Dear Momentum Options Subscriber,

Like a broken record, the bulls made another run at the market’s major resistance levels on Tuesday, but they fell shy of clearing those hurdles. The repeat process looked a little brighter yesterday, however, as the financial stocks led the rally alongside a continued rebound in metals.

The Dow flew higher by 164 points, or 0.9%, to close at 17,721. The blue-chips were strong throughout the session despite a 3-point pullback to 17,553 shortly after the open. The 191-point surge to 17,744 afterwards fell shy of resistance at 17,800, but a move above this level should get 18,000 in play. Support has moved up to 17,600.

The S&P 500 soared 19 points, or 1%, to settle just under 2,062. The index slipped to a low of 2,039 on the open, but support at 2,040-2,035 held. The rebound to 2,065 and close above 2,060 was a bullish development. Additional hurdles are at 2,075-2,080.

The Nasdaq zoomed 38 points, or 0.8%, to finish at 4,872. Tech made a backtest to support at 4,800 after tapping 4,808 during the opening faceoff. The recovery to 4,879 tested upper resistance at 4,875-4,900. The close below 4,875 keeps me slightly cautious, but a move above the latter would be a strong buy signal. If cleared, I could use call options to play the PowerShares QQQ ETF (QQQ, $109.51, up $0.91) for possible run past $110-$112.

The Russell 2000 rallied 11 points, or 1%, to end at 1,105. The small-caps kissed 1,091 after the start of trading, but support at 1,090 held. The bulls cleared the 1,100 level in a powerful fashion and held this level into the close, which was another positive development. The high reached 1,107, and a move past 1,110 will likely get 1,120-1,125 in the mix.

The S&P 500 Volatility Index ($VIX, 14.85, down 1.41) tanked 9% after testing resistance at 16.50-17.50. The bears pushed a high of 16.57 before the collapse back below 15. The bulls pushed a low of 14.84 to tap near-term support at 15-14.50. A move below the latter could lead to my 13.50-12.50 target before a possible market top is in.

I could have a New Trade shortly after the open, so stay close to your email inboxes. New subscribers can click here to sign up to receive SMS text message alerts. I’ve also listed this morning’s Momentum Q&A session below our current trades, so be sure to check that out.

From desk to press, futures look like this: Dow (+93); S&P 500 (+12); Nasdaq 100 (+33); Russell (+8).

Momentum Options Play List

Closed Momentum Options Trades for 2016: 39-7 (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.

 

Wal-Mart Stores (WMT, $68.80, up $1.40)

WMT May 65 puts (WMT160520P00065000, $0.55, down $0.35)

Entry Price: $0.73 (4/12/2016)

Exit Target: $1.50

Return: -25%

Stop Target: None

Action: Resistance is at $69. A move above this level could lead to $70 or higher, which would cause some concern for the trade. Support is at $67.50.

 

Oracle (ORCL, $40.42, up $0.18)

ORCL May 42 calls (ORCL160520C00042000, $0.29, up $0.01)

Entry Price: $0.55 (3/29/2016)

Exit Target: $1.10

Return: -47%

Stop Target: None

Action: Resistance is at $41-$41.25. Support is at $40-$39.50. The breakeven point for the trade is at $42.55, which is where shares need to be, technically, by May 20. This will require a 5% move from current levels, and that is very doable. If shares clear $43, we are still on track for a double from our entry price.

Momentum Q+A

Q: If you list an Exit Target and Stop Target for one of your positions, are these orders I need to place in my brokerage account?

A: The Exit and Stop Targets are simply “targets” that I use to set the trade parameters. However, at times, I will adjust them and list them as Limit Orders or Stop Limit Orders, and these are the orders that I suggest you place in your brokerage account. These types of orders help to protect profits and limit losses and, once they are set, they will be automatically executed when the set price levels are met.

This can be a big help if you are busy during market hours or at the time that these orders trigger. When they are executed, I will be sure to send a Profit/Trade Alert to keep you updated on the action.

 

Q: I see you include the MACD indicator below your stock charts, but you rarely talk about it. Why is that?

A: The Moving Average Convergence Divergence (MACD) is a technical indicator that tracks momentum. It can be a very useful tool, but it is not one I actively play with.

The charts I use include the MACD as a general setting, and I have studied it. However, its “signal lines” and “crossovers” can give conflicting messages, as is true with most technical indicators. This can cause traders to enter a position too early before the momentum begins and, with options, it crucial that we get the timeframe right.

 

Q: I’m new to Momentum Options, and I am confused by the terminology in Tuesday’s WMT alert. What does ($0.70, down $0.20) mean? What does ($68.07, up $0.67) mean?

A: Thanks for joining us at Momentum Options. It’s my goal to make you, and all of my subscribers, money throughout 2016.

One of the great aspects of my Mid-Market Updates is that the quotes are accurate as of the included timestamp, while the quotes you see in each Pre-Market Update are from the prior day’s close.

In any event, I list both the stock price and the option price at the time I’m going to press, which is what I did in yesterday’s WMT alert. Here are the updated prices with my explanation:

Wal-Mart Stores (WMT, $68.80, up $1.40) — This is the change in the stock price. Shares closed at $68.80 on Tuesday, and they were up $1.40 for the session.

WMT May 65 puts (WMT160520P00065000, $0.55, down $0.35) — This is the change in the option price. The put options closed at $0.55 on Tuesday, and they were down $0.35 for the session.

These were all great questions this morning. I enjoy the interaction, so keep them coming. You can send me any additional questions or comments you may have by clicking here.

Trade on!

Rick Rouse
Editor and Chief Options Strategist
Momentum Options