Dear Momentum Options Subscriber,

The “Nervous Nellies” and talking heads were visibly upset with yesterday’s market pullback and once again jumped off of the bull bandwagon. I mentioned that this week’s action would shake out the weaker hands and encourage more Wall Street pros to take early vacations, but support was stretched, and that demands respect.

The Dow cratered 268 points, or 1.5%, to finish at 17,533. The blue-chips had little chance at holding 17,800, and Wednesday’s low reached 17,508. The close below 17,600 opened the door for a possible pullback to 17,350. Resistance is at 17,600-17,800.

The S&P 500 stumbled 33 points, or 1.6%, to end at 2,026. The index slipped below short-term support at 2,050, and the drop below 2,040 got 2,025 in play. Wednesday’s low reached 2,025. There is additional risk to 2,000 on a dip below 2,020. Resistance is fresh at 2,040-2,050 and prior support.

The Nasdaq tumbled 82 points, or 1.7%, to settle at 4,684. Tech made a slight pop into positive territory shortly after the open, but it was all downhill afterwards. Support at 4,675-4,650 was tested once again following the trip to 4,679. Tuesday’s low checked-in at 4,674, so the higher low will be slightly bullish if this level holds today.

The Russell 2000 tanked 26 points, or 2.2%, to finish at 1,161. The small-caps traded in negative territory throughout the session and showed no strength after the open. The bears made a run at 1,160 but fell short of Tuesday’s low of 1,153. Support at 1,150 has held since late October. A close below this level could lead to additional risk to 1,140-1,125. Resistance at 1,175-1,180 is back in play.

The S&P Volatility Index ($VIX, 18.53, up 3.64) zoomed to a high of 18.92 after clearing resistance at 17.50 late in the day. The close above this level was bearish, but the bulls held 20. I said not to flinch until the bears hold 20 on a close, but this action also warrants respect.

From desk to press, futures are shaping up like this: Dow (+32); S&P 500 (+4.25); Nasdaq 100 (+4.5).

Momentum Options Play List

Closed Momentum Options Trades for 2014: 96-59 (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 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.

 

Pfizer (PFE, $31.86, down $0.09)

PFE February 33 calls (PFE150220C00033000, $0.60, flat)

Entry Price: $0.57 (12/8/2014)

Exit Target: $1.15

Return: 5%

Stop Target: None

 

PFE March 33 calls (PFE150320C00033000, $0.70, down $0.01)

Entry Price: $0.68 (12/8/2014)

Exit Target: $1.40

Return: 3%

Stop Target: None

Action: Support is at $31.50. A close above $32 should lead to a continued breakout to $33-$35. The 52-week high is at $32.96.

You can view the chart work on PFE in the Dec. 9 Pre-Market Update. You can also read about PFE’s fundamentals in the Dec. 9 Mid-Market Update.

 

iShares Russell 2000 (IWM, $115.66, down $2.51)

IWM January 121 calls (IWM150117C00121000, $0.65, down $0.40)

Entry Price: $0.90 (12/5/2014)

Exit Target: $1.80

Return: -28%

Stop Target: None

Action: Support is at $115, with risk to $114-$113.50. Resistance is at $117.50-$118.

 

PowerShares QQQ (QQQ, $103.31, down $1.65)

QQQ January 107 calls (QQQ150117C00107000, $0.55, down $0.25)

Entry Price: $0.98 (12/5/2014)

Exit Target: $2.00

Return: -44%

Stop Target: None

Action:  There is risk to $103-$102.50. Short-term resistance is at $105. I have talked about the QQQs making a run to $110 on continued closes above $105, and the recent 52-week high is north of $106.

I have recommended six profitable bullish QQQ trades since the beginning of October and, while I still like this position, we may have to wait a little longer to take profits.

I don’t like to add to new positions or “leverage” a trade down because I would be wrong twice if the trade was unsuccessful, but new subscribers are getting a great entry price.

 

JDS Uniphase (JDSU, $13.63, down $0.28)

JDSU January 13 calls (JDSU150117C00013000, $1.00, down $0.20)

Entry Price: $0.65 (12/3/2014)

Exit Target: $1.30

Return: 54%

Stop Target: $0.90, lower to $0.80 (Stop Limit)

 

JDSU March 14 calls (JDSU150320C00014000, $0.95, down $0.15)

Entry Price: $0.70 (12/3/2014)

Exit Target: $1.40

Return: 36%

Stop Target: $0.90, lower to $0.80 (Stop Limit)

Action: Lower the Stop Limits on both trades from $0.90 to $0.80 to give the trades a little wiggle room.

The Stop Limits of $0.90 held up yesterday, as the JDSU January 13 calls tested a low of $0.96, while the JDSU March 14 calls slipped to $0.91 on the stock’s dip to $13.58.

Shares managed to trade to a high of $13.97 before being dragged lower by the overall market action. Short-term support at $13.75 failed, though backup at $13.50 held. A close below this level will likely trigger the fresh Stop Limits.

The trades will still be profitable at that level, but I lowered the Stop Limits to ride out the volatility. Resistance is at $13.75-$14.

You can read my full update on JDSU in the Dec. 3 Alert.

 

Flextronics (FLEX, $10.90, down $0.20)

FLEX January 11 calls (FLEX150117C00011000, $0.35, down $0.05)

Entry Price: $0.68 (9/5/2014)

Exit Target: $1.25

Return: -48%

Stop Target: None

Action: Resistance is at $11.25. Support is at $10.75, and a close below this level might force me out of the trade. This trade has been open for three months, and I still like it, as the breakeven point is at $11.68.

 

Trades on Hold — other 2014 Portfolio Open positions (2): 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.

Fortinet December 29 calls (from September 2014) — Shares pushed another 52-week high of $28.19 yesterday, and this trade could still make a profit. The breakeven point from the premium paid is $30, but the options expire next Friday. It is rare, but sometimes trades that are down 80% or more can rebound to make a profit or even triple-digit returns. I have had a few trades make strong comebacks, and this trade has been open for over three months. At this point, it’s all-or-nothing, as I still want to roll the dice and leave this trade open. The calls are currently trading for $0.20. It is possible that I may add new call options on a pop past $28.50. The FTNT January 30 calls are trading for about $0.35-$0.40 and are on my watch list, but I could also use longer-term options, as I feel this company will be a takeover target in 2015 — Continue to hold.

International Business Machines January 170 calls (from November 2014) — Support is at $160. I still like this trade, but I am placing it on hold until a recovery resumes. I will bring back coverage once $165 clears and, if I take action before then or close the position, I will send out a Trade Alert. Shares were rebounding and pushing $161 in after-hours trading last night. The January calls have 36 days before they expire — Continue to hold.

Trade on!

Rick Rouse
Editor and Chief Options Strategist
Momentum Options