In This Issue:
Dear Momentum Options Subscriber,
The market ended mixed last week, but the small-caps were able to gain some ground, while tech pulled back and held near-term support. The move back to resistance mid-week and to the top of the trading ranges had Wall Street in a fit, as many of the suits-and-ties have been, and still are, betting on a pullback. With the Federal Reserve making an announcement this week, the action will continue to stay hot, and it’s possible that the market could get thrown a curveball.
The Dow dropped 140 points, or 0.8%, to settle at 17,898 on Friday. The blue-chips opened at 18,035 and above the 50-day moving average, but the 4-point loss got progressively worse. The bears pushed a low of 17,857 and held the 100-day moving average, with the bulls holding 17,800. A close below this level could lead to 17,600 and the 200-day moving average. Resistance remains at 18,100-18,200 over the near term. A move back above these levels will likely get 18,350 and all-time highs back in play.
The S&P 500 stumbled 15 points, or 0.7%, to close at 2,094. The bulls tried holding 2,100 and the 50-day moving average during the open, but backup support levels at 2,090 and the 100-day moving average were tested following the intraday push to 2,091. There is additional help at 2,075-2,070, but there is risk to 2,050 and the 200-day moving average on a close below 2,070. Resistance is at 2,100, followed by 2,115-2,125. The all-time high is at 2,134.
The Nasdaq tumbled 31 points, or 0.6%, to finish at 5,051. Tech traded down to 5,043 after opening at 5,060 while holding the 5,050 level into the close. This was a slightly bullish sign during Friday’s pullback, but there is additional risk to 5,025-5,000 and the 50-day moving average on a close below 5,050. Resistance at 5,100 has held since late May, and continued closes above this level should lead to a blue-sky breakout to 5,200-5,250.
The Russell 2000 slipped 4 points, or 0.3%, to end at 1,265. The small-caps stayed in a tighter range after testing a low of 1,262 and showed bullish signs after holding support at 1,260. There is additional help at 1,250 and the 50-day moving average, followed by 1,240. Resistance is at 1,270-1,275, and a close above the latter could lead to a test of 1,300 and fresh all-time highs.
The S&P 500 Volatility Index ($VIX, 13.78, up 0.93) jumped 7% and cleared 13.50 following a run to 14.02. The bulls held 15 for the fourth-straight session and have held this level for 24 of the past 25 sessions. There is risk, or “stretch,” to 17.50, which is where I would consider shorting the market, if cleared. Otherwise, I have said not to flinch or get nervous. However, if 17.50 does clear on the VIX, it might provide an opportunity to go short with put options, as a number of other technical indicators would likely start to break down, as well.
The market has remained in positive territory for the year despite another desperate attempt by the bears to crack support. Monday’s lower lows and Tuesday’s pullback on the open nearly caused a panic on Wall Street. However, the bulls stayed steady, as the transports rebounded mid-week, while the financial stocks showed continued strength.
The Dow Jones Transportation Average ($TRAN, 8,416, down 34) traded to a low of 8,256 last week and may have formed a possible short-term “double bottom.” The late-May drop to 8,300-8,250 was tested and seems to be holding at the moment, but it is still early.
I mentioned that the Dow has managed to trade to all-time highs through this divergence over the past six to eight months. Having the transports back on board would also be a bullish development.
It is likely that the next 200 points higher or lower on the index will decide the next trend. A move above 8,600 and the 50-day moving average would be a clear sign of strength. A drop below 8,200 would trigger fresh lows for 2015 and could lead to a test of the October 2014 bottom.
The suits-and-ties have been wanting a 10% market pullback, and they got one with the transports instead. The index traded past 9,300 in late November, and last week’s test to fresh 2015 lows represented a correction of a little more than 10%.
The Financial Select SPDR (XLF, $25.04, down $0.11) traded to a fresh 52-week high of $25.20 last week and held $25 on Friday’s close. I have been mentioning that a move above $24.80-$25 would be a very bullish development. Continued closes above $25 could lead to a run at $27.50-$28 over the summer. Support is at $24.75-$24.50 and the 50-day moving average.
With the Fed speaking this week, the financial stocks will be in play and will likely lead a market breakout or pullback, depending on what Fed officials say.
Nearly everyone believes that the Fed will stand pat, but Wall Street also wants clear signs on when it might hike interest rates. I have been in the rarest of camps saying that I would love to see a quarter-point bump in June. However, Wall Street is expecting soft language from Wednesday’s press conference, with the zombies prepping the market for a rate increase in September.
A rate increase this week would certainly be a curveball, but it would remove some uncertainty from the market.
The Monday/Friday closes, another indicator I use to track the market, have been mixed in June. The bulls and bears have split one Monday session each this month, but the Dow has managed to close higher in 10 of the past 13 sessions.
Fridays have turned bearish, as the blue-chips have fallen four-straight sessions ahead of the weekend. The Dow has traded higher in seven out of the past 12 Friday sessions, but the current trend is worrisome. Up Monday/Friday sessions indicate buying, while lower closes might signal that money is moving out of the market. Mixed Monday/Friday closes can signal trading ranges.
I wanted to touch on the VIX in more detail, as another “death cross” has recently formed, with the 100-day moving average crossing below the 200-day moving average. Although the index closed above its 50-day moving average on Friday, I have talked about a possible test to single digits this year. The 52-week low is at 10.28, which was reached last July.
The VIX will have a lot to do with where the market is headed. If the bulls can get the VIX below 12.50 this week, there’s a good chance that a test to 52-week lows for the volatility index could come.
In May, I talked about a rally that could last through mid-June and, last week, I mentioned how I would love to see continued gains into July. May was a nice rebound month, but June has been choppy with mixed results. The broader market and tech are lower for the month, while the small-caps have shown tremendous strength.
This divergence is also noteworthy and one that Wall Street has also missed. I believe some of this has to do with the dollar, which has been in a downtrend this month after peaking near 98 in late May.
The dollar was at 90 coming into 2015 and made a strong push past par, or 100, in mid-March. Since the start of the year, the rising dollar gave the small-caps an edge over large-caps, as they are less impacted by a higher dollar. The dollar decline during April and into May helped the large-cap stocks, as they are more sensitive to foreign business. The dollar’s rise afterward into the end of the month benefited the small-caps. Hopefully, a lower dollar will continue to help the overall market.
A possible death cross is forming on the U.S. dollar’s chart, with the 50-day moving average falling below the 100-day moving average. This is suggesting continued weakness for the dollar, with a test to $93 possible over the near term.
Obviously, this week’s Fed news will sway market direction for the rest of June. July represents the start of second-quarter earnings season. With the bulk of the first-quarter earnings season now behind us, the good news is that earnings held up fairly well.
Quarterly reports will be the next market catalyst following the Fed news, so there will be plenty of action to play between now and into late July. The portfolio is well positioned to play the next major trend, as we continue to bank profits despite the incredibly tough trading ranges that we have been in for months. I’m still hopeful that we will be opening long positions, but I won’t hesitate to go short with put options if given the opportunity.
From desk to press, futures look like this: Dow (-94); S&P 500 (-11); Nasdaq 100 (-23).
Momentum Options Play List
Closed Momentum Options Trades for 2015: 59-20-1 (74%). All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.
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All prices given in this update are current as of 8:00 a.m. EST.
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United Parcel Service (UPS, $100.06, down $0.94)
UPS July 105 calls (UPS150717C00105000, $0.42, down $0.12)
Entry Price: $0.53 (6/11/2015)
Exit Target: $1.05
Stop Target: None
UPS October 110 calls (UPS151016C00110000, $0.57, down $0.15)
Entry Price: $0.70 (6/11/2015)
Exit Target: $1.40
Stop Target: None
Action: Support is at $100-$99 and the 100- and 50-day moving averages on a pullback. A “golden cross” is trying to form between the major moving averages, but a close below $99 would nix the possible setup. Resistance is at $101 and the 200-day moving average. A close above $102 would be a very bullish development.
You can read my extended write-up on UPS in the June 12 Pre-Market Update.
Rambus (RMBS, $15.28, down $0.13)
RMBS July 16 calls (RMBS150717C00016000, $0.42, down $0.04)
Entry Price: $0.30 (6/10/2015)
Exit Target: $0.60-$0.90
Stop Target: $0.31 (Stop Limit)
RMBS August 16 calls (RMBS150821C00016000, $0.76, down $0.05)
Entry Price: $0.60 (6/10/2015)
Exit Target: $1.20
Stop Target: $0.62 (Stop Limit)
Action: Set a Stop Limit $0.31 on the RMBS July 16 calls. Also, set a Stop Limit at $0.62 for the RMBS August 16 calls.
Shares have been in a tight range since late May. Near-term resistance is at $15.50, with multi-year hurdles at $15.75-$16. Support is at $15-$14.75, and a drop below the latter will likely trigger the Stop Limits. I still want to protect profits and preserve cash on any pullbacks, but I believe RMBS will be a $20+ stock by year-end.
Rite Aid (RAD, $8.95, down $0.01)
RAD July 8 calls (RAD150717C00008000, $1.05, flat)
Entry Price: $0.65 (6/9/2015)
Exit Target: $1.30 (closed 1/3 @ $1.00 on 6/11/15)
Stop Target: $0.80 (Stop Limit)
RAD October 9 calls (RAD151016C00009000, $0.85, flat)
Entry Price: $0.55 (6/9/2015)
Exit Target: $1.10 (closed 1/3 @ $0.80 on 6/11/15)
Stop Target: $0.60 (Stop Limit)
Action: Shares traded up to $9.02 on Friday. Resistance is $9.25-$9.50. Support is at $8.75, followed by $8.50 and the 50-day moving average.
Wells Fargo (WFC, $57.09, down $0.17)
WFC July 60 calls (WFC150717C00060000, $0.21, down $0.03)
Entry Price: $0.20 (6/5/2015)
Exit Target: $0.50
Stop Target: None
Action: Support is at $56.50-$56. Resistance is at $57-$57.50. Continued closes above the latter and last week’s high of 52-week high $57.57 should lead to a run at $60. The major moving averages are curling higher, and the uptrend line remains strong.
Rigel Pharmaceuticals (RIGL, $3.52, up $0.01)
RIGL September 5 calls (RIGL150918C00005000, $0.45, flat)
Entry Price: $0.40 (6/4/2015)
Exit Target: $0.80
Stop Target: None
Action: Shares have held their 100-day moving average throughout the year, with current support at $3.50. There is additional risk to $3.25-$3 on a close below $3.40. Resistance is at $3.75-$4 and the 50-day moving average.
You can read my detailed write-up on RIGL in the June 5 Pre-Market Update.
Sony (SNE, $30.44, down $0.07)
SNE July 33 calls (SNE150717C00033000, $0.23, down $0.02)
Entry Price: $0.45 (6/1/2015)
Exit Target: $0.90
Stop Target: None
Action: Near-term resistance is at $30.75-$31 and the 50-day moving average. Support is at $29-$28.50 and the 100-day moving average on a fade below $30.
Dot Hill Systems (HILL, $7.41, up $0.01)
HILL September 7.50 calls (HILL150918C00007500, $0.82, up $0.02)
Entry Price: $0.55 (5/21/2015)
Exit Target: $1.10
Stop Target: $0.57 (Stop Limit)
HILL December 7.50 calls (HILL151218C00007500, $1.20, flat)
Entry Price: $0.80 (5/21/2015)
Exit Target: $1.60
Stop Target: $0.85 (Stop Limit)
Action: Resistance is at $7.50-$7.75. The 52-week high is at $7.55. Support is at $7.25-$7.
You can read my full update on HILL and check out its 15-year chart in the May 22 Pre-Market Update.
Editor and Chief Options Strategist