In This Issue:
Dear Momentum Options Subscriber,
The bears continued their assault to lower lows on Wednesday, and they were looking to get their third-straight win. However, the bulls fought back during the second half of trading to regain positive territory and keep the current trading range in play. Volatility was insane yesterday, but it tried to level out following the whipsaw action.
The Dow added 183 points, or 1.1%, to close at 16,336. The blue-chips tested a low of 15,960 shortly after the open, with support at 16,000-15,900 holding. The surge to 16,381 afterwards pushed resistance at 16,350-16,400. A move above the latter should get 16,600 back in play.
The S&P 500 climbed 9 points, or 0.5%, to finish at 1,912. The index faded to 1,872 and stretched support at 1,875 before recovering the 1,900 level a couple of hours ahead of the closing bell. The high reached 1,918, which challenged resistance at 1,920-1,925. A move above the latter should get 1,940-1,950 back in the mix.
The Nasdaq fell 12 points, or 0.3%, to settle at 4,504. Tech traded to a high of 4,547 on the opening pop and nearly cleared resistance at 4,550. The 123-point drop to 4,424 afterwards came within the first hour of trading, but backup support at 4,425-4,400 held.
A close below the latter could lead to a test to 4,300 and the January low of 4,313. The bulls held 4,500, which is a level that gave us a great signal back in August that a market top was in. Since then, this has been the main battleground between the bulls and bears, which is why the next 100 points from here could be crucial in developing the next major trend.
The Russell 2000 gained slightly more than a point, or 0.14%, to end at 1,010. The small-caps made a run to 1,016 at the start of trading, but they fell shy of resistance at 1,020-1,025. The slide to 989 afterwards stretched support at 1,000-990, and there is risk to 975 on a close below the latter. The index held the 1,000 level for the seventh-straight session, but it is still trying to build a base at this level.
The S&P 500 Volatility Index ($VIX, 21.65, down 0.33) spiked to a high of 27.70 on the morning weakness to clear 25 and 27.50. These are prior resistance levels, along with 22.50-23.50. This type of action in the VIX may have signaled a temporary downslide in the market. Of course, it could also have been an omen of things to come, which is why it is important that we stay nimble with our trades until a clearer trend emerges.
From desk to press, futures look like this: Dow (-7); S&P 500 (-3); Nasdaq 100 (-3); Russell (-1).
Momentum Options Play List
Closed Momentum Options Trades for 2016: 15-2 (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.
Bank of America (BAC, $13.03, down $0.19)
BAC March 13 calls (BAC160318C00013000, $0.69, down $0.10)
Entry Price: $0.68 (2/3/2016)
Exit Target: $1.00-$1.40
Stop Target: None
Action: Wednesday’s test to $12.52 registered a new 52-week low before shares rebounded to hold $13. It remains to be seen if yesterday’s wacky action marked the low, but it felt like it.
For now, I’m looking for a backtest to $14-$15. If shares reach $14 by mid-March, technically, these options will be $1 “in the money,” which is where I could close the first half of the trade. This would represent a nearly 50% profit.
I have not set a Limit Order for either Exit Target, as shares could make a stronger-than-anticipated rebound over the next week or two. If shares fall below $12.50 to fresh lows, I will re-evaluate the trade.
Short-term support is at $12.75-$12.50 if $13 fails to hold. Resistance is at $13.25-$13.50.
Rambus (RMBS, $12.14, up $0.23)
RMBS March 13 calls (RMBS160318C00013000, $0.30, up $0.05)
Entry Price: $0.35 (2/2/2016)
Exit Target: $0.70
Stop Target: None
Action: Wednesday’s high reached $12.23. Resistance is at $12.25-$12.50. Support is at $11.75.
You can read my extended write-up in the Feb. 2 Pre-Market Update.
Opko Health (OPK, $7.79, up $0.13)
OPK March 7 puts (OPK160318P00007000, $0.40, flat)
Entry Price: $0.35 (1/25/2016)
Exit Target: $0.70
Stop Target: None
Action: Yesterday’s low touched $7.42. 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 — Continue to hold.
Editor and Chief Options Strategist