Dear Momentum Options Subscriber,

The mixed and volatile action on Wall Street continued on Thursday, with the bulls getting the overall win. The bears failed to make lower lows but are on track for their third-straight weekly win.

The Dow dipped 24 points, or 0.2%, to end at 16,117. The blue-chips traded to a low of 15,935 and held short-term support at 15,800 on the open before turning positive ahead of Wall Street’s lunch break. The bulls cleared resistance at 16,200 after reaching a peak of 16,211 but were unable to hold this level into the close.

The S&P 500 gained a quarter of a point, or 0.01%, to close at 1,862. The index tested a low of 1,835 during the first half of trading and easily held support at 1,825. The bulls pushed a high of 1,876 after Wednesday’s run to 1,874, but they failed again in holding resistance at 1,875.

The Nasdaq added 2 points, or 0.05%, to settle at 4,217. Tech held Wednesday’s low of 4,116 and support at 4,125-4,100 after turning the bears away at 4,131. The bulls made a push to resistance at 4,250 after reaching 4,246, and they held 4,200 for the fourth-straight session.

The Russell 2000 jumped 13 points, or 1.3%, to finish at 1,085. The small-caps tumbled to 1,058 on the open, with near-term support at 1,060 getting stretched. The 1% drop turned into a 3% swing following the run to 1,091. The close at 1,085 cleared the first hurdle of resistance, and a close above 1,100 could signal a short-term bottom.

The S&P 500 Volatility Index ($VIX, 25.20, down 1.05) fell 4% and stayed below 30 after the bears fizzed out at 29.44. The bulls had trouble getting below 24, as their best effort amounted to a trip to 24.61. The VIX remains at elevated levels, and some suit-and-ties have said that this is “the bottom” for the market. I have mentioned that the VIX has a few layers to go before I would be ready to load up on bullish positions. I may start nibbling on new bullish positions if the VIX gets below 22 today (or next week), but, until then, I believe it’s prudent to have a mixture of both calls and puts.

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Heading from desk to press, futures look like this: Dow (+161); S&P 500 (+22); Nasdaq 100 (+51).

Momentum Options Play List

Closed Momentum Options Trades for 2014: 79-50 (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, $89.91, down $0.53)

MCD November 85 puts (MCD141122P00085000, $0.80, up $0.05)

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

Exit Target: $1.40

Return: 14%

Stop Target: None

Action: Shares traded to a fresh 52-week low of $89.34 on Thursday. Resistance is at $92. 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, $91.79, down $0.58)

QQQ November 100 calls (QQQ141122C00100000, $0.15, down $0.05)

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

Exit Target: $1.20

Return: -75%

Stop Target: None

Action: Resistance is at $94. There is still risk to $92-$90.

 

Apollo Group (APOL, $24.87, up $0.14)

APOL November 23 puts (APOL141122P00023000, $1.00, flat)

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

Exit Target: $1.40

Return: 43%

Stop Target: None

Action: Resistance is at $26. Shares kissed $23.92 but finished above $24.

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, $17.77, up $0.33)

KKD November 16 puts (KKD141122P00016000, $0.35, down $0.05)

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

Exit Target: $1.20

Return: -13%

Stop Target: None

Action: If shares close above $18, I may exit the trade, as a run to $20 could come. Let’s see where the action is at by halftime today.

 

Fortinet (FTNT, $23.77, down $0.27)

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: There is risk to $22. I would like to see shares recover $24-$24.50 ahead of the weekend. Earnings are due on Oct. 22.

 

Rubicon (RBCN, $4.49, up $0.28)

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 (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) — The FLEX October 12 calls will expire today. They were “cheap” 7-cent calls that I recommended when shares were pushing $12 –Continue to hold the FLEX January 11 calls.

Trade on!

Rick Rouse
Editor and Chief Options Strategist
Momentum Options