be trusted.

The Dow slipped nearly 6 points, or 0.04%, to close at 16,315. The blue-chips traded to a high of 16,463 but faded into negative territory late in the day. Resistance at 16,500-16,600 easily held, as the bears followed up by pushing a low of 16,273 an hour before the close. It was the fourth-straight negative close for the Dow and keeps 16,200-16,000 in play.

The S&P 500 gained 3 points, or 0.2%, to finish at 1,877. The index made a run to resistance at 1,900 after reaching a peak of 1,899 mid-day but dropped nearly 2% to 1,871 late in the day. The bulls managed to hold 1,875, but there is still risk to 1,850.

The Nasdaq added 13 points, or 0.3%, to settle at 4,227. Tech looked strong at the start of trading and pushed a high of 4,281, but the index wasn’t too much of a threat, as 4,300 stood stronger. The late day buckle back to 4,212 was discouraging, although 4,200 held as support. There is still risk to 4,150-4,100 this week, while a close above 4,300 would be bullish.

The Russell 2000 jumped 12 points, or 1.2%, to end at 1,061. The small-caps led Tuesday’s half-day rally and was the only major index of the four to hold positive territory throughout the session. The Russell reached a peak of 1,075.27 but was unable to hold 1,075-1,070 into the close. The bulls did hold 1,060 and are trying to build a short-term base at 1,050. A close below 1,040 confirms another leg lower.

The S&P 500 Volatility Index ($VIX, 22.79, down 1.85) stayed in negative territory throughout the day after testing a low of 21.48. The bulls got the VIX back below 24 but failed at holding 22. There is still risk to 25-30. I’m keeping my guard up until the VIX gets back below 17.50.

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From desk to press, futures look like this: Dow (-92); S&P 500 (-15); Nasdaq 100 (-28).

Momentum Options Play List

Closed Momentum Options Trades for 2014: 79-49 (62%). 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, $92.97, up $0.01)

QQQ November 100 calls (QQQ141122C00100000, $0.30, flat)

Entry Price: $0.60 (10/10/2014)

Exit Target: $1.40

Return: -50%

Stop Target: None

Action: The QQQs failed to hold $94 after trading to a high of $94.17. There is still risk to $92-$90.

 

Apollo Group (APOL, $24.06, down $0.14)

APOL November 23 puts (APOL141122P00023000, $1.05, up $0.05)

Entry Price: $0.70 (10/8/2014)

Exit Target: $1.40

Return: 50%

Stop Target: None

Action: Shares traded below $24 to a low of $23.95 on Tuesday.

The last line of support is at $24 before a possible collapse to $21. The $3 gap could accelerate quickly on a move below $24.

This wasn’t intended to be an earnings trade, as I have covered Apollo’s chart work frequently in the past. However, if we are still holding the options, it will become an earnings trade when the company announces earnings on Oct. 21.

Wall Street has pegged the company earning 27 cents a share on revenue of just shy of $729 million. The range, however, could produce an earnings surprise or serious miss. The 27 analysts that cover the stock have a high of 35 cents a share and a low of 19 cents a share.

Previous comments:

Long-time subscribers know I have been bearish on this stock for years. With student debt over $1.2 trillion, Apollo will be the first to crumble as this story gets worse. I have said this is a mid-teen stock at some point down the road. I believe shares could test $20 by mid-November.

 

Krispy Kreme Doughnuts (KKD, $16.91, up $0.21)

KKD November 16 puts (KKD141122P00016000, $0.45, down $0.10)

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

Exit Target: $1.20

Return: 13%

Stop Target: None

Action: I have a near-term target of $15 for shares on a break below $16.50, with a chance at $14-$12. Resistance is at $17.50. Earnings aren’t due out until early December.

 

Fortinet (FTNT, $24.03, up $0.60)

FTNT December 29 calls (FTNT141220C00029000, $0.40, up $0.10)

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

Exit Target: $1.90

Return: -58%

Stop Target: None

Action: The close above $24 was slightly bullish, but further resistance is at $24.50. Earnings are due on Oct. 22.

 

Rubicon (RBCN, $4.19, up $0.10)

RBCN December 8 calls (RBCN141222C00008000, $0.20, flat)

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

Exit Target: $0.70 (Limit Order)

Return: -43%

Stop Target: None

Action: Support is at $4. Resistance is at $5.

 

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.

Staples December 14 calls (from September) — Continue to hold.

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 this Friday. Earnings are due out on Thursday and will ultimately decide the fate of this leftover trade from the summer, as the options expire on Friday. The current ask is 45 cents — Continue to hold.

Trade on!

Rick Rouse
Editor and Chief Options Strategist
Momentum Options