Dear Momentum Options Subscriber,

The market remained rocky on Wednesday as Wall Street fretted over the latest Fed minutes. Although the chances are good that a rate hike will come in September, according to the slick-talking pros, the dovish minutes offered hope that the zombies might wait until later in the year before making their move.

The Dow tanked 162 points, or 0.9%, to settle at 17,348. The blue-chips traded down to 17,282 ahead of the Fed minutes, and support at 17,400-17,350 was stretched before the index made a rebound to 17,517. The rally was short-lived, however, as the rebound fell shy of resistance at 17,600. There is additional help at 17,200 on the close below 17,350.

The S&P 500 sank 17 points, or 0.8%, to close at 2,079. The index made a swoon to 2,070 shortly after the open, with support at 2,075-2,070 holding. The recovery to 2,096 failed to break into positive territory and resistance at 2,100. A drop below 2,070 could get 2,050 back in play.

The Nasdaq declined 40 points, or 0.8%, to finish at 5,019. Tech tumbled to a low of 4,992, and the 5,000 level was cracked for just the second time since July 10. The bulls held this level into the close and have done so since the last time it was violated. There is risk to 4,950-4,900 if 4,975 fails to hold, and a close below 5,000 would be a bearish development. Resistance is at 5,050-5,075.

The Russell 2000 fell 12 points, or 1%, to end at 1,202. The small-caps tested support at 1,200-1,190 following Wednesday’s trip to 1,196. The bounce back to 1,211 fell shy of green pastures, but the close and hold above the 1,200 level felt slightly bullish. A move or close below 1,190 keeps risk open to 1,180-1,175.

The S&P 500 Volatility Index ($VIX, 15.25, up 1.46) flirted with the 15 level right into the close before finishing above this level. The bears pushed a high of 15.96 before the bulls tapped 13.73 shortly after the Fed minutes were released. The close above 15 was slightly bearish and opens the door for a possible test to 17.50-20. A move back below 13.50-12.50 will need to hold in order for the bulls to regain their momentum.

The VIX was at 14.99 with 15 minutes left in the trading session on Wednesday, so the close above 15 might also be a stretch. However, we still need to respect it. The action in the VIX today and tomorrow will be crucial in helping to determine whether support will hold or if we will get a continued pullback.

From desk to press, futures look like this: Dow (-124); S&P 500 (-14); Nasdaq 100 (-31); Russell (-8).

Momentum Options Play List

Closed Momentum Options Trades for 2015: 82-26-2 (75%). 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.

 

Krispy Kreme Doughnuts (KKD, $18.00, down $0.35)

KKD November 17 puts (KKD151120P00017000, $0.95, up $0.10)

Entry Price: $0.95 (8/19/2015)

Exit Target: $1.90

Return: 0%

Stop Target: None

Action: Shares recently pushed resistance and the 100-day average that is holding north of $18.50. A close below $18 should get $17.50-$17 in play.

The technical picture shows a downward-sloping line from the June high above $20 to this week’s push past $18.50. A sudden move above $19 and the 50-day moving average would reverse the technical damage, but I’m looking for a test to the mid-teens.

The company will report earnings the second week of September, and I have been covering their numbers throughout the year. Wall Street is looking for a profit of $0.18 a share on revenue of north of $131 million. I have talked about the cat-and-mouse game the company plays with analysts, and I’m expecting another revenue shortfall for the quarter.

I have recommended four previous bearish trades on KKD this year that resulted in gains of 100%, 47%, 9% and 8%.

A double will occur on our current position if shares test $15 by mid-November. The breakeven point for the trade is at $16, and the calls will expire worthless if shares stay above $17 by mid-November. However, we will be out of the trade for a much smaller loss if shares start to rebound and clear a few layers of resistance.

 

iShares Russell 2000 (IWM, $119.41, down $1.25)

IWM September 123 calls (IWM150918C00123000, $0.69, down $0.43)

Entry Price: $0.78 (8/19/2015)

Exit Target: $1.60

Return: -12%

Stop Target: None

Action: I wanted to get long IWM ahead of the Fed news, as I expected a bounce off of the lows. Bearish sentiment this week has been high, and I like to make money by betting against the suits-and-ties. The market did get a major bounce on the release of the Fed minutes before drifting back towards its session lows.

Shares of IWM tested a low of $118.74, and the drop and close below $120 was bearish. The market is still in a fragile state, but September could be a very bullish month if the action stays within the current trading ranges. Resistance is at $121 and the 200-day moving average.

 

Bank of America (BAC, $17.46, down $0.23)

BAC September 18 calls (BAC150918C00018000, $0.21, down $0.10)

Entry Price: $0.28 (8/17/2015)

Exit Target: $0.60-$0.90

Return: -25%

Stop Target: None

Action: Support is at $17.50 and the 50-day moving average, with backup at $17.25-$17. Resistance is at $17.75-$18.

You can read my full write-up on BAC in Monday’s Pre-Market Update.

 

PowerShares QQQ Trust (QQQ, $110.13, down $0.73)

QQQ September 112 Weekly calls (QQQ150904C00112000, $0.48, down $0.28)

Entry Price: $0.95 (8/13/2015)

Exit Target: $1.90

Return: -49%

Stop Target: $0.35

Action: Wednesday’s low of $109.49 split support at $110 and the 50-day moving average as well as backup support at $109 and the 100-day moving average. Resistance is at $111.50-$112.

 

JPMorgan Chase (JPM, $67.60, down $0.61)

JPM September 70 calls (JPM150918C00070000, $0.50, down $0.05)

Entry Price: $0.80 (8/10/2015)

Exit Target: $1.60

Return: -38%

Stop Target: None

Action: Support is at $66-$65.75 and the 100-day moving average following Wednesday’s close below $68. Resistance is now at this level, followed by $70.

 

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) — I will likely close this trade by next Friday if shares fail to clear and hold $3-$3.25 — Continue to hold.

SPDR Gold Trust ETF (GLD) September 98 puts (from 7/28/15) — If GLD closes above $110, I will likely exit the trade — Continue to hold.

Trade on!

Rick Rouse
Editor and Chief Options Strategist
Momentum Options