Dear Momentum Options Subscriber,
The Dow got all the headlines on Monday, as the index closed above 18,000 for the first time since last July. I’m more focused on other things, however, and I mentioned that International Business Machines (IBM, $152.53, up $0.81) could slow the market’s momentum if the company disappointed Wall Street with its quarterly results. While the company absolutely surprised analysts with a beat on the top and bottom lines, a tempered forecast sent shares tumbling 5% in after-hours trading.
The Dow jumped 106 points, or 0.6%, to settle at 18,004 on Monday. The blue-chips kissed 17,848 on the open, and support at 17,800 easily held. The close above 18,000, which was previously resistance, clears the way for a run at 18,200-18,350.
The S&P 500 soared 13 points, or 0.7%, to finish at 2,094. The index traded down to support at 2,075-2,070 after nearly splitting the middle at 2,073. The rebound to just below 2,095 also halved upper resistance at 2,090-2,100. A move above the latter would be bullish for a run towards 2,125-2,150.
The Nasdaq gained 22 points, or 0.4%, to close at 4,960. Tech made a backtest to support at 4,900 following the low of 4,915 at the open. The quick recovery to session highs and the close above 4,950 should keep 5,000 in play. I would like to see this level cleared by Friday’s close, but I expect some volatility before then.
The Russell 2000 added 8 points, or 0.7%, to end at 1,139. The small-caps tested upper support at 1,125-1,120 before rebounding to push 1,140 into the closing bell. Although this level failed to hold, the move above the 200-day moving average was impressive and keeps 1,150-1,160 in sight.
The S&P 500 Volatility Index ($VIX, 13.35, down 0.27) spiked to 14.93 shortly after the start of trading, but the bulls held resistance at 15 on the opening onslaught. I mentioned that a close above this level would raise a red flag, but, instead, the bears waved their white flag as they surrendered support at 13.50. A move below 12.50 would be a clear signal that the bulls are still serious.
Shares of IBM were south of $145 in pre-market trading this morning, so you can see why I mentioned in yesterday’s Mid-Market Update that earnings trades are so risky. The company did everything right, but it keeps shooting itself in the foot with missteps and mismanagement.
From desk to press, futures look like this: Dow (+55); S&P 500 (+10); Nasdaq 100 (+32); 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.
Whole Foods Market (WFM, $30.49, down $0.48)
WFM May 33 calls (WFM160520C00033000, $0.46, down $0.12)
Entry Price: $0.48 (4/18/2016)
Exit Target: $0.75-$1.00
Stop Target: None
Action: Resistance is at $31-$31.50 and the major moving averages. A close above the latter would be bullish. Support is still shaky at $30-$29.50. A move below the latter would be a bearish development.
You can read my original write-up on WFM in the Feb. 9 Pre-Market Update.
Energous (WATT, $11.49, up $0.72)
WATT May 12.50 calls (WATT160520C00012500, $0.85, up $0.15)
Entry Price: $0.50 (4/13/2016)
Exit Target: $1.00
Stop Target: $0.60, lower to $0.53 (Stop Limit)
Action: Lower the Stop Limit from $0.60 to $0.53.
Some option chains show “bid/ask” spreads for the WATT May 12.50 calls at $0.65/$0.90 and some show them at $0.75/$0.95. I trust my brokerage account more than the quotes found online, but, in any event, this is why I lowered the Stop Limit to $0.53. I do not want the market makers pulling any shenanigans with our call options. We have been in this trade before, and it could become a crowded trade, which is why I don’t trust the suits-and-ties this morning.
Shares traded to a fresh 52-week high of $11.50 yesterday. Support has moved up to $11, with backup at $10.50-$10.
Nucor (NUE, $49.86, up $0.35)
NUE May 52.50 calls (NUE160520C00052500, $0.51, up $0.06)
Entry Price: $0.43 (4/13/2016)
Exit Target: $0.90
Stop Target: $0.45 (Stop Limit)
Action: Set a Stop Limit at $0.45 to protect profits.
Monday’s high tapped $49.94. Short-term resistance is at $50, with the 52-week high at $50.70. Support is at $48-$47.50.
Wal-Mart Stores (WMT, $69.86, up $0.80)
WMT May 65 puts (WMT160520P00065000, $0.38, down $0.10)
Entry Price: $0.73 (4/12/2016)
Exit Target: $1.50
Stop Target: $0.25 (Stop Limit on first half)
Action: Set a Stop Limit at $0.25 cents on the first half of the trade to save some premium on continued strength in the stock.
Resistance is at $69.50-$70. Support is at $68-$67.50.
Halozyme Therapeutics (HALO, $12.00, up $0.03)
HALO May 13 calls (HALO160520C00013000, $0.84, down $0.06)
Entry Price: $0.60 (4/13/2016)
Exit Target: $1.20-$1.80
Stop Target: $0.65 (Stop Limit)
Action: There was major news after yesterday’s close on a couple of the company’s drugs. I’ve been working on a short write-up, and I’ll have more details this week.
Shares traded to a high of $12.17 yesterday and held $12 into the close. Continued closes above $12 would be bullish for a run at $12.50-$13 over the near term. 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.
Inovio Pharmaceuticals (INO, $10.07, up $0.58)
INO May 10 calls (INO160520C00010000, $0.86, up $0.21)
Entry Price: $0.60 (4/13/2016)
Exit Target: $1.20
Stop Target: None
Action: The close back above $10 gets the 52-week high of $10.77 in play. Support has moved up to $9.50-$9.
The Centers for Disease Control and Prevention (CDC) came out with a report that concluded that the Zika virus could cause other severe fetal brain defects. The virus has been linked to microcephaly, which shows just how serious this situation could get.
This is an explosive story, and I invite all subscribers to re-read my original thoughts. You can read my extended write-up on INO in the April 4 Pre-Market Update.
Oracle (ORCL, $41.24, up $0.22)
ORCL May 42 calls (ORCL160520C00042000, $0.41, up $0.14)
Entry Price: $0.55 (3/29/2016)
Exit Target: $1.10
Stop Target: None
Action: Resistance is at $42.50-$43. Support is at $41, followed by $40.75-$40.50.
Editor and Chief Options Strategist