Dear Momentum Options Subscriber,
Wall Street was thanking China for cutting its interest rates again for the fifth time since November, as the talking heads stated this was the reason that the market was trading higher for much of Tuesday’s session.
I am in the camp of those who believe that this was an oversold bounce, and I warned that the market had to be careful of a late-day fade. The breakdown happened during the final hour of trading and ruined what looked like a nice comeback rally.
The Dow dropped 205 points, or 1.3%, to settle at 15,666. The blue-chips traded in positive territory for much of the session and reached a peak of 16,312. The drop below 16,000 started within an hour of the closing bell and reached a low of 15,651. The devilish close held backup support at 15,600, but there is risk to 15,400-15,200 on continued weakness. Resistance is at 15,800-16,000.
The S&P 500 gave back 25 points, or 1.4%, to close at 1,867. The index tested a high of 1,948 intraday but failed to hold the top of its near-term resistance at 1,900-1,925. The move below 1,900-1,875 into the close was bearish and keeps risk open to 1,850-1,825.
The Nasdaq slipped 19 points, or 0.4%, to finish at 4,506. Tech made another run to at 4,700 and reached a high of 4,689 before breaking down like a rented mule. Short-term support at 4,500-4,450 held, but there is risk to 4,400-4,300 on continued weakness.
The Russell 2000 declined 7 points, or 0.7%, to end at 1,104. The small-caps opened at 1,133 to clear resistance at 1,125-1,130, but that represented the high for the session. The fade to session lows held support at 1,100 into the close. The lower high and lower low from those on Monday were bearish developments. A move below 1,100 will likely lead to 1,080-1,075.
The S&P 500 Volatility Index ($VIX, 36.02, down 4.72) opened at 31.13 and traded down to 28.08 during the session. The bulls were holding the 30 level throughout the day before the final hour of trading pushed the VIX to a high of 38.06. Although the VIX finished lower, there is still risk to 40-50. A close below 30-25 is needed ahead of next week’s three-day weekend to keep the selling pressure at bay.
From desk to press, futures look like this: Dow (+260); S&P 500 (+33); Nasdaq 100 (+77); Russell (+12.5).
Momentum Options Play List
Closed Momentum Options Trades for 2015: 82-28-2 (73%). 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, $16.63, down $0.08)
KKD November 17 puts (KKD151120P00017000, $1.68, down $0.02)
Entry Price: $0.95 (8/19/2015)
Exit Target: $2.50 (Limit Order on first half)
Stop Target: $1.25, raise to $1.35 (Stop Limit)
Action: Raise the Stop Limit order from $1.25 to $1.35.
Shares traded to a high of $17.15, with the options testing a low of $1.40 on Tuesday.
Resistance is at $17-$17.25. Support is at $16.75-$16.50.
The company is scheduled to report earnings on Sept. 9, after the close.
Trades on Hold — other 2015 Portfolio Open positions (4): 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.
Bank of America (BAC) September 18 calls (from 8/17/15) — Continue to hold.
JPMorgan Chase (JPM) September 70 calls (from 8/10/2015) — Continue to hold.
iShares Russell 2000 (IWM) September 123 calls (from 8/19/2015) — Continue to hold.
Editor and Chief Options Strategist