Dear Momentum Options Subscriber,
The bulls wrapped up their sixth-straight week of gains and dominated November’s action with all-time highs. The market clearly has momentum, and December is historically a bullish month. However, the Russell 2000 did finish slightly lower by less than a point and remains the wild card.
At some point, the bears could make an appearance on year-end tax selling, perhaps this week, but my fluff targets from February are clearly in play following Friday’s performance in Tech.
The Dow gained half of a point to end flat at 17,828 on Friday. The blue-chips came within a point of setting a fresh all-time intraday high following Friday’s push to 17,893 by mid-day. The last hour fade to 17,807 held support at 17,800-17,600. The bulls are still on track for a run past 18,000 once 17,900 is cleared.
The S&P 500 fell 5 points, or 0.3%, to end at 2,067. The index traded to an all-time intraday high of 2,075 but failed to hold this level into the end of the shortened session. A close above this level keeps my year-end target of 2,100 in the mix. Support is at 2,050 on a pullback, with wiggle room to 2,040.
The Nasdaq added 4 points, or 0.1%, to close at 4,791. Tech traded into my year-end 4,800-5,000 target zone after racing to a high of 4,810 an hour after the start of trading. It was another 14-year high before the bears showed up to put a 1-point dent in the action. The low of 4,786 easily held 4,775-4,750, which is trying to serve as near-term support. Backup is at 4,700-4,675.
The Russell 2000 tanked 17 points, or 1.5%, to finish at 1,173. The drop in the small-caps back below 1,175 was discouraging. The index traded into the red all session long on Black Friday but held 1,170 after the bears pushed 1,172. There is additional help at 1,160-1,150 on continued weakness, while a close above 1,180 keeps 1,200 in play.
The S&P Volatility Index ($VIX, 13.33, up 1.26) made some noise after popping 10% and kissing 13.49. The bulls held 13.50 by a whisker, and 15 is a bigger battle for the bears. The closes below 12.50 on Tuesday and Wednesday of last week were the first since mid-September, and that’s the level the bulls need to get back under.
The chart below shows November’s gains and the slight disappointment by the small-caps. Overall, the nearly 3% gain was impressive and bodes well for December.
The Monday/Friday closes continue to be bullish and are a sign that money is still moving into the market. I have been talking about the “sideline money” that might get put to work on fresh highs, and bullish Monday/Friday closes signal strength. The Dow has closed higher the past three Mondays and in five of the past six. The bears won five of six Mondays from mid-September through the first two weeks of October.
The bulls have won the past two Friday Dow closes and six of the last seven. Even more impressive is the performance since mid-September, as the Dow has finished higher on nine of the past 11 Friday sessions.
Oil and energy stocks got whacked on Black Friday following OPEC’s decision not to cut production following its Thursday meeting. Friday’s volatility was evened out by the rally in retail and the airline stocks.
Big bets continue to be made on lower prices following OPEC’s call to maintain the current production levels of 30 million barrels a day. Last month, I talked about Brent oil possibly pushing $75-$70, and Friday’s debacle reached the lower end of my near-term projection. A drop into the $60s is nearly a done deal, but there could be a rebound to $73.50-$75 at some point this month.
The financial stocks are holding up well, as the Financial Select Spiders ($XLF, $24.40, up $0.02) continue to set fresh highs. Friday’s peak reached $24.51, and I have mentioned that the sector needs to stay strong to support the current rally. A run to $25-$26 could come this month, and I have talked about $30 tripping at some point in 2015. Near-term support is at $24-$23.75 followed by the 50-day moving average.
I will be updating my chart work from February this coming weekend and will provide a more detailed outlook for December and year-end next week.
The Wall Street pros that have missed this year’s rally and are underperforming are still biting the bullet to get into the market. I’m not sure if they will get that chance, but a pullback could also give us an opportunity to start new positions at discounted prices.
November was a beautiful month to take profits following the mid-October lows and run to all-time highs again. I believe there will be some excellent opportunities for new trades during the next few weeks, but I want to protect profits if the bears do make some noise this week or next.
From desk to press, futures are shaping up like this: Dow (-63); S&P 500 (-9); Nasdaq 100 (-11).
Momentum Options Play List
Closed Momentum Options Trades for 2014: 90-54 (63%). 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.
Veeva Systems (VEEV, $32.85, up $0.47)
VEEV December 32 calls (VEEV141220C00032000, $1.75, up $0.45)
Entry Price: $0.50 (11/25/2014)
Exit Target: $1.50, raise to $2.25-$3.00 (closed half at $1.00 on 11/26/2014)
Stop Target: $0.50, raise to $1.05 (Stop Limit)
Action: Raise the Stop Target from $0.50 to $1.05 and make it a Stop Limit on the second half of the trade.
Raise the Exit Target to $2.25-$3.00, but there is no limit order at these prices.
Shares stayed in a strong uptrend into Wednesday’s close and settled at $32.38 after reaching a peak of $32.54. Friday’s high touched $33.66, with the calls trading to a high of $2.25. The low was $1.15.
PowerShares QQQ (QQQ, $106.01, up $0.49)
QQQ December 105 calls (QQQ141220C00105000, $1.85, up $0.15)
Entry Price: $0.80 (11/18/2014)
Exit Target: $1.60 (closed half at $1.15 on 11/25/2014)
Stop Target: $0.85, raise to $1.15 (Stop Limit)
QQQ January 106 calls (QQQ150117C00106000, $1.90, up $0.15)
Entry Price: $0.98 (11/18/2014)
Exit Target: $2.00 (closed half at $1.30 on 11/25/2014)
Stop Target: $1.00, raise to $1.30 (Stop Limit)
Action: Raise the Stop Limit on the QQQ December 105 calls from $0.85 to $1.15. Raise the Stop Limit on the QQQ January 106 calls from $1.00 to $1.30.
Friday’s peak reached $106.25. I have talked about a run to $110 coming once $105 cleared, which occurred mid-week. This level will now try to hold on any short-term pullback. There is additional support at $103.50, but the Stop Limits will likely trigger on the second half of each trade on a drop below $105.
Diamond Foods (DMND, $29.79, up $0.21)
DMND December 32 calls (DMND141220C00032000, $0.70, up $0.05)
Entry Price: $0.87 (11/18/2014)
Exit Target: $1.75
Stop Target: None
Action: Near-term resistance is at $30.50. Support is at $29. Earnings are due out on Monday, Dec. 8, after the close.
You can read my detailed write-up on DMND in the Nov. 19 Mid-Market Update.
Hilton Worldwide Holdings (HLT, $26.22, up $0.20)
HLT January 26 calls (HLT150117C00026000, $1.05, up $0.05)
Entry Price: $0.80 (11/14/2014)
Exit Target: $1.60
Stop Target: $0.85 (Stop Limit)
HLT December 26 calls (HLT141220C00026000, $0.75, up $0.05)
Entry Price: $0.50 (11/14/2014)
Exit Target: $1.00
Stop Target: $0.50 (Stop Limit)
Action: I have placed a Stop Limit of $0.85 on the HLT January 26 calls and a Stop Limit of $0.50 on the HLT December 26 calls.
Short-term support at $26 held on Wednesday’s close before Friday’s push to another fresh 52-week high of $26.35. A run to $28 could be coming over the near-term.
You can read more about HLT in the Nov. 17 Pre-Market Update.
IMAX (IMAX, $31.38, up $0.14)
IMAX December 32 calls (IMAX1220C00032000, $0.60, flat)
Entry Price: $0.35 (11/12/2014)
Exit Target: $0.70 (Limit Order on Half)
Stop Target: None
Action: A push to $33-$35 could come over the near-term as long as fresh support holds at $31.25-$31. Keep the Limit Order to close half of the trade at $0.70 in place.
International Business Machines (IBM, $162.17, up $0.22)
IBM January 170 calls (IBM150117C00170000, $0.90, up $0.05
Entry Price: $1.75 (11/10/2014)
Exit Target: $3.50
Stop Target: $0.90
Action: Resistance is at $163.50. Support is at $160.
You can read more about why I like this trade and its risk/reward setup in the Nov. 11 Pre-Market Update.
Flextronics (FLEX, $11.09, flat)
FLEX January 11 calls (FLEX150117C00011000, $0.45, flat)
Entry Price: $0.68 (9/5/2014)
Exit Target: $1.25
Stop Target: None
Action: Resistance is at $11.25-$11.50, and a close above the latter should get the 52-week high of $11.83 in play. Support is at $10.75, with backup at $10.50 and the 100-day moving average.
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.
Rubicon December 8 calls (From August 2014) — Continue to hold.
Fortinet December 29 calls (from September 2014) — Shares traded to a 52-week high of $27.70 on Friday — Continue to hold.
Twitter January 67.50 calls (from October 2014) — Continue to hold.
Editor and Chief Options Strategist