In This Issue:
Dear Momentum Options Subscriber,
The market continued its late-July pullback last week, and the indices finished near multi-month lows. However, the five-session slide ended on Tuesday, as the bulls rebounded to push resistance and prior support.
The rally lasted into Thursday, when the market recovered the second levels of resistance. Trading was choppy following the latest gross domestic product (GDP) numbers, and the slightly mixed close set the stage for a Friday showdown that ended mixed, as well.
The Dow fell 56 points, or 0.3%, to finish at 17,689 on Friday. The blue-chips opened higher and were choppy before fading below 17,700 to 17,671. The rebound to 17,783 mid-day fell short of resistance at 17,800 and the 200-day moving average. There are additional hurdles at 17,900-17,950 and the 50- and 100-day moving averages, but bullish momentum can’t be trusted until 18,000-18,100 is cleared. There is risk to 17,600-17,350 on continued weakness.
The S&P 500 slipped 4 points, or 0.2%, to close at 2,103. The index made a push to short-term resistance at 2,115-2,125 but struggled to hold this zone. A move above the latter keeps bullish hopes of fresh all-time highs north of 2,135 alive. Support is at 2,100-2,095 and the 50- and 100-day moving averages. A drop below 2,090 could lead to a retest of 2,075-2,070 and the 200-day moving average.
The Nasdaq dipped by half of a point, or 0.01%, to settle at 5,128. Tech traded in positive territory for much of Friday’s session and made a push past resistance at 5,150. There is additional overhead resistance at 5,175-5,200, but the late-day fade to 5,122 looked troublesome. Support is at 5,100-5,075 and the 50-day moving average if 5,125 fails to hold. Additional help is at 5,050-5,025 and the 100-day moving average.
The Russell 2000 gained 6 points, or 0.5%, to end at 1,238. The small-caps traded in positive territory throughout the session to reach a peak of 1,244. The bulls fell shy of clearing 1,250 and the 100-day moving average, and they were not able to hold the 1,240 level. This keeps risk open to 1,225-1,215 and the 200-day moving average. A close below this level could lead to 1,200 on continued selling pressure.
The S&P 500 Volatility Index ($VIX, 12.12, down 0.01) stayed in a tight range on Friday, with the bears pushing 12.50 while the bulls tested 11.50. The high of 12.63 keeps risk in play up to 13.50-15. The VIX tested a low of 11.82 but needs to get below 11.50 to confirm that new highs are in store.
The bulls turned in a solid month for July despite elevated volatility, as most of the major indices finished higher. The Dow added 70 points, or 0.45%, and the S&P 500 gained over 40 points, or 2%. The Nasdaq surged 141 points, or 2.9%, while the Russell 2000 gave back 15 points, or 1.2%. The small-caps were weak and remain a concern heading into August, which is historically a poor month for the market as well.
As you can see from the chart below, the bulls have won four of the seven months on all four of the aforementioned indices. Year-to-date, the Dow is lower by 133 points, or 0.75%, while the S&P 500 has added 45 points, or 2.2%. The Nasdaq has gained 392 points, or 8.3%, and the Russell 2000 has advanced 34 points, or 2.9%.
The Dow has made seven intraday and six all-time closing highs this year. The intraday high of 18,351.36 and closing high of 18,312.39 tripped on May 19.
The S&P 500 has set 12 intraday and 10 all-time closing highs this year. The intraday all-time high of 2,134.72 was reached on May 20, and the closing high of 2,130.82 was triggered on May 21.
The Nasdaq has set 22 intraday and 21 all-time closing highs this year. The intraday all-time high of 5,231.94 and the closing high of 5,218.86 were touched on July 20.
The Russell 2000 has set 18 intraday and 16 all-time closing highs this year. The intraday all-time high of 1,296 and the closing high of 1,295.80 were triggered on June 23.
As far as the technical picture, the only troublesome chart, really, is the Dow. The mini “death cross” of the 50-day moving average crossing below the 100-day moving average is still in play. The aforementioned chart on the S&P 500 is showing a downward-sloping 50-day moving average, which is something that bears watching if it crosses below the 100-day moving average as well.
The technical setup on the Nasdaq shows a slightly upward bias with the 50- and 100-day moving averages, but it is close to leveling out. The Russell 2000 is showing a slightly downward-sloping 50-day moving average, with the 100-day moving average already flat lining.
The damage on the Dow has been impacted by the weakness in the Dow Transports. The transports held their July lows and the 8,000 level before surging near 8,400 and past the 50-day moving average last week. This was a bullish development, as a rebound in the transports might help stabilize the Dow. However, if the 8,300 level fails to hold this week, it would further deepen my concerns for the blue-chips.
The financial stocks started to pull back mid-month and remain in focus, as they still hold the keys to a continued rally. The Financial Select ETF (XLF, $25.21, down $0.08) tested a high of $25.62 on July 23 and is still above its 50-day moving average. A move above $25.40 will likely keep fresh highs in play. A drop below $25-$24.75 and the 50-day moving average would be a bearish development.
The Dow Monday/Friday closes continue to favor the bears. The pullback last Monday was the fifth in the past eight Monday sessions.
Friday’s drop in the Dow was the third-straight down day. Additionally, the bears have won seven of the past 10 Friday sessions.
There have been seven down Monday/Friday closes this year. More importantly, the last five down M/F closes have come since mid-May, with two of the past four hitting in July.
I have mentioned that negative Monday/Friday closes can signal a pending pullback, selloff or correction. It shows that Wall Street is leery of holding stocks over the weekend until they open the following week. This also means that money is moving out of the market.
Up Monday/Friday closes can signal market strength, while mixed M/F closes often lead to trading ranges. This was one of the main reasons why I was slightly cautious about adding new bullish positions last month.
The current environment feels shaky, but the six-month trading ranges have been holding up. This has also cautioned me from going short, which shows that this truly is a stock picker’s market. However, by doing the homework, we have been able to trade in and out of these ranges with the help of the VIX and the other technical indicators I follow.
Timing a market top is never easy, but the technical clues I follow have been pin-point accurate all year. This has allowed me to spot tremendous trading opportunities, and we are in a perfect position to play the next short-term trend.
Wall Street might be in the summer doldrums, but I intend to keep my hot streak going heading into August. It was a tremendous July, as the Momentum Options track record went 10-3-1. This included three triple-digit winners, with our United States Steel (X, $19.47, down $0.62) trade leading the pack with a 338% return.
Although I closed a few positions last month that didn’t work out, they were from an earlier batch of trades. In fact, my last 12 trades from mid-June have been profitable, and I hope to keep that streak intact, as well.
My Watch List is exploding with fresh ideas, and I expect this month to be just as busy and volatile as last month. We just have to let the market come to us and watch for the clues to go long or short.
From desk to press, futures look like this: Dow (+14); S&P 500 (+0); Nasdaq 100 (+0.3); Russell (-1).
Momentum Options Play List
Closed Momentum Options Trades for 2015: 76-25-2 (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.
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 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.
PowerShares QQQ Trust (QQQ, $111.95, down $0.13)
QQQ August 110 puts (QQQ150821P00110000, $0.70, down $0.02)
Entry Price: $0.72 (7/30/2015)
Exit Target: $1.45
Stop Target: None
Action: Shares closed back below $112 on Friday. This gets $110 and the 50-day moving average back in play. These options will double on a test to $108 and the 100-day moving average if that level is reached in the next couple of weeks. Near-term resistance is at $113-$114.
SPDR Gold Trust ETF (GLD, $104.93, up $0.66)
GLD September 98 puts (GLD150918P00098000, $0.62, down $0.10)
Entry Price: $0.82 (7/28/2015)
Exit Target: $1.65
Stop Target: None
Action: Resistance is at $106, and I like the trade as long as $108 holds. A move below $104-$103.50 should get $100 and below in play. The major moving averages are still sloping lower and show no signs of leveling out.
United Parcel Service (UPS, $102.36, up $0.96)
UPS October 110 calls (UPS151018C00110000, $0.40, up $0.09)
Entry Price: $0.70 (6/11/2015)
Exit Target: $0.70+
Stop Target: $0.20 (Stop Limit)
Action: Set a Stop Limit at $0.20.
Resistance is at $103-$105. A move above the latter should get the trade back to even or better. Support has moved up to $102-$101 and the 200-day moving average. There is additional help at $100-$99 and the 50-day moving average. A close back below these levels will likely trigger the Stop Limit on failed momentum.
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.
Rigel Pharmaceuticals (RIGL) September 5 calls (from 6/4/15) — Support is at $2.90 and the 200-day moving average, with additional risk to $2.75-$2.70. Resistance is at $3, followed by $3.25 and the 50-day moving average. These options still have plenty of time premium, but we need shares to break out of their trading range this month — Continue to hold.
Editor and Chief Options Strategist