Dear Momentum Options Subscriber,

It was a ferocious Wednesday on Wall Street, as the bears pushed the lows from April, and they are now eyeing February’s trough. Volatility went through the roof, and the incredible comeback by the small-caps only added to the insanity.

The Dow dropped 173 points, or 1.1%, to close at 16,141. The blue-chips fell below the 16,000 mark in early trading and tried to hold this into the second half of the day. The collapse to 15,855 represented a 460 point drubbing before the bulls reclaimed shaky support. I have talked about risk to 15,750 on a close below 16,000. Resistance is at 16,200-16,350. The Dow started 2014 at 16,576, and the April low was 16,015. The February low was 15,340.

The S&P 500 slid 15 points, or 0.8%, to settle at 1,862. The index traded to a low of 1,820 before making a run at resistance at 1,875. The high came in at 1,874, but the close keeps 1,825-1,800 in play. Resistance is at 1,875 followed by 1,900. The index ended 2013 at 1,848, and the April low was 1,814. The February low was 1,737.92.

The Nasdaq fell nearly 12 points, or 0.3%, to end at 4,215. I have talked about Tech testing 4,150-4,100 this week, and yesterday’s low reached 4,116. There is further risk to 4,000-3,975. The late-day run into positive territory to 4,231 was encouraging, but resistance at 4,250-4,300 looms large. The Nasdaq closed 2013 at 4,176.59, and the April low was 3,985.50. The February low was 3,968.15.

The Russell 2000 gained 10 points, or 1%, to finish at 1,072. The small-caps kissed my near-term target of 1,040 squarely on the lips before bouncing to reach a peak of 1,075. The index just missed holding this level, but it did secure 1,070. The next wave of resistance is at 1,080-1,100. A close below 1,040 keeps 1,025-1,000 on deck. The Russell came into the year at 1,163.64. The May and February low of 1,082 needs to be recovered and held for a few days before we can say a bottom is in.

The S&P 500 Volatility Index ($VIX, 26.25, up 3.46) surged 15% after zooming to a high of 31.06. I warned of risk to 30, and the pop above this level could lead to 40. If this triggers, the February lows will likely be in the mix. A close back below 24-22 will be the bulls’ goal today.

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Heading into the open, futures are in the red: Dow (-121); S&P 500 (-16); Nasdaq (-35).

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.

 

McDonald’s (MCD, $90.44, down $0.66)

MCD November 85 puts (MCD141122P00085000, $0.75, up $0.23)

Entry Price: $0.70 (10/15/2014)

Exit Target: $1.40

Return: 7%

Stop Target: None

Action: I wasn’t thrilled with the close above $90, but, as long as $92 holds, the trade should be good to go. Shares traded to a 52-week low of $89.57 on Wednesday, and I have a near-term target of $85-$83 on the stock.

Earnings are due out next Tuesday, and I believe they are going to miss estimates by a mile.

 

PowerShares QQQ (QQQ, $92.37, down $0.60)

QQQ November 100 calls (QQQ141122C00100000, $0.20, down $0.10)

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

Exit Target: $1.20

Return: -67%

Stop Target: None

Action: Resistance is at $94. There is still risk to $92-$90. Yesterday’s low was $90.24.

 

Apollo Group (APOL, $24.73, up $0.67)

APOL November 23 puts (APOL141122P00023000, $0.90, down $0.15)

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

Exit Target: $1.40

Return: 29%

Stop Target: None

Action: Wednesday’s low reached $23.30. The puts traded up to $1.35 and came within a nickel of my exit target. I was disappointed with the rebound into the close, but shares tend to be volatile going into earnings. There is further risk to $26.

Previous comments: 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.

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, $17.44, up $0.53)

KKD November 16 puts (KKD141122P00016000, $0.35, down $0.10)

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

Exit Target: $1.20

Return: -13%

Stop Target: None

Action: Shares tested resistance at $17.50, and a close above this level could lead to a run past $18. I have a near-term target of $15 for shares on a break below $16.50, with a chance at $14-$12.

 

Fortinet (FTNT, $24.04, up $0.01)

FTNT December 29 calls (FTNT141220C00029000, $0.40, flat)

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

Exit Target: $1.90

Return: -58%

Stop Target: None

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

 

Rubicon (RBCN, $4.20, up $0.01)

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.

 

Pool (POOL, $53.72, up $0.38)

POOL October 50 puts (POOL141018P00050000, $0.35, flat)

Entry Price: $1.10 (7/16/2014)

Exit Target: $2.00 (Limit Order)

Return: -59%

Stop Target: None

Action: Earnings are due out this morning.

I may send out a Trade Alert shortly after the open if the Limit Order of $2 doesn’t trigger and shares trade lower. If shares stay above $50 on the open, the options will be in danger of expiring.

 

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.

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.

Trade on!

Rick Rouse
Editor and Chief Options Strategist
Momentum Options