Dear Momentum Options Subscriber,
The bulls and bears battled to a draw on Tuesday as both support and resistance held. The slight gains and losses could be the start of a bottoming process, but it’s a little too early to tell if this is the case.
The Dow added 28 points, or 0.2%, to finish at 16,016. The blue-chips made an opening run to 16,171 but failed to push past resistance at 16,200. A close above this level might signal a short-term opportunity to go long. The late day fade to 15,900 held short-term support at 15,900-15,800. A move below the latter would be bearish.
The S&P 500 climbed a point, or 0.1%, to settle at 1,881. The index cleared resistance at 1,900 on the opening run to 1,901 but failed holding this level. The second half tumble to 1,864 held back-up support at 1,865-1,860 although the late August low of 1,867 was breached. This was a bearish development, and another move below 1,860 is our signal to go short.
The Nasdaq fell 11 points, or 0.3%, to close just below 4,477. Tech tapped 4,550 shortly after the open but struggled with resistance throughout the first half of trading. Support at 4,425-4,400 held following the second half low of 4,430. If the bulls fail to hold 4,400, I will likely short the tech index for a short-term trade.
The Russell 2000 dropped a dozen points, or 1.3%, to end at 994. The small-caps made a run to 1,017 on the opening hoopla but failed resistance at 1,020-1,025. The index quickly reversed course afterward to trade into negative territory with the late day low reaching 985. It was a higher low than Friday’s trip to 983. This was a slightly bullish clue but a move below 980-975 would negate this signal.
The S&P 500 Volatility Index ($VIX, 26.05, down 0.97) stayed subdued throughout the session before a late day surge to 27.59. The bulls held resistance at 27.50 with risk to 30-35, if breached. The bears held support at 25 following the morning trip to 25.21. The action in the VIX remains slightly bearish as there are additional layers of support at 23.50-22.50 that carry more weight.
I could have a New Trade or two depending on this morning’s action, so stay close to your email inboxes. Remember, too, that you can sign up to receive text messages to your mobile device for free here (though registration may take up to 72 hours to complete).
From desk to press, futures look like this: Dow (-300); S&P 500 (-34); Nasdaq 100 (-84); Russell (-12).
Momentum Options Play List
Closed Momentum Options Trades for 2016: 10-0 (100%). 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.
General Motors (GM, $29.49, flat)
GM February 28 puts (GM160219P00028000, $0.70, down $0.05)
Entry Price: $0.69 (1/11/2016)
Exit Target: $1.30 (Closed first half at $1.00 on 1/15/16)
Stop Target: $0.65 (Stop Limit).
Action: The Stop Limit at $0.65 on the other half of the trade will likely trigger if shares open in positive territory this morning. The return will be 20% if we are stopped out of the other half of the trade today.
Resistance is at $30. Support is at $29.
You can read my detailed write-up on GM in the Jan. 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.
General Electric (GE) February 32 calls — Continue to hold.
3D Systems (DDD) February 11 calls — Continue to hold.
Editor and Chief Options Strategist