In This Issue:
Dear Momentum Options Subscriber,
The bulls showed their usual April strength last week as the market broke out to fresh highs for the year. Friday’s slight pullback in the major indices caught all the media attention following another tight session. However, what was missed, or not reported, by the talking heads was the strength in the small-caps and the deflating VIX.
These two bullish signs were good to see in an otherwise boring session. This week’s action will surely get more attention, as a number of high-profile and blue-chip companies announce first-quarter earnings. The bears will be trying to get back into the game, but they may have to wait another week or two, as higher highs are likely still in play.
The Dow slipped nearly 29 points, or 0.2%, to end at 17,897 on Friday. The blue-chips tested a high of 17,937 on the open but spent the majority of the session underwater. Resistance is at 17,950-18,000, and a move above the latter would likely lead to 18,200-18,350 over the near term. Support is at 17,800, followed by 17,600-17,550. Friday’s low tapped 17,867.
The S&P 500 fell 2 points, or 0.1%, to settle at 2,080. The index opened a point higher to kiss 2,083, but that was it. Resistance remains at 2,090-2,100. The backtest to 2,076 held support at 2,075-2,070. There is additional help at 2,050-2,045, but a close below 2,040-2,035 would be a bearish development.
The Nasdaq dropped 7 points, or 0.2%, to finish at 4,938. Tech opened lower before making a run to resistance at 4,950 during the first half of trading. Continued closes above this level should keep 5,000 in play. Support at 4,925-4,900 held following the backtest to the top of this range. A move below 4,850 and the 200-day moving average would likely signal a short-term market top.
The Russell 2000 gained 2 points, or 0.2%, to close at 1,130. The small-caps held support at 1,125-1,120 following the bears’ push to the top of this range. A close below the latter could lead to a retest of 1,110-1,100. The 3-point dip was followed by a 4-point run to 1,132. Short-term resistance at 1,135-1,140 held, but the pop above the 200-day moving average was a very bullish sign.
The S&P 500 Volatility Index ($VIX, 13.62, down 0.10) stayed slightly elevated on Friday, but it was nothing to alarm the bulls. The bears’ weak trip to 14.19 held resistance at 14.50-15, but a move above the latter would be a red flag. The mid-day low tapped 13.58 but fell shy of support at 13.50-12.50.
Here were my closing thoughts from the April 4 Pre-Market Update:
“There could be another mini trading range developing into first-quarter earnings season if the start of the week is not strong. The bulls got off to a good start for April, which is historically the Dow’s best month of the year, as it has gained an average of 1.9% during the month since 1950. I’m looking for the small-caps and tech to lead the way higher this week and for the rest of April, as they have lagged the other major indices.”
The Dow is now up over 472 points, or over 2%, for the year, while the S&P 500 has gained nearly 37 points, or roughly 2%. The Nasdaq is down 70 points, or nearly 2%, and needs to clear 5,008 to show green for 2016. The Russell 2000 is close to showing a gain for the year on continued closes above 1,136.
While some of the talking heads were zoned in on Dow 18,000 late last week, there has been little talk of the Nasdaq and a possible return to the 5,000 level. The Dow hasn’t broken 18,000 since last July, and nobody is talking Nasdaq 5,000, but that could change this week.
The most important development last week was the break out of the mini trading ranges by the major indices. Although it’s still early, this action was very bullish, and it is clearly visible on the aforementioned charts.
A mini “golden cross” has formed on the Dow, with the 50-day moving average now above the 100-day moving average. There is just a 4-point difference between the 50-day moving average and 100-day moving average on the S&P 500.
Meanwhile, the Nasdaq has been hovering above its 200-day moving average since it gapped higher last week. The Russell 2000 cleared its 200-day moving average on Friday, technically, before closing just below this level.
I have been talking about the slack in the small-caps throughout the year, and continued closes above 1,140 could lead to a run to 1,180-1,200. This would represent another 5%-6% and a return to the November and December highs.
Obviously, this kind of action on the Russell 2000 would be a rising tide that lifts all boats, which is something I would love to see happen. I usually do major technical analysis with my charts every few months, and I will be updating them again at some point in May.
Remember these numbers going forward, and write them down on your trading desk. The uptrend lines I currently see have the bulls in charge as long as the major indices hold the following levels going forward on any pullback:
- Dow: 17,600-17,500
- S&P: 2,050-2,040
- Nasdaq: 4,825-4,800
- Russell: 1,110-1,100
This could change on higher highs, but these levels will signal when it is time to start lightening up on long positions.
To help illustrate how bullish I’ve been since the February lows, I do want to cover some of my thoughts from mid-March and the highlights of my last major technical update from February. Here were my thoughts from the March 14th update:
“My timing since the February low has been spot on, but picking market tops and bottoms is never an easy task. The blue downtrend line in the chart below was at 1,885-1,900, and I talked about how the major moving averages would likely come into play in the coming weeks. Here is a look at the S&P 500’s chart from the Feb. 16 Pre-Market Update:
I’m hoping to pick a top to the current rally, but circumstances can change for the better or worse. Having said that, I have repeatedly called for a run towards the major moving averages that should last through mid-March, and Friday’s action verified my stance once again.”
I also want to include the chart work for the Russell 2000 I did following its close just below 972, along with my thoughts from the Feb. 16 Pre-Market Update. Obviously, calling the bottom has worked out well for us:
“A lower trading range tried to form between 1,050-1,000 throughout January, but it appears that a new 50-point range is in play between 950 and 1,000. The next 25- or 30-point upside move could lead to a test to the top of the current trading range and a possible breakout.”
With the breakout to fresh highs last week, the gains off of the February lows have increased. The Russell 2000 is up almost 20% from its mid-February intraday low of 943. The 183-point gain has made it extremely hard for fund managers to put “new” money to work, as many of them have missed the bullish boat.
I mentioned throughout last year and coming into 2016 that most of the “professional” money managers had a terrible 2015 and blamed their lackluster results on the market and a weak global economy. In fact, I often say that the slick-talking pros have no clue how to trade volatility or make money in a down market.
We have done well staying patient over the past two weeks and, hopefully, our bullish bets pay out over the rest of the month and into May. We still have a 6-pack of trades in play, and I want to keep the portfolio light.
I mentioned that the next few weeks could be bullish, but nothing is a given when it comes to trading the market. For insurance, I have been tracking bearish trades for June and July as overvalued stocks become even more expensive.
The rally off of the mid-February lows has been broad-based, with all of the major averages showing no shame in their games. Tech, the small-caps, metals and the financial stocks have performed especially well.
The prior two-week trading range was torture for Wall Street, and it caught many investors off guard. This caused them to bail on the bulls. I often like to remind myself about one of Wall Street’s old adages from time to time, and that is “never short a dull market.”
The portfolio has done extremely well up to this point, and I have continually said that 2016 (and possibly 2017) could be the best year(s) ever to trade the market. The track record looks like this: 14-2 for January, 6-1 for February, 15-3 for March and 4-1 so far in April.
I’m shooting for double- and triple-digit wins again this month, and I’m still expecting to issue New Trades this week — possibly shortly after this morning’s open. Stay locked and loaded in case I take action.
From desk to press, futures look like this: Dow (-64); S&P 500 (-9); Nasdaq 100 (-18); Russell (-6).
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.
Halozyme Therapeutics (HALO, $11.97, up $0.15)
HALO May 13 calls (HALO160520C00013000, $0.90, up $0.10)
Entry Price: $0.60 (4/13/2016)
Exit Target: $1.20-$1.80
Stop Target: $0.65 (Stop Limit)
Action: Set a Stop Limit at $0.65 to protect profits.
Shares traded to a high of $12.05 on Friday. Continued closes above $12 would be bullish for a run at $12.50-$13 over the near term. Rising support is at $11.75-$11.50 and the 100-day moving average.
You can read my extended write-up on HALO in the April 15 Mid-Market Update.
Energous (WATT, $10.77, up $0.34)
WATT May 12.50 calls (WATT160520C00012500, $0.75, up $0.05)
Entry Price: $0.50 (4/13/2016)
Exit Target: $1.00
Stop Target: $0.55, raise to $0.60 (Stop Limit)
Action: Raise the Stop Limit from $0.55 to $0.60.
Friday’s close above $10.75 was bullish and sets up a run past $11. The 52-week high is at $11.44. Rising support is at $10.50-$10.
The 50-day moving average cleared both the 200- and 100-day moving averages earlier this month, forming golden crosses. The tight trading range following the $11.44 peak in late March has been a little frustrating. However, the action has turned bullish following the higher highs and higher lows to end last week. The longer the trading range, the more powerful the breakout or breakdown usually is.
Nucor (NUE, $49.51, up $0.20)
NUE May 52.50 calls (NUE160520C00052500, $0.49, up $0.02)
Entry Price: $0.43 (4/13/2016)
Exit Target: $0.90
Stop Target: None
Action: Friday’s high tapped $49.56. Short-term resistance is at $50, and the 52-week high is at $50.70. Support is at $48-$47.50.
The 50-day moving average cleared the 200-day moving average in late March to form its golden cross. The 100-day moving average is also in the process of clearing the 200-day moving average.
Inovio Pharmaceuticals (INO, $9.49, down $0.04)
INO May 10 calls (INO160520C00010000, $0.66, up $0.01)
Entry Price: $0.60 (4/13/2016)
Exit Target: $1.20
Stop Target: None
Action: A mini trading range has developed between $8.75-$10 this month. Trading ranges are frustrating, but the payoff on the breakout higher will be huge.
Short-term resistance is at $9.50-$9.75. Support is at $9-$8.75.
The 50-day moving average cleared the 100-day moving average in late March, and it cleared the 200-day moving average earlier this month to form its own golden cross. The 100-day moving average is also in the process of clearing the 200-day moving average.
You can read my extended write-up on INO in the April 4 Pre-Market Update.
Wal-Mart Stores (WMT, $69.24, up $0.43)
WMT May 65 puts (WMT160520P00065000, $0.48, down $0.11)
Entry Price: $0.73 (4/12/2016)
Exit Target: $1.50
Stop Target: None
Action: Friday’s high tapped $69.41. Resistance is at $69.50-$70. Support is at $68-$67.50.
Oracle (ORCL, $41.02, down $0.22)
ORCL May 42 calls (ORCL160520C00042000, $0.27, down $0.09)
Entry Price: $0.55 (3/29/2016)
Exit Target: $1.10
Stop Target: None
Action: Support is at $41, followed by $40.75-$40.50. Resistance is at $42.50-$43. I still like this trade going forward as long as $40 holds. A move below $39.50 would be a clear signal to exit.
Editor and Chief Options Strategist