Dear Momentum Options Subscriber,
The bulls struggled from the start of Monday’s session, as fresh support was tested and stretched on the slight pullback, but they nearly got the win in the final hours of yesterday’s action. Tech managed to close in positive territory, and that sector of the market got some additional good news after the bell from Alphabet’s (GOOG, $752, up $9.05) impressive earnings report.
The Dow dipped 17 points, or 0.1%, to settle at 16,449. The blue-chips traded down to 16,299 shortly after the open, with backup support at 16,200 holding. The second-straight close above 16,350-16,400 keeps resistance at 16,600 in play, and a move above this level would be a bullish sign.
The S&P 500 slipped a point, or 0.04%, to end at 1,939. The index tested the lower end of support at 1,925-1,920 during the first hour of trading before holding the 1,935 level into the closing bell. The bulls pushed a high of 1,947, but the 7-point pop failed to clear near-term resistance at 1,950-1,960.
The Nasdaq gained 6 points, or 0.1%, to close at 4,620. Tech tumbled to a low of 4,565 on the opening pullback, with support at 4,550 holding. The late-day high reached 4,636 and cleared short-term resistance at 4,650. A close above 4,675 would confirm a continued rally past 4,700, which is where I could start a bullish index-option trade.
The Russell 2000 gave back 3 points, or 0.3%, to finish at 1,032. The small-caps kissed 1,020 during the morning weakness, with support at 1,025-1,020 holding strong. The final-hour rally to 1,037 fell shy of resistance at 1,040, which is a level the bulls need to clear and hold today.
The S&P 500 Volatility Index ($VIX, 20.20, down 2.22) spiked to a high of 23.66 at the start of Monday’s action, with the bulls defending resistance at 22.50-23.50. The bears threw in the towel afterwards, as the VIX touched a low of 19.61. More important, however, is that the VIX closed below 20. I talked about a move to 17.50, and possibly 15, on a continued rally over the next few weeks as long as upper resistance holds. However, we need to ensure that the 20 level holds for several sessions before embracing a rally.
I have a New Trade listed below that I want to get into at the open this morning. Shares are in a nice uptrend, and the company recently announced better-than-expected earnings.
From desk to press, futures look like this: Dow (-112); S&P 500 (-15); Nasdaq 100 (-33); Russell (-9).
Momentum Options Play List
Closed Momentum Options Trades for 2016: 14-2 (88%). 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.
Rambus (RMBS, $12.24, up $0.33)
Buy to open the RMBS March 13 calls (RMBS160318C00013000, $0.35, up $0.05) at current levels.
Action: I like these options at current levels, and you can use a Limit Order up to $0.45 on this morning’s open to get filled. If the options open below this level, we will get better fill prices.
Shares traded to a high of $12.50 yesterday and look poised to make a run past their 200-day moving average at $12.75. Continued closes above this level should lead to a breakout towards $13.50-$14 over the near term. Support is at $12-$11.75 on a pullback, followed by a rising 50-day moving average.
In late January, Rambus reported a profit of $0.18 a share on revenue of $76.8 million for the recently ended quarter. Wall Street had penciled in earnings of $0.08 a share on revenue of $74 million. The company also raised guidance for the current quarter.
The recent acquisition of Smart Card Software will help Rambus get its chips into mobile payment and ticketing platforms. The deal will be accretive to Rambus’ earnings within the first year and will help grow its royalty payments.
If shares test $14 by mid-March, these options will easily double from current levels.
Opko Health (OPK, $7.92, down $0.12)
OPK March 7 puts (OPK160318P00007000, $0.35, flat)
Entry Price: $0.35 (1/25/2016)
Exit Target: $0.70
Stop Target: None
Action: Monday’s low for the stock reached $7.73. Near-term support is at $7.75-$7.50. Resistance is at $8-$8.25.
You can read my earlier write-up in the Jan. 26 Pre-Market Update.
Garmin (GRMN, $35.09, down $0.09)
GRMN February 30 puts (GRMN160219P00030000, $0.26, down $0.06)
Entry Price: $0.93 (1/20/2016)
Exit Target: $2.00
Stop Target: None
Action: Support is at $34.50-$34. Resistance is at $35.50 and the 50-day moving average. I want to keep this trade open through the company’s earnings announcement that is scheduled to be released on Feb. 17, which is two days before these options expire. In the meantime, I’m placing the trade on hold, and it will be listed in the “Trades on Hold” section of subsequent updates.
You can read my expectations for earnings in the Jan. 12 Pre-Market Update.
Editor and Chief Options Strategist