In This Issue:
Dear Momentum Options Subscriber,
The bears made some noise last week as the circus in Greece continued. Like all good clowns, they will eventually leave town, but the clock is ticking as the country’s debt debacle is once again coming down to the wire.
Volatility picked up and will likely continue for the last few days of June and into July. With second-quarter earnings just around the corner and the current shenanigans going on around the world, the summer action is going to be anything but dull.
The Dow gained 56 points, or 0.3%, to finish at 17,946 on Friday. The blue-chips traded to a high of 18,013 and tested the 50- and 100-day moving averages before closing below these levels. There is additional risk to 17,800 on further weakness, and a close below this level could lead to 17,600 and a test of the 200-day moving average. Resistance remains at 18,100-18,200.
The S&P 500 gave back a point, or 0.04%, to end at 2,101. The index made a run to 2,108 but struggled with resistance at 2,115-2,125. The close below the 50-day moving average was slightly bearish, but the 2,100 level stuck. The bulls held the 100-day moving average following Friday’s low of 2,095, but there is further risk to 2,075 on a drop below 2,090.
The Nasdaq declined 31 points, or 0.6%, to settle at 5,080. Tech made a brief appearance into positive territory to reach 5,121, but short-term resistance at 5,125 held firm. Backup support at 5,075-5,050 and the 50-day moving average held on the close below 5,100, with Friday’s low reaching 5,060. There is additional risk to 5,000 and the 100-day moving average on a drop below 5,050.
The Russell 2000 fell 3 points, or 0.3%, to close at 1,279. The small-caps traded to a high of 1,287 for a second-straight session but couldn’t clear resistance at 1,290-1,300. The slippage to 1,274 may have signaled a short-term double top, as the bears cracked support at 1,275 on Friday’s pullback. A close below 1,270 could lead to a quick test to 1,250 and the 50-day moving average.
The S&P 500 Volatility Index ($VIX, 14.02, up 0.01) traded to a high of 14.91 but ended flat as a pancake. The bulls held 15 for the ninth-straight session, and I have repeatedly said that we won’t flinch until the bears get a close above 17.50. We don’t need to get aggressively short until then. The bulls need to recover 13.50-12.50 today or tomorrow. If not, the action could get ugly.
The market is mixed for June, with the Dow down 64 points and the S&P off by a 6-pack. Tech is up 10 points, and the small-caps are higher by 33 points, or nearly 3%. There are two trading days left in the month, and there could be a 1%-3% move lower (or higher) by Thursday for these indices.
I mentioned previously that the week after June option expiration is typically bearish. Although the losses were less than 1%, the bears warned Wall Street that they were getting hungry.
Greece also had two days before its fate might have been decided, but it threw the market a curveball. After Wall Street closed on Friday, the country’s Prime Minister declared a referendum.
To make a long story short, the zombie running Greece rejected an “ultimatum” from lenders over the debt that it won’t ever pay back and left it up to its people to decide. The vote will take place next Sunday, July 5. The U.S. market is closed this Friday in advance of Independence Day on Saturday, and Greece’s future in Europe will be at risk to a popular vote.
The market will likely be held hostage for the next four sessions, and the suits-and-ties will likely be too nervous to stay long ahead of a three-day weekend. The odds of a Greece default have increased dramatically, and the market hates uncertainty. Next Monday could be one of the most volatile days of the year if the current set of events unfolds on schedule.
The Financial Select SPDR (XLF, $24.89, up $0.08) finished the week slightly higher after tapping a fresh 52-week high of $25.25. There is additional fluff to $27-$28 on continued closes above this level. Near-term support is at $24.75-$24.50 and the 50-day moving average. The fact that the sector showed strength is great, but it is feeling like a temporarily crowded trade.
Goldman Sachs Group (GS, $213.17, up $0.35) pushed a fresh 52-week peak of $218.77 early last week. Shares gave back $4 the next trading day and struggled with $215 afterwards. A close below $210 could lead to $205 and the 50-day moving average. Perhaps this was a weak sign for this week, but it might represent a great entry point if support holds.
The Dow Jones Transportation Average ($TRAN, 8,242, up 3) continues to flirt with disaster after trading to a fresh 2015 low of 8,227 on Friday. The break below a “triple bottom” at 8,300 was a bearish signal that could lead to 8,000 and possibly the October low of 7,700.
I’ve talked in May about how the Dow could trade to new highs without the help of the Transports, but they clearly have held the blue-chips back in June. However, it is important to note that the Transports outperformed the Dow last year by 16%. Most market technicians like to see both the Dow and the Transports flying into blue-sky territory together, and I mentioned that this might not be the case right now. When the two do manage to dance together, along with Apple (AAPL, $126.75, down $0.75), the Dow should be pushing 20,000.
Healthcare stocks blasted higher last week following the Supreme Court’s ruling that “Obamacare” subsidies were legal. This gave the healthcare sector a boost, with Community Health (CYH, $63.99, up $1.54), Tenet Healthcare (THC, $57.81, up $1.61) and Universal Health (UHS, $142.69, up $1.88) soaring on the news. Community Health and Universal Health surged to fresh 52-week peaks.
Tenet Healthcare traded up to $57.70 on last Thursday’s news and $58.61 on Friday. While I wouldn’t chase the first two aforementioned stocks, Tenet could be a candidate for an option trade, as its 52-week peak is north of $63. This would represent possible double-digit gains in the stock from current levels if shares can reach fresh highs.
The THC July 59 calls (THC150717C00059000, $1.20, up $0.45) traded over 1,000 contracts on Friday. This is a signal that bullish traders are expecting a run at the 52-week highs as well.
I started watching the THC July 60 calls (THC150717C00060000, $0.93, up $0.33) on Thursday after they jumped 50% and traded to a high of $1.36. They closed at $0.40 on Wednesday, $0.60 on Thursday and traded to a high of $1.25 on Friday.
Aggressive traders could possibly nibble on that trade to play a continued move higher. However, with this week up in the air and a three-day weekend ahead, it may be better to wait until next week and look at August options. The bid/ask spread on THC options is ridiculously high at the moment. This is the one caveat that will likely keep me out of the trade, as I like to trade options with a spread of a nickel or less.
Friday’s positive close on the Dow ended a five-Friday losing streak, and there will be no trading this Friday. This means that today’s close will be an important clue on how the rest of the week shakes out. While a positive Monday on the Dow could signal that the market is prepared to handle the outcome of Greece, I think the referendum and delay into next week was not something the suits-and-ties were prepared for.
My gut feeling is that this week could get rocky, and I think more talking heads and slick-talking pros will once again jump off of the bulls’ bandwagon. Investor Carl Icahn once again said he was worried about the market, after the Nasdaq just set an all-time high, following his last bearish comments on the market months ago. I can’t count the number of times he has predicted a market crash in the last six years.
A nasty week could set up a snapback rally the following week after Greece’s fate is finally known, and that could last into mid-to-late July. If the major moving averages on all the major indices start to fail, the action could stay bearish for just as long.
It will be important the VIX stays below 17.50 on the closes this week, but I wouldn’t be surprised to see a spike to 20 on panic selling. Our portfolio is positioned perfectly to handle what could be a chaotic week, and I could be busy with Trade Alerts.
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I have an URGENT update on our SPY trade this morning, so let’s go check the action.
From desk to press, futures look like this: Dow (-173); S&P 500 (-21); Nasdaq 100 (-52).
Momentum Options Play List
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, $209.82, down $0.04)
SPY July 200 weekly puts (SPY150710P00200000, $0.38, up $0.03)
Entry Price: $0.45 (6/19/2015)
Exit Target: $0.90-$1.20 (Limit Order at $0.90 on first half), raise to $3.00 (Limit Order at $3.00 on first half)
Stop Target: None
Action: Raise the Exit Target for the first half of the trade from $0.90 to $3.00 (Limit Order on first half).
Support is at $208 and the 100-day moving average following the end-of-week close below $210 and the 50-day moving average. This trade should be profitable on a drop below $208. Resistance is at $212.
You can read my full update on SPY and view the chart work in the June 22 Pre-Market Update.
US Steel (X, $21.60, down $0.44)
X July 21 puts (X150717P00021000, $0.55, up $0.10)
Entry Price: $0.28 (6/23/2015)
Exit Target: $0.60 (closed first half at $0.45 on 6/25/15)
Stop Target: $0.25, raise to $0.35 (Stop Limit)
Action: Raise the Stop Limit from $0.25 to $0.35 on the second half of the trade.
Friday’s close below $21.75 gets $21-$20 in play. Short-term resistance is at $22. The major moving averages are curling lower and are confirming further weakness. We will make a triple-digit profit on a continued test to the low $20s. I raised the Stop Limit to protect profits on a rebound above $22.
Side Note: Schnitzer Steel Industries (SCHN) is scheduled to report earnings tomorrow, which could have a slight impact on shares of X next week. SCHN has a 52-week low of $15 that I would love to see tested. X has a 52-week low of $20.13.
You can read my full report on X in the June 24 Pre-Market Update.
Rambus (RMBS, $15.21, down $0.12)
RMBS August 16 calls (RMBS150821C00016000, $0.55, down $0.03)
Entry Price: $0.55 (6/19/2015)
Exit Target: $1.40
Stop Target: None
Action: The next layers of resistance are at $15.50-$15.75. Support is at $15-$14.75, followed by $14.50 and the 50-day moving average.
You can read my full update on RMBS and view the chart work in the June 22 Pre-Market Update.
Microsoft (MSFT, $45.26, down $0.39)
MSFT July 47 calls (MSFT150717C00047000, $0.20, down $0.15)
Entry Price: $0.73 (6/18/2015)
Exit Target: $1.50
Stop Target: None
Action: Shares tested $45 and the 200-day moving average on Friday. There is additional risk to $44 and the 100-day moving average, which is curling higher. Resistance is at $46-$46.50 and the 50-day moving average.
Wells Fargo (WFC, $57.44, up $0.27)
WFC July 60 calls (WFC150717C00060000, $0.12, up $0.02)
Entry Price: $0.20 (6/5/2015)
Exit Target: $0.50
Stop Target: None
Action: Resistance is at $58-$58.50 and last week’s all-time high of $58.26. Support is at $57. A move back below this level could lead to $56.50-$56 and the 50-day moving average.
Rigel Pharmaceuticals (RIGL, $3.26, down $0.15)
RIGL September 5 calls (RIGL150918C00005000, $0.25, down $0.03)
Entry Price: $0.40 (6/4/2015)
Exit Target: $0.80
Stop Target: None
Action: A move above resistance at $3.50 and the 100-day moving average would be bullish. Support is at $3.25-$3.
You can read my detailed write-up on RIGL in the June 5 Pre-Market Update.
Sony (SNE, $31.17, up $0.02)
SNE July 33 calls (SNE150717C00033000, $0.20, flat)
Entry Price: $0.45 (6/1/2015)
Exit Target: $0.90
Stop Target: None
Action: A move above $32.50 should get the trade back to even. Support is at $31 and the 50-day moving average. A close below this level could lead to another back test to $29.50-$29 and the 100-day moving average.
Trades on Hold — other 2015 Portfolio Open positions (2): 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.
United Parcel Service (UPS) July 105 calls (from 6/11/15) — Continue to hold.
United Parcel Service (UPS) October 110 calls (from 6/11/15) — I will bring back coverage on both positions once shares clear $101 and the 200-day moving average — Continue to hold.
Editor and Chief Options Strategist