Dear Momentum Options Subscriber,
The bears got aggressive into Wednesday’s close, as the major indices tested fresh lows for the week. Near-term support was violated, but backup help is waiting in the wings. The bulls still have a shot at winning the week, however, as the trading day ahead of Good Friday has been extremely bullish in recent years.
The Dow fell nearly 80 points, or 0.5%, to close at 17,502. The blue-chips traded in negative territory throughout the session, with the late-day low reaching 17,486. Support is at 17,400-17,350, and a close below the latter would be a bearish development. Resistance is at 17,600, followed by 17,800.
The S&P 500 dropped 13 points, or 0.6%, to settle at 2,036. The index opened in negative territory at 2,048 and failed to challenge resistance at 2,050. The close below 2,040 and dip to 2,034 opened the door for a continued backtest to 2,025-2,020. A close below the latter could lead to a retest of the 2,000 level.
The Nasdaq declined 52 points, or 1.1%, to finish at 4,768. Tech tried to crack positive territory on the open, but it failed and lost the 4,800 level within the first 30 minutes of trading. This level is now resistance. The move and close below support at 4,775 opened risk to 4,750-4,725. A close below 4,700 would likely signal a short-term market top.
The Russell 2000 tanked 21 points, or 2%, to end at 1,075. The small-caps led Wednesday’s pullback and got progressively weaker throughout the session. I mentioned that a move below 1,090 could lead to a backtest to 1,080-1,075, and that came quickly. There is wiggle room to 1,070-1,065 on today’s open, and a close below 1,060 will also be a good clue that next week could be rocky.
The S&P 500 Volatility Index ($VIX, 14.94, up 0.77) stayed elevated but controlled within a tight range throughout the day. The bears did claw their way above 15 to 15.03 for the first time in four sessions. However, the bulls held this level into the close for the sixth-straight trading day. I have said that we don’t need to get aggressively “short” until 17.50-20 comes into play. We also can’t get too aggressive with call options until the bulls clear and hold 13.50-12.50.
The late-day action also tripped our Stop Limit in Rambus (RMBS). We were able to exit the trade with a small gain, and we now only have one open trade going into the three-day weekend. This means that we get to enjoy the holiday without the worry of having too much cash at risk. It will also give me plenty of time to refine and narrow my candidates for our next batch of trades that we could start trading as early as next week.
From desk to press, futures look like this: Dow (-113); S&P 500 (-14); Nasdaq 100 (-27); Russell (-8).
Momentum Options Play List
Closed Momentum Options Trades for 2016: 34-6 (85%). 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, $13.51, down $0.23)
RMBS May 14 calls (RMBS160520C00014000, $0.50, down $0.15)
Entry Price: $0.47 (3/21/2016)
Exit Target: $1.00
Stop Target: $0.50 (Stop Limit)
Action: The calls traded to a low $0.49 late in the day, which triggered our Stop Limit at $0.50, and we are now out of the position.
I will keep the options on my watch list in case near-term support holds. I will likely re-enter this trade if shares can reclaim the $13.75 level today or next week.
Nucor (NUE, $46.05, down $0.54)
NUE April 48 calls (NUE160415C00048000, $0.30, down $0.15)
Entry Price: $0.55 (3/17/2016)
Exit Target: $1.10
Stop Target: None
Action: Support is at $46, with backup help at $45.50-$45. Resistance is at $47.
Editor and Chief Options Strategist