Dear Momentum Options Subscriber,
With the East Coast on high alert due to blizzard-like conditions, the bears decided to hibernate for the day. The bulls are taking advantage of their inaction, and Wall Street is rushing to buy stocks ahead of the weekend. The market is on track to finish the week in the green for the first time in 2016, providing the current gains hold.
I have been mentioning over the past few days that a bottoming process could be developing, and the clues we needed to see for a continued rally have been bullish. While it is never easy calling market bottoms (or tops), the charts and other indicators I follow have been money in preparing us for the whipsaw action.
I see a few more green shoots in today’s action, and I’ve already started my weekend homework. While there is plenty to talk about, I will save the lengthy update for Monday morning. For now, I have a juicy update on CSCO as well as a chart.
The Dow is currently gaining 193 points to 16,075, while the S&P 500 is jumping 35 points to 1,904. The Nasdaq is adding 106 points to 4,578, and the Russell 2000 is up 19 points to 1,016. The VIX is down 14% to 23.01, a bullish development.
I could have an additional New Trade ahead of the close, so stay locked and loaded. If you don’t hear from me by 3:30 p.m. EST, however, stay cozy and have a great, safe weekend!
Momentum Options Play List
Closed Momentum Options Trades for 2016: 11-0 (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 2:05 p.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.
Cisco Systems (CSCO, $23.07, up $0.17)
CSCO February 24 calls (CSCO160219C00024000, $0.46, up $0.03)
Entry Price: $0.52 (1/22/2016)
Exit Target: $1.10
Stop Target: None
CSCO March 25 calls (CSCO160318C00025000, $0.31, flat)
Entry Price: $0.40 (1/22/2016)
Exit Target: $0.90
Stop Target: None
Action: Wednesday’s test to $22.47 and the fresh 52-week low represented near-term support. A “double bottom” may have formed following the late-August low of $23.03. A close below $22.50 would be a bearish development.
I’m expecting a move towards near-term resistance at $24-$24.50, which is where I would like to begin to take profits. A close above the latter could lead to a run towards $25-$26.
The technical setup looks bearish, with a “death cross” forming earlier this month, which confirmed lower lows would come into play. Although the major moving averages are still in a downtrend, I do like these calls for a short-term rebound.
Shares are down from a 52-week peak of $30.31, and the 25% discount could entice bargain-hunters. The company pays a dividend of $1.88 a share, and the current yield is at 3.5%.
Earnings aren’t due out until the second week of February, so we don’t have this headline risk to worry about over the near term. Wall Street is expecting Cisco to earn $0.54 a share on revenue of $11.76 billion for the recently ended quarter.
The company has topped estimates by $0.03 twice, $0.01 and $0.02, respectively, over the past four quarters. On this front, I’m not too worried about Cisco topping expectations, but how shares respond afterwards will depend on guidance and gross margins. I would like to see shares hold $23.50-$23.25 into the closing bell.
Garmin (GRMN, $33.75, up $0.62)
GRMN February 30 puts (GRMN160219P00030000, $0.66, down $0.05)
Entry Price: $0.93 (1/20/2016)
Exit Target: $2.00
Stop Target: None
Action: Resistance is at $34. Support is at $32-$30.
You can read my expectations for earnings in the Jan. 12 Pre-Market Update.
Harley-Davidson (HOG, $40.40, down $0.27)
February 37.50 puts (HOG160219P00037500, $1.08, up $0.06)
Entry Price: $1.20 (1/20/2016)
Exit Target: $2.40
Stop Target: None
Action: Resistance is at $41-$42. Support is at $38.75.
You can read my full write-up on HOG in the Jan. 21 Mid-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