In This Issue:
Dear Momentum Options Subscriber,
Despite Friday’s pullback, the bulls wrapped up a successful week and reclaimed resistance while setting historic highs in the process.
The 2% runs to all-time highs by the Nasdaq and Russell 2000 once again proved wrong everyone who has said that a market top is in and those who have called for a correction all year long.
The Dow and S&P 500 made runs at their all-time highs, but they stalled as volatility picked up into Friday’s close.
This week could see significant buying or selling pressure, and Greece’s fate will likely become known during today’s market hours.
On Friday, the Dow fell nearly 100 points, or 0.6%, to close at 18,015. The blue chips traded in negative territory throughout the session, with the low checking in at 18,010. The 50-day moving average was stretched, with support at 18,000-17,900 and the 100-day moving average holding. There is additional risk to 17,800-17,600 and the 200-day moving average on heightened volatility. A move above 18,200 would be bullish for a run to 18,350-18,500 and all-time highs.
The S&P 500 slipped 11 points, or 0.5%, to finish just below 2,110. The index held the 2,100 level and the 50-day moving average while going out at its session low. A drop below these levels could lead to 2,090 and the 100-day moving average, with trouble to 2,075-2,050 and the 200-day moving average. Resistance is at 2,115-2,125. The all-time high is at 2,135, with upside to 2,150-2,160 on a breakout.
The Nasdaq dropped nearly 16 points, or 0.3%, to end at 5,117. Tech made a run to 5,140, but the 8-point pop faded as the bears pushed a low of 5,113. Fresh support at 5,100-5,075 easily held, with backup help at 5,050-5,025 and the 50-day moving average waiting in the wings. A close below the latter could lead to 5,000-4,950 and the 100-day moving average. There is additional fluff to 5,200-5,250 on a close above 5,150 and a continued blue-sky breakout.
The Russell 2000 dipped less than a point to settle at 1,284. The small-caps showed the most strength on Friday, as the bears could only manage a 3-point push to 1,281. Near-term support at 1,280-1,275 held to keep my near-term target of 1,300+ in play. A drop below 1,270 might signal that a short-term top is in.
The S&P 500 Volatility Index ($VIX, 13.96, up 0.77) tested resistance at 13.50 during the first half of action before trading to a low of 12.96. I have talked about the need for a drop to 12.50 to confirm fresh all-time highs, and Thursday’s low touched 12.54. Although record highs on the Nasdaq and Russell 2000 triggered, the S&P missed taking out its all-time high of 2,134. The VIX’s move above 13.50 keeps 15 in play. I wouldn’t be surprised to see the VIX spike to 17.50 on a volatile pullback, and I have said repeatedly to stay calm until the bears clear and hold this level.
I mentioned for much of last year and all of this year that the Nasdaq had not come this far not to take out it previous all-time high of 5,134 from 15 years ago. It was a “no-brainer” call, especially as the other major indices set all-time highs throughout 2014.
Last week’s run to 5,143 wasn’t a blue-sky breakout by any means, but it validated my theory that Tech would set historic highs this year. My target from February 23 of Nasdaq 5,500-6,000 by the first quarter of 2016 is certainly in play, but we will prepare for those targets at a later date.
For now, Wall Street’s biggest worry has shifted from the Fed to Greece. While it may be inevitable that the country will default and leave the eurozone, talks of the PIIGS (Portugal, Italy, Ireland, Greece and Spain) returned. Concerns over Portugal, Italy and Spain having a domino effect on the euro in the case of a Greek exit heated up. To make matters more interesting, Russia is joining the party and could dance with Greece.
The indices set session lows into Friday’s close, and another down Monday would be a bearish signal to start the week. Today’s close could be an important early clue on how the rest of the week and month plays out, as the Dow tries to avoid its third-straight Monday loss. Friday’s pullback on the index was the fifth-straight negative Friday.
As far as Greece, the European Central Bank (ECB) gave the Greek banks “emergency” funding over the weekend to support the outflows that have grown to one billion euros daily.
The uncertainty over the country’s bailout could come to a screaming boil today. A last minute deal could come as early as today, but the official, unofficial deadline for the country to make a debt payment is the end of the month.
I have no clue what the outcome will be with Greece and the euro because the zombies play so many musical chairs, anything can happen. The real worry should be whether or not Greece can repay its debt on a consistent basis and not just the one upcoming payment. This can’t be solved if its economy isn’t fixed, which is why the cord should be cut so that world markets can move forward.
Gold caught some action and is holding $1,200 following the Fed circus, as the drop in bond yields weakened the U.S. dollar. This sparked interest in the yellow metal, as gold cleared its 50-day and 100-day moving averages. These two had been curling lower but are trying to flatten out, with additional resistance at $1,210 and the 200-day moving average. A close above $1,210 would be bullish for a possible run to $1,230-$1,240. While a mini-trading range has formed since mid-March, there is still risk to $1,170-$1,150 if $1,200-$1,190 fails to hold.
With the recent trading range, it is a little too risky to go long or short on gold. However, here is how we may want to profit from a possible breakout or breakdown from here.
One could use the SPDR Gold Trust ETF (GLD, $115.12, down $0.20) to play a bullish breakout on a move above $1,210 with the GLD July 117 calls (GLD150717C00117000, $0.75, down $0.10). I mentioned that the safer trade may be waiting for $1,210 to clear, but aggressive traders could use these call options if $115-$114.50 holds on the GLD shares.
For a bearish trade, if gold cracks $1,190, or GLD shares fall below $114.50, speculative traders could use the GLD July 113 puts (GLD150717P00113000, $0.71, down $0.02).
The aforementioned options, together, could also be used to create a strangle option trade. With both options priced near $0.75, shares of GLD would need to clear $118.50-$119 over the near term, or fall below $111-$110, to make a decent profit.
I usually don’t recommend too many exchange-traded fund (ETF) option trades. Instead, I like to play individual stocks, as they have more momentum. Additionally, the bid/ask prices on ETFs can be wider at a dime or more, and I like to trade options with a spread of a nickel or less. However, GLD options have relatively decent bid/ask spreads and are pretty liquid, meaning they are easy to get into and out of.
Silver is also in the same boat on a technical level. The “poor man’s gold” is currently hovering around the $16 level, with risk of a drop to $15.25. Layers of resistance lie between $16.50-$16.75, and a close above these levels would suggest that further gains are ahead.
I love collecting silver coins, but silver dealers or the U.S. Mint ask high “spot” prices of $2-$3 a coin. I’m sure you have seen the silver commercials running on television, but at $20+ per coin while silver is at $16, no thanks. Good deals are usually found at coin shows, pawn shops or through somebody you run across who will sell silver for what an ounce is currently fetching, or lower, in some cases.
We’re six years into a bull market and, for the past three years, all we have heard from Wall Street and the talking heads is that “the” market top is in. At some point, a temporary market top will be in and a pullback, selloff or correction will come.
Of course, these knuckleheads are guessing when a market pullback will come and, when it does, they will say they were right. On the other hand, we will know precisely when a market correction is coming, and we will profit handsomely.
While my instincts are telling me that the back half of June could favor the bears, they still have major levels of support to crack before I would ride with them.
Unlike Wall Street, I don’t care if the next major trend is up or down because the move will be powerful and one we will profit from. The longer the trading range, the bigger the breakout, or breakdown, will be. In the meantime, keep your poker face on and wait for the cards and clues to continue to play out.
While I have said that higher all-time highs could continue into July, we all know it hasn’t been smooth sailing. The trading ranges from February are still in play, but higher highs are being tapped. The week after June option expiration has usually been bearish over the past 25 years, which is why the rest of the month could be rocky. The Dow has fallen over 80% of the time during this period, with an average loss of over 1%.
History likes to repeat itself, and it often rhymes as well. So, while I’m still looking for all-time highs to continue into July, we need to be careful with the headlines that are due out this week.
From desk to press, futures look like this: Dow (+134); S&P 500 (+17); Nasdaq 100 (+39).
Momentum Options Play List
Although June has been rocky, I have been fortunate enough to guide our Momentum Options portfolio to a 40-13 track record since late March, excluding open trades. This is a success rate of 75%. Over this time frame, we locked in five triple-digit winners of 130%, 106% and three 100% winners. The 6 losers were for -83%, -98%, -97%, -88%, -63%, -55%. There were five other trades that returned between 64%-77%, and the other 30 trades were gravy gains from single-digits up to 50%. Since May, the track record has been 19-6 for a 76% win rate. Overall for 2015, the track record is at 76% on 86 trades. This is what my seven-year track record averages, and 2015 is playing out as planned.
Given that the trading ranges from February are still in play, I have had to work extremely long hours. That grind will continue as always, and I can’t wait, but I want to prepare you for what could be a summer grind with spiked volatility. Our current trades took a hit last week, but I have planned for any summer weakness by going with August, September and October options. We have five July trades and, for these options, we may have to buckle our seatbelts. Otherwise, stay relaxed, stay updated twice a day and, most importantly, stay in the game, as you always want to have chips at the table. We will know when all hell breaks loose and, if and when it does, we will profit from Wall Street’s panic. With volatility and major headlines due out this week and the rest of June.
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Closed Momentum Options Trades for 2015: 65-20-1 (76%). 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.
S&P 500 SPDR ETF (SPY, $210.81, down $0.93)
SPY July 200 weekly puts (SPY150710P00200000, $0.47, up $0.10)
Entry Price: $0.45 (6/19/2015)
Exit Target: $0.90-$1.20 (Limit Order at $0.90 on first half)
Stop Target: None
Action: Set a Limit Order to sell to close the first half of the trade at $0.90. If $1.20 triggers, we can set a Stop Limit and babysit the second half as it moves higher.
This is only my sixth put option trade for 2015, but it’s one that I felt we needed. I went with a weekly option this time, as volume and open interest was high.
As insurance, I could hold this trade open until July 10, and, if the market continues higher, the premium could get crushed. The trade could also lose 90%-100% on a continued rally into June and early July, but again, this trade is insurance that may or may not pay off. That is the bad news.
Of course, if there is a major selloff or the market takes a tumble this week, there is a good possibility that we will get paid with a double- or triple-digit profit.
A close below $210 and the 50-day moving average would be bearish. Additional help is at $208 and the 100-day moving average. Resistance at $213.
Rambus (RMBS, $14.98, down $0.08)
RMBS August 16 calls (RMBS150821C00016000, $0.50, down $0.05)
Entry Price: $0.55 (6/19/2015)
Exit Target: $1.40
Stop Target: None
Action: I have traded Rambus with good success this year, but the market makers and volatility have taken us out of several positions. I wasn’t going to let Friday’s action keep me away, because Rambus has improving fundamentals Wall Street just isn’t noticing.
I did, however, buy us more time by using the August call options instead of July. This will allow us to play a possible earnings cycle. With its recent licensing deal for $144 million, analysts will have to upgrade their earnings estimates. I’m not sure how many will actually do their homework and, if they don’t, earnings could surprise to the upside.
I don’t like taking a lot of earnings trades, and this isn’t one yet, but I like the fundamentals and chart for Rambus. I’m hopeful that shares will continue to rise on more licensing deals into earnings. They have a partnership with IBM (IBM) and other “blue-chip” companies. I think Big Blue should really consider a takeover of Rambus.
Over the years, I have correctly predicted takeover targets. While some of them haven’t come to fruition, I have repeatedly said that Rambus is one name to watch this year. I have been following the company for over a decade, which is why I wanted to get us back in the options.
The company used to spend the majority of its time fighting in court over its intellectual properties but now works on licensing its technology. Rambus has a market cap of less than $2 billion. For $3 billion, IBM could offer up to $22-$23 a share. That would represent a 50% premium from current levels, which is what most mergers and acquisitions are averaging nowadays.
I wanted to see $15 hold into Friday’s close. Support is at $14.50 and the 50-day moving average on a drop below $14.75. Resistance is at $15.25-$15.50, and a close above the latter would be bullish.
Microsoft (MSFT, $46.10, down $0.62)
MSFT July 47 calls (MSFT150717C00047000, $0.50, down $0.35)
Entry Price: $0.73 (6/18/2015)
Exit Target: $1.50
Stop Target: None
Action: Shares gave back much of Thursday’s gains but held $46 and their 50-day moving average. The hit in the option premium was a little excessive, however, and there is further risk to $45.50-$45 and the 50-day moving average. Resistance is at $47-$48.
United Parcel Service (UPS, $100.84, down $0.56)
UPS July 105 calls (UPS150717C00105000, $0.30, down $0.12)
Entry Price: $0.53 (6/11/2015)
Exit Target: $1.05
Stop Target: None
UPS October 110 calls (UPS151016C00110000, $0.50, down $0.12)
Entry Price: $0.70 (6/11/2015)
Exit Target: $1.40
Stop Target: None
Action: Resistance is at $102. Support is at $101 and the 200-day moving average, followed by $99 and the 100- and 50-day moving averages.
You can read my extended write-up on UPS in the June 12 Pre-Market Update.
Wells Fargo (WFC, $57.05, down $0.65)
WFC July 60 calls (WFC150717C00060000, $0.12, down $0.10)
Entry Price: $0.20 (6/5/2015)
Exit Target: $0.50
Stop Target: None
Action: Support is at $56.50-$56 on a close below $57. Resistance is at $58. Shares set a 52-week and all-time high of $57.57 last Thursday.
Rigel Pharmaceuticals (RIGL, $3.07, down $0.30)
RIGL September 5 calls (RIGL150918C00005000, $0.20, down $0.10)
Entry Price: $0.40 (6/4/2015)
Exit Target: $0.80
Stop Target: None
Action: I had a feeling that the failure to hold the 100-day moving average last week would lead to a test to $3. There is additional risk to $2.75 and the 200-day moving average if $3 fails to hold. Near-term resistance is at $3.25-$3.50.
There has been no major news or nasty headlines this month, so the pullback is puzzling. I used longer-term options to play a move past $5 on continued drug development deals. I still feel comfortable holding the position, as the options have three months before expiration. However, I’m placing this trade on “hold” until shares clear $3.50 again, and it will appear in the “Trades on Hold” section at the bottom of subsequent updates.
You can read my detailed write-up on RIGL in the June 5 Pre-Market Update.
Sony (SNE, $29.67, down $0.52)
SNE July 33 calls (SNE150717C00033000, $0.10, down $0.07)
Entry Price: $0.45 (6/1/2015)
Exit Target: $0.90
Stop Target: None
Action: Support is at $29-$28.75 and the 100-day moving average. Near-term resistance is at $30.75-$31 and the 50-day moving average.
The premium in the calls has been punished, but I still like the trade. I’m placing this trade on “hold” again, and it will appear in the “Trades on Hold” section at the bottom of subsequent updates. I will bring back coverage once momentum returns.
Editor and Chief Options Strategist