Dear Momentum Options Subscriber,
The bears ended their two-session slide following a frustrating start by the bulls on Tuesday. Although there was a slight burst into positive territory, Tech and the small-caps were weak, and the VIX finished higher for the second-straight day.
The Dow fell 33 points, or 0.2%, to close at 17,511. The blue-chips tested a low of 17,486 on the open before rebounding to a high of 17,568 intraday. Resistance at 17,600 held before another backtest to session lows into the closing bell. Support at 17,400-17,350 is holding, but a move below these levels will likely end any hope for a continued summer rally.
The S&P 500 slipped 5 points, or 0.3%, to settle just under 2,097. The index managed to trade about a point higher to reach 2,103 shortly after the weak open, with resistance at 2,115 easily holding. The fade to 2,094 afterwards held support at 2,090, and the close above the 50-day moving average keeps bullish hopes alive.
The Nasdaq gave back 32 points, or 0.6%, to end at 5,059. Tech was weak throughout the session after opening at 5,082 and below resistance at 5,100. The intraday low reached 5,054, with fresh support holding at 5,050. Backup support is at 5,025-5,000. The close between the 50- and 100-day moving averages was a neutral clue.
The Russell 2000 tumbled 10 points, or 0.8%, to finish just below 1,215. The small-caps traded in negative territory throughout the session and closed at the session low. The close back below the 200-day moving average was slightly bearish.
The S&P 500 Volatility Index ($VIX, 13.79, up 0.77) jumped 6% after the bears pushed a high of 13.94. The close above 13.50 was negative and keeps risk to 15 and possibly 17 open. The bulls need to recover 13.50-12.50 today to regain their momentum.
Although Tuesday’s action was a bummer and a trading range could continue this week, the higher lows than those on Monday were bullish signs, and fresh support is holding.
The pullback could give us another opportunity to add new trades. However, I’m still tiptoeing through August and will keep tight Stop Limits in place to protect profits until we get more definitive clues on the next big trend.
From desk to press, futures look like this: Dow (-69); S&P 500 (-7); Nasdaq 100 (-12); Russell (-6).
Momentum Options Play List
Closed Momentum Options Trades for 2015: 80-26-2 (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, $18.86, up $0.05)
HTZ September 19 calls (HTZ150918C00019000, $0.88, down $0.07)
Entry Price: $0.70 (8/17/2015)
Exit Target: $1.40
Stop Target: $0.75 (Stop Limit)
Action: Set a Stop Limit at $0.75.
Shares reached a high of $19.04 but failed to hold $19 into the close.
I set the Stop Limit to protect profits and to limit our exposure in our open positions. This will also make room for put option trades if a market top is in or if the trading range continues.
Resistance is at $19-$20. Support is at $18.75-$18.50 on a pullback. A close below $18 would indicate a possible false breakout.
Bank of America (BAC, $17.69, down $0.08)
BAC September 18 calls (BAC150918C00018000, $0.26, down $0.05)
Entry Price: $0.28 (8/17/2015)
Exit Target: $0.60-$0.90
Stop Target: None
Action: Support is at $17.50 and the 50-day moving average, with backup at $17.25-$17. Tuesday’s low touched $17.65. Short-term resistance is at $18.
You can read my full write-up on BAC in Monday’s Pre-Market Update.
PowerShares QQQ Trust (QQQ, $110.86, down $0.57)
QQQ September 112 Weekly calls (QQQ150904C00112000, $0.76, down $0.27)
Entry Price: $0.95 (8/13/2015)
Exit Target: $1.90
Stop Target: $0.50
Action: Support is at $110 and the 50-day moving average. Backup support is at $109 and the 100-day moving average. Resistance is at $111.50-$112.
JPMorgan Chase (JPM, $68.21, up $0.14)
JPM September 70 calls (JPM150918C00070000, $0.55, flat)
Entry Price: $0.80 (8/10/2015)
Exit Target: $1.60
Stop Target: None
Action: Resistance is at $70. Support is at $68, followed by $66-$65.75 and the 100-day moving average.
KB Home (KBH, $16.41, up $0.26)
KBH October 16 calls (KBH151016C00016000, $1.15, up $0.15)
Entry Price: $0.52 (8/10/2015)
Exit Target: $1.50 (closed first half at $1.00 on 8/17/2015)
Stop Target: $1.00 (Stop Limit)
Action: Shares tested the next layers of resistance at $16.75-$17 following yesterday’s run to $16.76. Support is at $16.25, and a drop below this level will likely trip the $1.00 Stop Limit on the second half of the trade.
The talking heads were cheerleading the homebuilding stocks again on Tuesday, and I mentioned that trades in the sector could become crowded. This is why I raised the Stop Limit and have closed half of the trade over the past two sessions.
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) — GLD is still below $108 — Continue to hold.
Editor and Chief Options Strategist