Dear Momentum Options Subscriber,
Wall Street closed shop early last week for the holidays, and most traders took extended vacations on Friday instead of fighting with the bulls.
I mentioned the week before that the action would flush out the weaker hands and that a bottom was possibly in. Last week’s follow-through was a perfect read on the bears’ bluff.
However, cards and chips are still on the table as we wind down the last week of trading for 2014 and the start of 2015. A few of my year-end targets for the major indexes from February are back in play, and momentum seems strong.
The suit-and-ties are once again late to the party and could get antsy to play catch up. Traders and mutual funds managers could open new positions over the next three days to show they were in some positions for 2014 and for 2015’s books. The bears still need to be respected following the December lows, but I have provided the warnings signs I’m watching in order to stay a step ahead of them.
The Dow added 23 points, or 0.1%, to finish at 18,053 on Friday. The blue-chips traded to an all-time record high of 18,103, and I have talked about a possible run to 18,200-18,350 coming over the near term. Support is building a base at 18,000, as the index has held this level for three-straight sessions. There is additional help at 17,900-17,800 on a dip below 18,000. The Dow came into the year at 16,576 and is up 1,477 points, or 9%, with three trading days left.
The S&P 500 jumped 7 points, or 0.3%, to end at 2,088. The index came within 8 points of nailing my February year-end target of 2,100 after sailing just past 2,092. There is additional fluff to 2,020-2,025 and continued record highs before a possible pullback as long as near-term support at 2,075 holds. For the year, the index has gained 240 points, or 13%, after starting 2014 at 1,848.
The Nasdaq advanced 33 points, or 0.7%, to close at 4,806. Tech cleared resistance at 4,800 after a five-day battle with the bears to reach a fresh 52-week high and a nearly 15-year peak of 4,814. The bulls have reclaimed my year-end target zone for the Nasdaq from February to trigger 4,800-5,000. The upper end of this target is still in play over the near-term on continued momentum. Short-term support is at 4,750-4,700 on a pullback. The Nasdaq was at 4,176 at the start of January and has surged 630 points, or 15%, year to date.
The Russell 2000 roared 8 points, or 0.7%, to settle at 1,215. The small-caps also posted a record high after kissing 1,217. I have mentioned that the bulls could roam to 1,225 once 1,200 cleared. A continued breakout and “new money” could spark a January run to 1,250 if 1,225 clears. A close below 1,200-1,190 bears watching, as it could lead to a back test to 1,175. The Russell 2000 ended 2013 at 1,163 and is higher by 52 points, or 4%, this year.
The S&P Volatility Index ($VIX, 14.50, up 0.13) held 15 after trading to a high of 14.84 on Friday. The bulls pushed a low of 14.13, and I have talked about the need to get below 13.50-12.50 to confirm a continued rally into January. If the bears reclaim 15, there would be additional risk to 17.50, which would be the first warning sign that momentum is fading.
The Russell 2000 scored a fresh all-time record high on Friday and rejoined the Dow and S&P 500 on their continued trip into blue-sky territory. The S&P 500 has now triggered 53 intraday record highs this year, while the Dow has scored 38 record closing highs.
The Nasdaq has made fresh 52-week peaks and nearly 15-year highs this year. However, this is the one major index that hasn’t reached record highs and is still 7% away from its all-time intraday high of 5,132. This level was reached on March 10, 2000, with the index closing at 5,048. The closing high is 5% away.
The Monday/Friday closes have returned to being bullish, as the Dow ended a three-session Monday losing skid last week. The December slide nearly matched the September/October pullback of four-straight before the bulls won five of six afterwards.
The Friday closes have remained bullish, as the Dow has edged higher in the past two Fridays following the 315-point drop mid-month. The bulls have won nine of 11 Fridays since mid-October. Even more impressive is the fact that the Dow has closed higher in 15 of 18 past sessions since back-to-back Friday pullbacks in August.
The Santa Claus rally officially started on Friday, and the bulls didn’t let Wall Street down. I mentioned that the talking heads would associate the run to all-time highs ahead of Christmas with the Santa surge, but they missed getting back in coming off of the lows. This historical trend starts the last five days of December and lasts into the first two days of January.
Of course, higher highs aren’t guaranteed and, if the Santa rally doesn’t continue, it could be a signal that a short-term market top is in. It could also be a warning sign for rougher waters in January.
Financial stocks continue to show strength and are another bullish sign. The Financial Select Spiders (XLF, $24.95, flat) made a nice recovery following the mid-December test to $23.55 and the 50-day moving average. I have talked about a run to $30 possibly coming in 2015 for the index. Near-term support is at $24.75-$24.50. I also mentioned that this sector needed to stay strong to help support continued new highs in the overall market. A break below $24 would suggest a top is in.
The biotech sector showed some weakness last week and is a developing situation that warrants monitoring. The Market Vector Biotech (BBH, $116.60, up $2.69) rebounded 2% Friday following the test to $112 early last week. However, the closes below the 50-day moving average keeps $110 and the 100-day moving average in play if $115-$114.75 fails to hold.
The good news is that the small-caps continue to lead the market higher, and tech is back in rally mode. I expect the Nasdaq and Russell 2000 to continue to pave the way for higher highs. I mentioned the XLF and BBH as additional clues to watch for to confirm strength or a sudden sign of market weakness.
While the last trading day of the year has been bearish 70% of the time over the past decade, the past two years have ended on a higher note. The S&P 500 rallied seven and 24 points in 2013 and 2012 for an average gain of nearly 1%. However, the prior last trading days in Decembers were won by the bears in seven of eight years.
Additionally, the S&P dropped 1% on its first day of trading this year to 1,831 but made a run to 1,850 by mid-January. The intraday low of 1,823 on Jan. 6 represented a 1.5% move from the low, but this level was breached two weeks later and led to a nasty pullback.
We have a lot of new subscribers, so I wanted to remind everyone that you can catch up on all of my thoughts for December by reading the past three Monday updates. All of them are easy reads and should give you a great feel on how I see the market.
The most important update is the Dec. 8 Pre-Market Update, as it covers the 10-year charts and possible price targets for 2015. I officially make my year-end targets for the major indexes in February, as I like to wait until the dust from January has settled.
In 2013, this was one of the few newsletters that called for the Dow to make a run from 13,000 to 16,000. For 2014, there were no major brokerage firms calling for Nasdaq 4,800-5,000 or S&P 2,100, as I covered all of Wall Street’s major price targets earlier this month.
Most of the “bullish” suit-and-ties are already pricing in their typical 7%-8% advance for next year and have predicted volatility. I mentioned that they do the same math every year because it’s the historic return for the market, which is what fund managers try to make clients every year.
The slick-talking suits are right about one thing, and that is to expect volatility. My “early” bullish price targets from earlier this month for 2015 are very aggressive once again, but I gave a very bearish scenario as well.
I have repeatedly said all year (and last) that a bear market won’t happen until a break below the 10-year uptrend lines occurs.
I will be doing more detailed chart work next week to provide a fresher update and additional possible near-term “fluff” targets. With all-time highs still in the mix, resistance is hard to define, which is why I say there is additional fluff. I also call fluff “blue-sky territory,” but the bulls will be reaching for the moon before possibly coming back down to earth.
Last week I said:
“So far, the December lows have been Dow 17,067 and 17,069 on back-to-back days last week. The S&P 500 kissed 1,972 and 1,973 last week, while the Nasdaq danced with 4,547 and 4,550. The Russell 2000 traded down to 1,138 and 1,134. These numbers were perfect “double-bottoms” in today’s fast-paced and volatile market.”
Write these numbers down and keep them by your computer, on your bathroom mirror or in your wallet or purse. If these levels come back into play in January, or during the first quarter, it would be time to start considering going short for a much deeper pullback.
Until then, I’m riding shotgun with the bulls into January. I warned that February can always be a tricky month to trade, but, by then, the portfolio should have locked in some nice gains.
From desk to press, futures are shaping up like this: Dow (-47); S&P 500 (-4.5); Nasdaq 100 (-5.5).
Momentum Options Play List
Closed Momentum Options Trades for 2014: 97-61 (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 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.
AT&T (T, $34.17, up $0.21)
T February 35 calls (T150220C00035000, $0.36, up $0.06)
Entry Price: $0.35 (12/26/2014)
Exit Target: $0.70
Stop Target: None
Action: Shares cleared $34 and the 50-day moving average last Wednesday and are in a strong uptrend following the mid-December low of $32.07. The next wave of resistance is at $34.50-$34.75.
I have a near-term target of $35-$36 for the stock, which if reached will easily double these call options from current levels.
The February options have nearly two months of time premium before they expire. This will give the trade plenty of time to play the move higher.
If shares reach $35.70, technically, by mid-February, these options will be worth $0.70. If shares trade to $36, these options will be worth at least $1.00-$1.05, which would represent a dandy 200% return.
Support is at $33.75, and a drop back below this level would suggest momentum is fading. Given the recent market volatility, I like the trade as long as $33 holds.
Juniper Networks (JNPR, $22.73, down $0.10)
JNPR January 23 calls (JNPR150117C00023000, $0.45, down $0.05)
Entry Price: $0.36 (12/19/2014)
Exit Target: $0.75
Stop Target: $0.37 (Stop Limit)
JNPR April 24 calls (JNPR150417C00024000, $0.90, down $0.05)
Entry Price: $0.81 (12/19/2014)
Exit Target: $1.60
Stop Target: $0.82 (Stop Limit)
Action: Set a Stop Limit at $0.37 on the JNPR January 23 calls and a Stop Limit at $0.82 on the JNPR April 24 calls. I have listed these Stop Limits to exit the trades on further weakness or on a break below support.
Resistance remains at $23.25 and the 200-day moving average. I would like to see a close above this level this week. Shares traded to a high of $23.10 mid-week but made lower highs into Friday’s close. Support is fresh at $22 and the 100-day moving average. There could be an early exit if $22.50-$22.25 fails to hold.
Boston Scientific (BSX, $13.17, up $0.04)
BSX February 14 calls (BSX150220C00014000, $0.40, flat)
Entry Price: $0.45 (12/19/2014)
Exit Target: $0.90
Stop Target: None
Action: A “symmetrical triangle” pattern is forming that I will show in more detail next week. This is usually a good sign that a strong move in a stock is forthcoming. Shares trend to follow the trend when this chart pattern appears, but there is still risk to the downside on a false signal.
Resistance is at $13.25-$13.40. Support is at $13 and the 50-day moving average. A close below $12.75 and the 200-day moving average would be bearish.
Fortinet (FTNT, $31.31, up $0.13)
FTNT March 32 calls (FTNT150320C00032000, $1.70, up $0.10)
Entry Price: $1.00 (12/18/2014)
Exit Target: $2.00
Stop Target: $1.10, raise to $1.25 (Stop Limit)
Action: Raise the Stop Limit from $1.10 to $1.25 to protect profits.
Shares traded to another 52-week high of $31.49 on Friday. My near-term target is $33-$34, which is where I would like to close half of the trade. Resistance is at $31.50. Support is at $29.50-$28.
American Express (AXP, $94.29, up $0.21)
AXP January 95 calls (AXP150117C00095000, $1.20, down $0.05)
Entry Price: $0.60 (12/15/2014)
Exit Target: $2.00+ (closed half at $1.50 on 12/24/2014)
Stop Target: $1.05 (Stop Limit)
Action: Resistance at $94-$95 was tested after a run to $94.80 on Friday. A close above $95 gets $100 in play. Near-term support is at $93-$92.50. A test to these levels will likely trigger the Stop Limit of $1.05 on the second half of the trade.
Marvell Technology (MRVL, $14.37, up $0.04)
MRVL January 15 calls (MRVL150117C00015000, $0.20, flat)
Entry Price: $0.35 (12/11/2014)
Exit Target: $0.70
Stop Target: None
MRVL February 15 calls (MRVL150220C00015000, $0.45, flat)
Entry Price: $0.55 (12/11/2014)
Exit Target: $1.10
Stop Target: None
Action: Fresh support is at $14.25 and the 200-day moving average. Backup support is at $14-$13.75. The next wave of resistance is at $14.50-$14.75, and a close above the latter would be super bullish.
A continued trading range into Wednesday could force me to take an end-of-year tax loss. I may try to trim the portfolio and any losing January positions going into 2015, which is why I would like to see some movement this week.
Pfizer (PFE, $31.65, up $0.23)
PFE February 33 calls (PFE150220C00033000, $0.35, up $0.05)
Entry Price: $0.57 (12/8/2014)
Exit Target: $1.15
Stop Target: None
PFE March 33 calls (PFE150320C00033000, $0.50, up $0.05)
Entry Price: $0.68 (12/8/2014)
Exit Target: $1.40
Stop Target: None
Action: Support is at $31-$30.50. A close below $30-$29.50 would be bearish. Continued closes above $32 should lead to a breakout to $33-$35. The 52-week high is at $32.96.
iShares Russell 2000 (IWM, $120.54, up $0.78)
IWM January 121 calls (IWM150117C00121000, $1.60, up $0.25)
Entry Price: $0.90 (12/5/2014)
Exit Target: $1.80 (Limit Order on Half)
Stop Target: $0.95, raise to $1.20 (Stop Limit)
Action: Set a Limit Order to close half of the trade at $1.80. Also, raise the Stop Limit from $0.95 to $1.20.
Prior resistance at $120 will try to hold as short-term support on a pullback. The 52-week high is at $120.97. Additional support is at $118-$117.50, and the Stop Limit will protect profits.
PowerShares QQQ (QQQ, $105.04, up $0.74)
QQQ January 107 calls (QQQ150117C00107000, $0.55, up $0.10)
Entry Price: $0.98 (12/5/2014)
Exit Target: $2.00
Stop Target: None
Action: Resistance at $105 was cleared on Friday and will try to serve as support. Continued higher closes above this level would be bullish. Support is at $103.50-$102. I would like to see $106 clear by Tuesday’s close. If not, I may exit the position to keep the stronger trades going into 2015.
JDS Uniphase (JDSU, $13.92, down $0.09)
JDSU March 14 calls (JDSU150320C00014000, $0.95, down $0.05)
Entry Price: $0.70 (12/3/2014)
Exit Target: $1.40
Stop Target: $0.80 (Stop Limit)
Action: A mini-trading range has formed, with resistance at $14-$14.25. The 52-week peak is at $14.99. Near-term support is at $13.75. A drop below this level could lead to $13.50-$13.25 and the 50-day moving average. A continued pullback to these lower levels would trigger the Stop Limit of $0.80.
You can read my full update on JDSU in the Dec. 3 Alert.
Flextronics (FLEX, $11.32, up $0.07)
FLEX January 11 calls (FLEX150117C00011000, $0.45, up $0.05)
Entry Price: $0.68 (9/5/2014)
Exit Target: $1.25
Stop Target: None
Action: Shares held $11.25 on Friday, and the next wave of resistance is at $11.50. Support is at $11-$10.75.
This is the last remaining trade from September, and I would like to see a run past $11.50 by Wednesday. If not, I could close the trade and look at further options to buy more time for the trade. The April 12 calls are trading at the same levels as the January 11 calls and could be an alternative.
Side Note: I recently had a trade in FTNT come down to the last trading day before the December options expired. It was another trade I had opened in September that was down 90% heading into the last few weeks of trading. The calls rebounded 400% the day before expiration, and I suggested closing the trade. However, the overall return was a loss, but it would have made a profit had I waited until Friday’s close or the next day. I didn’t want to take the chance of losing the recovered premium, but I knew that a continued breakout was in process. The current FTNT trade is profitable and is making up for the loss, but I wanted to buy the trade more time premium, which is why I “rolled” the trade into the March call options.
The same situation is developing with this FLEX trade, which is why I talked about the April 12 calls. The recent 52-week high is at $11.83 from early September.
Holiday Savings Event: The local stores have their holiday decorations up and I’m still thinking about gifts, so today I wanted to invite you to join me for a special Holiday Savings Event that I’m throwing for a limited time only. Renew your Momentum Options service today and save $200. It doesn’t matter when your subscription expires because I’ll just extend your current membership.Click here now to take advantage of this savings opportunity!
Editor and Chief Options Strategist