Dear Momentum Options Subscriber,
The catcalls for a full-blown market correction got louder again on Thursday. The bulls got the April win, but the action in the small-caps was concerning. The broader market and tech enjoyed gains of 1% overall, but the Russell 2000 fell nearly 3% for the month.
The Dow dropped 195 points, or 1.1%, to finish at 17,840. The blue-chips struggled from start to finish for the second-straight session while bottoming at 17,774. Support at 17,800 and the 100-day moving average held, and there is backup help at 17,600. Resistance is at 17,900-18,000 and the 50-day moving average.
The S&P 500 stumbled 21 points, or 1%, to end at 2,085. The index held the 2,100-2,090 level throughout the first half of trading before a late-day drop to 2,077. I talked about risk to 2,075-2,070 on a close below 2,090. The 100-day moving average is at 2,068. Resistance is at 2,090-2,100 and the 50-day moving average.
The Nasdaq tumbled 82 points, or 1.6%, to settle at 4,941. Tech opened below the 5,000 level at 4,997 and did its best at trying to hold 4,975-4,050 and the 50-day moving average. However, the dip to 4,921 late in the session violated the 50-day moving average, with the index closing below 4,950. These bearish developments open the door for a possible test to 4,900-4,850 and the 100-day moving average on continued weakness. Resistance is at 4,975-5,000.
The Russell 2000 got whacked for 27 points, or 2.2%, to close at 1,220. I warned that a break below 1,240-1,235 could lead to heavy selling pressure and a test to 1,225-1,215 and the 100-day moving average. Thursday’s bottom reached 1,216. There is additional risk to 1,205-1,200 if 1,216-1,215 fails to hold. Resistance is at 1,230-1,235.
The S&P 500 Volatility Index ($VIX, 14.55, up 1.16) surged 8% after testing a high of 15.29 into the closing bell. The bulls held 15, but a close above this level could lead to 17.50-20. A finish back below 13.50 would be bullish for next week.
The portfolio has gotten lighter in the last few days, as I have tried to limit our exposure on this week’s pullback. We have made our bread and butter all year (and over the last several years) by being patient.
The three-month trading range is back in play, and we may have to wait a few days before establishing another round of bullish trades. However, if the bottom of the trading ranges and the 200-day moving averages fail to hold, I have no problem going “short” with put options to play the trend.
Today is the first trading day of May, and Wall Street seems ready to sell and go away. The bulls need a Friday win, and today has usually been bullish roughly 70% of the time over the past 20 years.
I could have a New Trade shortly after the open along with additional Trade Alerts, so stay close to your email inboxes.
From desk to press, futures look like this: Dow (+83); S&P 500 (+7); Nasdaq 100 (+10).
Momentum Options Play List
Closed Momentum Options Trades for 2015: 46-14-1 (75%). 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.
Limelight Networks (LLNW, $3.71, up $0.01)
LLNW September 4 calls (LLNW150918C00004000, $0.50, up $0.05)
Entry Price: $0.35 (4/29/2015)
Exit Target: $0.70 (Limit Order on half)
Stop Target: None
Action: Set a Limit Order to sell to close the first half the LLNW September 4 calls at $0.70.
The company beat Wall Street’s estimates by reporting a loss of $0.02 per share on revenue of $43 million. Limelight raised full-year guidance to $164-$170 million and ended the quarter with over $80 million in its cash coffers. The company has been buying back its stock and repurchased 300,000 shares for nearly $1 million in the recently ended first quarter.
Its CEO was upbeat and said that the company is now entering a “growth” phase, with its CDN (content delivery network) getting bigger, faster and stronger.
Limelight’s relationship with Netflix (NFLX) is where most of my interest lies, as I believe a marriage between the two could be in the future. Netflix shelled out nearly $5 million to Limelight last quarter, which equates to almost $20 million a year at those levels.
Limelight has a market cap of under $370 million, and a takeover offer of $500-$750 million would be doable for Netflix and would have LLNW shares pushing $6-$8.
Akamai Technologies (AKAM) is the 800-pound gorilla in the CDN space, and LLNW is a cheaper way to gain access to the sector. The company won a major patent ruling against AKAM last year, which had served as an overhead cloud since 2012.
Limelight rejected a takeover offer north of $6 last summer (from Tuition Build), which is where I believe shares are headed over the next three to six months.
LLNW shares were up 8% and were pushing $4 in after-hours trading last night. If the $0.70 Limit Order trips, we would then have a “risk-free” trade until September. The 52-week peak is at $3.98. I would like to see shares clear and hold $4-4.20 heading into the weekend.
Krispy Kreme Doughnuts (KKD, $17.80, down $0.31)
KKD June 17 puts (KKD150619P00017000, $0.70, up $0.10)
Entry Price: $0.35 (4/28/2015)
Exit Target: $1.05 (closed first half at $0.70 on 4/29/2015)
Stop Target: $0.45, raise to $0.50 (Stop Limit)
Action: Raise the Stop Limit from $0.45 to $0.50.
Thursday’s low reached $17.68. The next wave of support is at $17.50-$17 if $17.75 fails to hold into today’s close. Resistance is at $18.
Opko Health (OPK, $13.76, down $0.61)
OPK June 16 calls (OPK150619C00016000, $0.31, down $0.19)
Entry Price: $0.50 (4/27/2015)
Exit Target: $1.00
Stop Target: None
Action: Support is at $13.50-$13 following the close below the 50-day moving average. Earnings are due out next week, and I will cover them and the chart on Monday.
SunPower (SPWR, $32.19, down $1.08)
SPWR June 38 calls (SPWR150619C00038000, $0.45, down $0.17)
Entry Price: $0.95 (4/22/2015)
Exit Target: $1.90
Stop Target: None
Action: The company beat earnings estimates, but shares were testing $31.50 in after-hours trading last night. I will likely stick with the trade if $30 holds. If not, I could bail to save some premium.
Dot Hill Systems (HILL, $6.28, down $0.12)
HILL September 7.50 calls (HILL150918C00007500, $0.45, down $0.05)
Entry Price: $0.45 (4/20/2015)
Exit Target: $1.35-$1.80
Stop Target: None
Action: Near-term support is at $6.25 following the close below $6.50. Resistance is at $6.50-$6.75. Earnings are due out on May 7, and I will cover the company’s numbers next week.
Trades on Hold — other 2015 Portfolio Open positions (1): 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.
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 — Continue to hold.
iShares Russell 2000 (IWM) May 127 calls (from April 2015) — Continue to hold.
Editor and Chief Options Strategist
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