Dear Momentum Options Subscriber,
Monday’s action was picture-perfect, as the early morning weakness flushed out bullish traders as the market turned bearish. I mentioned that a second-half rebound and a higher Monday close on the Dow would be bullish clues for a continued rally. The market obliged, but trading is still treacherous.
The Dow advanced 67 points, or 0.4%, to finish at 17,545. The blue-chips traded down to 17,341 on the open before recovering those losses an hour later. The bulls held support at 17,400-17,350 before making a run to 17,551. Resistance at 17,600 held, and a close above 17,775-17,800 and the 50-day moving average could be in play.
The S&P 500 climbed 11 points, or 0.5%, to close 2,102. The index tested a low of 2,079 at the start of trading, with support holding at 2,075. The 1% blast past 2,100 off of the bottom yesterday nearly reached 2,103. Additional hurdles are at 2,115-2,125.
The Nasdaq surged 43 points, or 0.9%, to settle at 5,091. Tech kissed support at 5,025-5,000 following a dip to 5,022 on the open. The 70-point turnaround reached a peak of 5,092 and pushed upper resistance at 5,075-5,100. A move above the latter will likely lead to some short-covering that could bring 5,125-5,150 into play.
The Russell 2000 popped a 12-pack, or 1%, to end at 1,225. The small-caps stumbled to a low of 1,206, as Wall Street was fretting a down-day when traders woke up. The bulls were shouting last call while the train was ready to go, and support held at 1,200. The rocket ride to 1,225 lasted late into the session, with resistance at 1,225-1,230 being tested into the close.
The S&P 500 Volatility Index ($VIX, 13.02, up 0.19) zoomed to 14.52 shortly after the opening bell to split resistance at 14-15. The bulls held the 100-day moving average before pushing a low of 13.01. The slightly higher VIX on an up-day merits some caution, as a move above 13.50 again would be bearish. Continued closes below 12.50-11.50 would confirm the bullish momentum.
I have several moving targets this morning, and there a lot of parts in motion. Let’s go review them so we are all on the same page.
From desk to press, futures look like this: Dow (-55); S&P 500 (-5); Nasdaq 100 (-15); Russell (-3).
Momentum Options Play List
Closed Momentum Options Trades for 2015: 79-26-2 (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.
Hertz Global Holdings (HTZ, $18.81, up $0.63)
HTZ September 19 calls (HTZ150918C00019000, $0.87, up $0.22)
Entry Price: $0.70 (8/17/2015)
Exit Target: $1.40
Stop Target: None
Action: Shares made a bullish breakout above a key moving average after trading to a high of $18.99 yesterday. The action caught the attention of a lot of professional traders on the breakout above the 50-day moving average. This scan is commonly used as a starter point for trades, and it got noticed. Shares started a strong intraday uptrend from $18.40 when I was going to press, with the options at $0.70.
The stock was pushing $19 when the Mid-Market Update should have hit your email inbox. Some traders may have had to pay more than $0.70 for the options and, for that, I apologize.
As with any trade, I’m always looking to double our investment, and sometimes I aim for 200%-300% returns or more. While your results may not mirror every single one of my trades perfectly, I believe this trade can still double from current levels, and all it would take is a push past $21. This would get the options $2 in the money.
This means you can buy them to up to $1 if you aren’t in the trade. However, I also don’t like to get too greedy, and I try to adhere to my strict trading rules and lock in gains on a 100% profit from my entry price.
I usually don’t continue to recommend a trade for new entries, but there is still another 70% worth of upside if shares make a run at $21.
In the future, if an ask price that is $0.05-$0.10 higher than my listed entry makes you nervous, it might be best to simply pass on the trade. The last thing I want to do is make you feel uncomfortable. Please realize that the market moves quickly, and I do my best to bring you all of the news and recommendations as soon as I can.
Getting back to HTZ, the move looked powerful, and fresh short-term resistance at $19-$19.50 was challenged. A move past $20-$20.50 should easily double these options, depending how fast the move happens. Support is at $18.75-$18.50 on a pullback. A close below $18 would indicate a possible false breakout.
There were a few articles that focused on insider buying by some of the company executives on Monday. This was another reason shares were active, aside from the technical breakout. The downtrend line from the early May high of $22.63 and the mid-July high of $20.50 extends to $19.50 when drawn out. A move above this level is the next bullish breakout we will need if shares are going to make a run past $20.
Bank of America (BAC, $17.77, up $0.07)
BAC September 18 calls (BAC150918C00018000, $0.31, up $0.03)
Entry Price: $0.28 (8/17/2015)
Exit Target: $0.60-$0.90
Stop Target: None
Action: I have set two Exit Targets at $0.60 and $0.90 for the trade, and momentum will dictate where we lock in profits or close the trade.
The early-morning weakness on Monday provided us with a great entry point, as the options traded to a low of $0.25. I profiled the trade before the opening bell yesterday, but I wanted to ensure that support would hold before making the recommendation.
These options were active once again, as over 17,500 contracts traded hands on the stock’s run to $17.81 yesterday. Short-term resistance is at $18. Support is at $17.50 and the 50-day moving average, with backup at $17.25-$17.
You can read my full write-up on BAC in yesterday’s Pre-Market Update.
iShares Russell 2000 (IWM, $121.42, up $1.06)
IWM September 123 Weekly calls (IWM150904C00123000, $0.82, up $0.26)
Entry Price: $0.52 (8/14/2015)
Exit Target: $1.05 (Limit Order on first half)
Stop Target: $0.57 (Stop Limit)
Action: Set a Limit Order to close the first half of the trade at $1.05. I will raise the Exit Target on the second half of the position if the initial target is reached.
Also, set a Stop Limit at $0.57. These are weekly options, so I’m running a tighter ship on this trade. Hopefully there isn’t a backtest at today’s open and it’s smooth sailing from start to finish.
The options traded to a low of $0.39 yesterday on IWM’s dip to $119.60. Late traders that bought the dip near $0.40 doubled their money, and I’m still looking to close this trade for $1.05 and better.
Near-term resistance at $121 and the 200-day moving average was cleared and held steady following Monday’s test to $121.68. The close above $121.50 was extra nice, as it should get $122-$123 back in the mix. Fresh support is at $121-$120.50.
PowerShares QQQ Trust (QQQ, $111.43, up $0.92)
QQQ September 112 Weekly calls (QQQ150904C00112000, $1.03, up $0.21)
Entry Price: $0.95 (8/13/2015)
Exit Target: $1.90
Stop Target: $0.50
Action: I have set a Stop Target at $0.50, but it is not a Stop Limit order.
The QQQs traded up to $111.41 yesterday following a dip to $109.96. The options traded to a low of $0.60 before rebounding to $1.03.
Resistance is at $111.50-$112. Support is at $110 and the 50-day moving average. Backup support is at $109 and the 100-day moving average.
JPMorgan Chase (JPM, $68.07, up $0.18)
JPM September 70 calls (JPM150918C00070000, $0.55, up $0.01)
Entry Price: $0.80 (8/10/2015)
Exit Target: $1.60
Stop Target: None
Action: Resistance at $68 and the 50-day moving average was cleared on Monday’s run to $68.24. The close above this level opens the door for a run towards $70. Support is at $66-$65.75 and the 100-day moving average.
KB Home (KBH, $16.15, up $0.49)
KBH October 16 calls (KBH151016C00016000, $1.00, up $0.20)
Entry Price: $0.52 (8/10/2015)
Exit Target: $1.05, raise to $1.50 (closed first half at $1.00 on 8/17/2015)
Stop Target: $0.65, raise to $0.85 (Stop Limit)
Action: Raise the Exit Target from $1.05 to $1.50 on the second half of the trade. Also, raise the Stop Limit order from $0.65 to $0.85.
We closed the first half of the trade on the stock’s move to $16.17 on Monday. The options traded to a high of $1.02.
The close above $15.75-$16 and the 50-day moving average was bullish. The next layers of resistance are at $16.25-$16.50. Support is at $15.50-$15.25 and the 100- and 200-day moving averages if $16-$15.75 fails to hold on a backtest. There was a lot of chatter on the homebuilders yesterday. I also wanted to close half of the trade in case the sector starts to get crowded.
You can read my detailed write-up on KBH in the Aug. 12 Pre-Market Update.
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.
Rigel Pharmaceuticals (RIGL) September 5 calls (from 6/4/15) — Continue to hold.
SPDR Gold Trust ETF (GLD) September 98 puts (from 7/28/15) — Continue to hold.
Editor and Chief Options Strategist