Dear Momentum Options Subscriber,
The bears gained some momentum from Tuesday’s market losses, and the major indices closed at their backup support levels following the 2% pullback. Volatility was elevated, but it didn’t set off any alarm bells, as the VIX held resistance. However, the small-cap index led Tuesday’s tumble, and it is now down 22% from its 52-week high.
The Dow dropped 295 points, or 1.8%, to end at 16,153. The blue-chips fell to an intraday low of 16,108, and the close below support at 16,200 was a warning sign. There is additional risk to 16,000-15,800 on continued weakness, and a close below the latter would be a bearish development. Resistance is at 16,350-16,400.
The S&P 500 stumbled 36 points, or 1.9%, to close at 1,903. The index traded to a low of 1,897 late in the day while stretching support at 1,900. A close below this level should get 1,875 in play. Overhead resistance is at 1,920-1,925.
The Nasdaq tanked 103 points, or 2.2%, to finish at 4,516. Tech hovered around the 4,550 level throughout the first half of trading before bottoming at 4,503 afterwards. The close below prior support at 4,550 keeps risk open to 4,500-4,450. Resistance is at 4,575-4,600.
The Russell 2000 sank 23 points, or 2.3%, to settle at 1,008. The small-caps tested a low of 1,005 ahead of the closing bell while holding the 1,000 level. A move below this level could lead to another test towards 975. Resistance is at 1,020-1,025.
The S&P 500 Volatility Index ($VIX, 21.98, up 2.00) gained 10% after reaching an intraday peak of 22.42. The bulls held resistance at 22.50-23.50, but the close back above 20 was slightly bearish. I mentioned yesterday that we wouldn’t be able to trust any rebound rallies until the VIX holds 20 for several sessions.
I have updated the parameters of our latest trade in the PowerShares QQQ Trust ETF (QQQ), which could be a short-term or longer-term holding, depending on market action. We are still in a whipsaw market environment, so we’ll aim to ring the register when we can.
From desk to press, futures look like this: Dow (+4); S&P 500 (+2); Nasdaq 100 (-2); Russell (+1.5).
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.
PowerShares QQQ Trust ETF (QQQ, $102.15, down $2.26)
QQQ March 93 puts (QQQ160318P00093000, $0.95, up $0.35)
Entry Price: $1.00 (2/2/2016)
Exit Target: $2.00 (Limit Order on first half)
Stop Target: $0.50
Action: Set a Limit Order to close the first half of the QQQ March 93 puts at $2.00 I have also set a Stop Target at $0.50, but it is not a Stop Limit order.
Although I mentioned that the QQQs would need to test $91 by mid-March, we should be able to lock in half profits on a test to $97.50, depending on how fast it happens and if there is continued weakness.
Short-term support is at $100 following the close below $102.50. Resistance is at $104-$105, and I like this trade as long as $106 holds. A move above this level could force us to make an early exit.
If you were unable to enter the trade during yesterday’s session, you should be able to do so today. The puts are currently slightly under our entry price of $1.00, and you can use Limit Orders up to $1.10 to get filled.
You can read my extended write-up in the Feb. 2 New Trade Alert.
Rambus (RMBS, $11.91, down $0.40)
RMBS March 13 calls (RMBS160318C00013000, $0.25, down $0.10)
Entry Price: $0.35 (2/2/2016)
Exit Target: $0.70
Stop Target: None
Action: Shares nearly held $12 into the closing bell. Backup support is at $11.75 on a close above this level. Resistance is at $12.25-$12.50.
You can read my extended write-up in the Feb. 2 Pre-Market Update.
Opko Health (OPK, $7.66, down $0.26)
OPK March 7 puts (OPK160318P00007000, $0.40, up $0.05)
Entry Price: $0.35 (1/25/2016)
Exit Target: $0.70
Stop Target: None
Action: Near-term support is at $7.50. A close below this level should lead to the recent January low of $7.12. Multi-year support is at $6. Resistance is at $7.75-$8.
You can read my earlier write-up in the Jan. 26 Pre-Market Update.
Trades on Hold — other 2015 Portfolio Open positions (1): 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.
Garmin (GRMN) February 30 puts — Shares fell nearly 3% yesterday — Continue to hold.
Editor and Chief Options Strategist