In This Issue:
Dear Momentum Options Subscriber,
Last week, I said to watch for four clues that would let us know if the bulls had more gas in their tank or if they were running on empty.
The first bullish clue we got was last Monday’s win on the Dow, as the blue-chips recovered the 18,000 level and the 50- and 100-day moving averages.
The second clue came from the VIX, as the index finished below 13.50 to start the week, which is a level that held during Tuesday’s bearish action. This level was stretched shortly after Wednesday’s open before the late-day test to 12.50, and that level held into the weekend.
The bears attempt to breach the April lows failed and gave us our hat trick, or our third clue that higher highs could be in store.
I summed up the action by saying that you should watch the action in the financial and tech stocks. These sectors held solid ground and led the way higher to fresh all-time highs.
The Dow advanced 21 points, or 0.1%, to end at 18,080 on Friday. The blue-chips tested near-term support at 18,000 on the open before rebounding to reach an intraday high of 18,108. There is additional support at 17,900-17,800 and the 50- and 100-day moving averages. I was looking for 18,100 to hold into the close, and 18,200 represents the top of the trading range from February. A close above this level will get the all-time high of 18,244 in play, with a possible blue-sky breakout to 18,350-18,500.
The S&P 500 added nearly 5 points, or 0.2%, to settle at 2,117. The index held positive territory for the majority of the session, with support at 2,110-2,100 easily holding. The low of 2,112 looked solid, as the index rebounded to reach a fresh all-time intraday high north of 2,120 for the second-straight session. There is additional fluff to 2,150-2,160 on continued strength. Any dips below 2,100-2,090 and the 50-day moving average need to be watched carefully.
The Nasdaq gained 36 points, or 0.7%, to close at 5,092. Tech looked amazing after pushing past and testing resistance at 5,100 throughout the day. The all-time intraday high of 5,132 is less than 1% away from triggering. I have mentioned that a run to 5,200-5,250 could come on continued momentum if the all-time high is cleared. Support is at 5,050-5,000 on a pullback.
The Russell 2000 fell 4 points, or 0.3%, to finish at 1,267. The small-caps traded to a high of 1,273 at the start of Friday’s session but quickly faded afterwards. The action and test to 1,266 was disappointing given the strength in the overall market, but near-term support at 1,265-1,260 held. There is additional help at 1,250-1,245 and the 50-day moving average. Resistance is at 1,275 and the mid-month all-time intraday high of 1,278. Closes above these levels could lead to a run at 1,300.
The S&P 500 Volatility Index ($VIX, 12.29, down 0.19) spiked to 13.02 shortly after Friday’s open, but the bulls easily held 13.50. I have talked about the 12.50 level being an important level for the VIX, as this would confirm higher highs if cleared. The low of 12.16 failed to take out Thursday’s 2015 low of 12.12, which worries me a little. The 52-week low is at 10.28 and will likely come into play on a move below 11.50. A close above 12.50-13.50 this week will likely get 15 in play going into May.
The aforementioned index chart work is very similar to the charts from two weeks ago. The Dow and S&P 500 are still inside of their nearly three-month long trading ranges (green boxes), while the Nasdaq and Russell 2000 have cleared the tops of their trading ranges. The blue lines represent channels that show my upside fluff targets.
Tech’s performance last week was amazing, and Friday’s follow-through to a record closing high can be attributed to the strength in Amazon.com (AMZN, $445.10 up $55.11) and Microsoft (MSFT, $47.87, up $4.53). Google (GOOG, $565.06, up $18.06) trended higher despite missing earnings, as analysts upped their price targets and seemed giddy on its YouTube prospects.
All of these companies reported following Thursday’s close, which set the stage for Friday’s breakout on the Nasdaq.
Microsoft smashed Wall Street’s estimates by $0.11 after reporting a profit of $0.62 a share against expectations for $0.51 a share. Revenues also topped forecasts, coming in at $21.73 billion compared to $21.06 billion. The company would have done even better if it wasn’t for the stronger dollar that had a “significant” impact on its results.
Shares of Microsoft traded to a high just north of $48, but bigger gains were made in the MSFT May 45 calls (MSFT150515C00045000, $2.85, up $2.47). They zoomed an amazing 650% on Friday after closing Thursday’s session at $0.38. The calls traded to a high of $3.20 on volume of nearly 18,000 contracts.
Amazon beat by a penny, but it lost $0.12 for the quarter. Revenues topped forecasts at $22.72 billion versus expectations for a reading of $22.4 billion. The suit-and-ties were wowed by the company’s cloud business and its forecasted revenues that were at the higher end of the range for the current quarter.
Google reported a profit of $6.57 a share on revenue of $17.26 billion. The suits and ties were looking for $6.60 a share on revenue of $17.5 billion.
The Dow Jones Transportation Average ($TRAN, 8,880, down 24) recovered its 200-day moving average following a “stretch” down to 8,527 earlier this month. The transports are on the verge of clearing their 50- and 100-day moving averages. Closes above 8,900-8,925 would support a continued rally, while any dips 8,750-8,700 and the 200-day moving average would be a bearish development.
The Financial Select SPDR (XLF, $24.28, down $0.04) held near-term support at $24 following the mid-week pullback and recovered its 50- and 100-day moving averages on Thursday’s run to $24.38. Friday’s slight pullback also held these levels, but a close below $24 would be a bearish signal. A close above $24.80-$25 would be a very bullish sign, as a strong XLF usually signals a stronger economy and stock market. I have talked about how the financial stocks lagged for all of 2014, and the XLF is still down for the year. The XLF started 2015 at $24.73.
I mentioned that Monday’s win was important, but Friday’s positive finish was equally as important. This reversed a prior Monday/Friday losing streak for the Dow. I would like to see some follow-through today on the blue-chips to keep the streak going, along with another up-Friday. The market may have caught a break, as nonfarm payrolls will be released next Friday, May 8. Volatility could return in a big way on another disappointing report and continued Fed-speak regarding when it will raise interest rates.
I have been forecasting tech’s run to all-time highs since last year and have a lofty target of Nasdaq 5,500-6,000 for 2015. Although the intraday high of 5,132 has yet to trigger, I’ve said all along that the bulls weren’t going to come this far without seeing tech challenge and clear its all-time highs.
With the other major indexes setting fresh highs throughout 2014 and into 2015, most market technicians failed to realize that the rising tide would lift all boats. Of course, the Nasdaq’s road to higher highs won’t be smooth sailing. A lot of things will have to go right for tech to make a run at 6,000, but the major clue is that the 200-day moving average will need to hold throughout 2015.
Geopolitical events are also heating up. U.S. ships are in Yemen, and fighting intensified over the weekend. There were seven U.S.-led air strikes targeting militia in Syria, and 16 strikes against militia in Iraq, the U.S. military reported. This will likely create more tensions about the security of Middle East oil supplies, which could bring back volatility on continued saber-rattling.
I will be covering the longer-term charts in late June or early July, but, for new subscribers, you can review all of my year-end price targets in the Feb. 23 Pre-Market Update. It will be a quick read, and it’s a great review on how 2015 might play out. So far, so good, but I know how the bears work and how fast they can strike.
“Sell in May and go away” could become a bigger theme next week if there is a pullback in the next few days.
For this week’s clues, watch the action in the small-caps and the VIX. I predicted single-digits for the VIX last year, and there is a good possibility that another test to 10 comes at some point this year. Last year’s test to 10.28 came in July. I covered the Russell 2000 and the VIX earlier and the levels to watch for.
I have updated all of the current trades below, and I am also closing two trades in Marvell Technology (MRVL) and Cypress Semiconductor (CY) that have been on hold. I could have additional Trade Alerts throughout the day, so stay close to your email inboxes and be sure to sign up for SMS text message alerts if you haven’t done so already.
From desk to press, futures look like this: Dow (+48); S&P 500 (+4.25); Nasdaq 100 (+11).
Momentum Options Play List
Closed Momentum Options Trades for 2015: 42-11-1 (78%). 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.
TiVo (TIVO, $11.31, up $0.09)
TIVO June 12 calls (TIVO150619C00012000, $0.35, up $0.07)
Entry Price: $0.30 (4/24/2015)
Exit Target: $0.90
Stop Target: None
Action: Shares made a strong move past the 100-day moving average last week following a three-week trading range. The next layers of resistance are at $11.50-$12, followed by the 200-day moving average. Support is at $11-$11.25 and the 50-day moving average.
Earnings are due out in late May, so the headline risk is removed until then. Analysts are looking for the company to earn $0.07 on revenue north of $91 million. The company beat estimates by $0.03 last time out, and we scored a nice 43% win playing the news.
Shares reached a peak of $11.92 (black candlestick on chart) on the earnings beat in early March, and the company has topped estimates in three of the past four quarters.
Another earnings beat could send shares soaring to the mid-teens if current momentum can hold. TiVo has also been on my list of takeover target candidates in recent years, as they are great at managing video and TV content. With the cable-cutting movement growing, TiVo makes great sense for managing content.
Last week, Arris Group shelled out $2.1 billion in a cash-and-stock deal for Pace, a British set-top-box maker. Tivo sports a current market cap of just over $1 billion, and a $2 billion takeover bid would have shares trading into the low $20s.
A takeover of TiVo is pure speculation on my part, of course, but it has become more valid with the Arris Group/Pace marriage.
As far as its suitors, Apple (AAPL) makes the most sense if the company ever decides to make a television. Apple TV has been a nice success and, by adding TiVo, it would gain a great partner in an established industry leader.
TiVo pioneered the DVR experience and owns a number of intellectual properties that are extremely valuable. With earnings improving and the hot sector that it’s in, I like TiVo on both a fundamental and technical basis.
SunPower (SPWR, $33.97, down $0.88)
SPWR June 38 calls (SPWR150619C00038000, $0.85, down $0.20)
Entry Price: $0.95 (4/22/2015)
Exit Target: $1.90
Stop Target: None
Action: Near-term resistance is at $36. Support is at $34. A golden cross recently formed on the chart, with the 50-day moving average crossing above the 200-day moving average. Another mini golden cross formed in early March as well, with 50-day moving average clearing the 100-day moving average. These types of chart setups are usually bullish signals.
Earnings are due out this Thursday, April 30, and shares are setting up for a 5%-10% price swing. This would mean that shares could test $36-$38 or $31-$30 based on the company’s earnings announcement.
Wall Street is looking for SunPower to earn $0.09 a share for the recently ended quarter on revenue north of $452 million. The company has beaten estimates over the past four quarters by $0.02, $0.06, $0.03 and $0.17, respectively. The 52-week high is $42.07, and the 52-week low is at $22.75.
Dot Hill Systems (HILL, $6.56, up $0.06)
HILL September 7.50 calls (HILL150918C00007500, $0.55, flat)
Entry Price: $0.45 (4/20/2015)
Exit Target: $1.35-$1.80
Stop Target: None
Action: Shares traded to fresh 52-week highs throughout last week and peaked at $6.75 on Friday. I mentioned that continued momentum could carry shares to $6.50-$6.75, and a close above the latter would be bullish for a run at $7. Near-term support is at $6.25 on dips below $6.50.
Earnings are due out on May 7, and I will cover its numbers next week.
Sony (SNE, $31.34, up $0.62)
SNE May 32 calls (SNE150515C00032000, $0.95, up $0.30)
Entry Price: $0.50 (4/20/2015)
Exit Target: $1.50-$2.00 (closed 1/3 at $1.40 on 4/22/15)
Stop Target: None
Action: Resistance is at $31-$31.50. Support is at $30-$29.75. Earnings are due out this Thursday, April 30, and I would like to close another third of the trade if shares can clear $32 ahead of the announcement.
This would lessen the headline risk, although Sony recently provided an update and raised guidance. Still, we have to be careful of a “sell the news” event, which is why I could close another third of the trade in the next day or two. You can read my outlook on what to expect in the April 7 Mid-Market Update.
Jabil Circuit (JBL, $23.69, down $0.24)
JBL May 24 calls (JBL150515C00024000, $0.40, down $0.10)
Entry Price: $0.60 (4/10/2015)
Exit Target: $1.20
Stop Target: None
Action: Near-term support is at $23.50, followed by $23 and the 50-day moving average. Resistance is at $24 and the 52-week high at $24.11 that was set earlier this month. A close above these levels should lead to a run at $25-$26.
Rigel Pharmaceuticals (RIGL, $4.88, up $0.05)
RIGL June 5 calls (RIGL150619C00005000, $0.62, up $0.17)
Entry Price: $0.25 (3/31/2015)
Exit Target: $0.75-$1.00 (closed 1/4 at $0.60 on 4/22/15)
Stop Target: None
Action: Shares traded to a high of $4.97 on Friday and nearly cleared $5. A move above this level could lead to a run to $5.50-$6. Support will try to hold at $4.50 on a pullback, followed by $4.25.
Golden crosses have also formed, with the 50-day and 100-day moving averages crossing above the 200-day moving average in March and April.
Trades on Hold – other 2015 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.
Marvell Technology (MRVL) May 18 calls (from February 2015) — Shares are testing their 200-day moving average and, after Friday’s close, the company cut its first-quarter outlook. Shares were down 5% to $13.61 by the time happy hour was over.
There is still a little premium in the options that is worth saving and, while it’s disappointing, it closes the books on one of the older trades in the portfolio — Sell to close the MRVL May 18 calls at this morning’s open.
Cypress Semiconductor (CY) June 16 calls (from March 2015) — Earnings are due out this Thursday, and I have held the position open to play the news. While I had initially intended to ride this one out into Friday, shares are in a downtrend and could also be headed towards their 200-day moving average, or worse.
These are June options, and they could rebound if the company surprises Wall Street with an earnings beat. However, it would be safer to cut losses now and get back in on a move above $14, which looks like a long shot over the near term — Sell to close the CY June 16 calls at this morning’s open.
BlackBerry (BBRY) June 13 calls (from March 2015) — This is a speculation trade from early March on BBRY receiving a takeover offer of $14 or better by mid-June.
Shares traded to and closed above $10 throughout last week and traded to a high of $10.46 on Thursday. The end-of-week close above all of the major moving averages was bullish as long as $10.15-$9.90 holds. The next levels of resistance are at $10.50-$10.75. A move above $11 might get the grapevine going on a takeover bid — Continue to hold.
Editor and Chief Options Strategist