Dear Momentum Options Subscriber,
The bears got their second-straight Monday win following another backtest to support. I expected this week to be more volatile, and yesterday’s action lived up to the billing. Trading should be tricky through Wednesday, but hopefully a clear trend emerges once the Fed makes its announcement regarding interest rates.
The Dow dropped 107 points, or 0.6%, to close at 17,791 on Monday. The blue-chips traded to a low of 17,698 on the open before rebounding to test 17,800 throughout the session. The bears came with 65 points of cracking the 200-day moving average, and a close below 17,600 would be a bearish development. Resistance is at 18,000-18,100.
The S&P 500 sank 9 points, or 0.5%, to finish at 2,084. The index tested a low of 2,072 during the opening onslaught, with backup support at 2,075-2,070 holding. The rebound back towards the 100-day moving average looked bullish, but the bulls failed to hold this level into the closing bell. There is additional risk to 2,050 and the 200-day moving average on a close below 2,070. Resistance is at 2,090-2,100.
The Nasdaq tanked 21 points, or 0.4%, to end just below 5,030. Tech opened at 5,011 but kissed a low of 4,985 after the bears cracked the 50-day moving average. The bulls held this level into the close, but there is additional risk to 4,950-4,900 if 4,975 fails to hold. Near-term resistance is at 5,050-5,075.
The Russell 2000 gave back 4 points, or 0.3%, to settle at 1,261. The small-caps also fell below their 50-day moving average following the test to 1,247. There is additional risk to 1,240-1,235 on closes below 1,250, but the rebound back above 1,260 afterwards was impressive. Resistance remains at 1,270-1,275.
The S&P 500 Volatility Index ($VIX, 15.38, up 1.60) surged 10% and closed back above the 15 level. The bears pushed a high of 15.57, and there is further risk to 17.50, as the VIX closed above its 200-day moving average. While I do believe that there is a chance this level comes into play, we will need continued closes above 17.50 before turning bearish. A close back below 13.50 would calm Wall Street ahead of the Fed meeting.
Rite Aid (RAD) will announce earning Wednesday’s morning, and I have updated my commentary concerning this event below.
From desk to press, futures look like this: Dow (-46); S&P 500 (-6); Nasdaq 100 (-18).
Momentum Options Play List
Closed Momentum Options Trades for 2015: 63-20-1 (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 8:00 a.m. EST.
I hereby disclose that I will be participating in the following trade(s). 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 portfolio.
United Parcel Service (UPS, $99.96, down $0.10)
UPS July 105 calls (UPS150717C00105000, $0.35, down $0.07)
Entry Price: $0.53 (6/11/2015)
Exit Target: $1.05
Stop Target: None
UPS October 110 calls (UPS151016C00110000, $0.57, flat)
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. 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.
Rite Aid (RAD, $8.76, down $0.19)
RAD July 8 calls (RAD150717C00008000, $0.95, down $0.10)
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, $0.75, down $0.10)
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: The Stop Limits held up on Monday’s pullback to $8.63. Support is at $8.75, followed by $8.50 and the 50-day moving average. Resistance is $9. The company will announce earnings tomorrow morning, so shares will likely move on the news.
Wall Street is expecting a profit of $0.03 a share on revenue of $6.65 billion. The company has beaten estimates over the past three quarters by a $0.05, $0.05, and $0.07, respectively. In the year-ago quarter, it matched expectations.
CVS Health (CVS, $102.58, up $0.36) is best-in-breed when it comes to playing the pharmacy/healthcare sector. Yesterday’s purchase of Target’s (TGT, $80.45, up $0.98) 1,600+ pharmacy stores solidified its footprint as the leader in the industry.
I have talked about a bigger player making a takeover bid for Rite-Aid, but the company is doing fine and doesn’t necessarily need to merge to compete with CVS. However, an earnings miss would clearly stall the momentum shares have built over the past week.
Although I’m bullish on RAD, I could close another third of the trade to ensure we walk away with a profit. Earnings trades are tricky and unpredictable, as a number of things have to go right if you are long or short going into an announcement.
By locking in partial profits on the run to $9, we have reduced our exposure. If shares do make a run towards $10 after the earnings announcement, we can still enjoy further gains. If a backtest to $8 comes, we will be out of the trade altogether.
Wells Fargo (WFC, $56.98, down $0.11)
WFC July 60 calls (WFC150717C00060000, $0.20, down $0.01)
Entry Price: $0.20 (6/5/2015)
Exit Target: $0.50
Stop Target: None
Action: Monday’s low reached $56.48. Support is at $56.50-$56. Resistance is at $57-$57.50.
Rigel Pharmaceuticals (RIGL, $3.54, up $0.02)
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, $30.68, up $0.24)
SNE July 33 calls (SNE150717C00033000, $0.30, up $0.07)
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.
Editor and Chief Options Strategist