In This Issue:
Dear Momentum Options Subscriber,
The bulls pushed higher highs and showed some signs of continued momentum last week. However, the bears are starting to wake up from a mid-February nap, which should keep things interesting. The major uptrend lines are showing that the action remains bullish, but another mini trading range has developed heading into the last week of April.
The Dow added 21 points, or 0.1%, to settle at 18,003 on Friday. The blue-chips traded to a high of 18,026, with upper resistance at 18,200 standing tall. A move above this level could lead to 18,350-18,500 and fresh all-time highs. The morning dip to 17,909 held rising support at 17,900-17,800. A move below the latter would be a bearish development.
The S&P 500 gained a tenth of a point to finish at 2,091. The index struggled to push a high of 2,094 on the open, with resistance at 2,100 holding. A move above this level should get 2,125-2,150 and fresh all-time highs in play. The intraday backtest to 2,081 held near-term support at 2,075-2,070. There is wiggle room to 2,060 on a breach below the latter, which would also represent a technical breakdown.
The Nasdaq dropped nearly 40 points, or 0.8%, to close at 4,906. Tech traded in the red throughout the session, with the bears pushing a low of 4,872. Backup support at 4,875-4,850 and the 200-day moving average held on the break below 4,900, which also held into the close. A close below 4,850 would be a bearish development that could easily lead to a backtest to 4,800-4,750. Near-term resistance has moved down to 4,950-4,975.
The Russell 2000 jumped 11 points, or 1%, to end at 1,146. The small-caps were slightly weak on the open, but support at 1,125-1,120 and the 200-day moving average was hardly threatened before the bulls reached a peak of 1,147. Resistance at 1,150 continues to be a brick, but a move above this level could lead to 1,160. There is a good chance that the bulls reach 1,170-1,175 if the two aforementioned resistance levels are cleared.
The S&P 500 Volatility Index ($VIX, 13.22, down 0.73) stayed elevated throughout Friday’s session, with resistance at 14.50-15 holding for the ninth-straight session. The late-day fade and close below support at 13.50 keeps me bullish over the near term, and I have talked about 12.50 coming into play on continued highs.
Although last week’s action was bullish, the trading environment may still “feel” bearish if you are listening to the talking heads. The end-of-the-week pullback in tech was a little concerning, but there were other sectors picking up the slack.
One of the major developments from last week was the action in the transports. In the April 11 Pre-Market Update, I mentioned that the Dow Jones Transportation Average ($TRAN, 8,085, up 75) had a real shot at regaining the 8,000 level despite the pullback coming into the month. Last week’s breakout and move back above 8,000 was a bullish sign.
At the time, I mentioned that the slick-talking pros had failed to notice the rally off of the January lows, so a pullback was bound to be in the cards.
A “golden cross” is now in the process of forming, with the 50-day moving average less than 100 points away from clearing the 200-day moving average. The break below the 200-day moving average at the start of the month flushed out a lot of traders, but they failed to see that support at 7,600 was going to hold. Near-term resistance is at 8,200-8,400 going forward.
The Monday/Friday closes on the Dow have been mixed this month following a bullish March. For new subscribers, I follow the start-of-week and end-of-week closes as a way to see if money is coming into or out of the market. Mixed closes can signal trading ranges.
The blue-chips closed higher last Monday following two down-Mondays in a row. The Dow closed higher throughout the month of March, which gave us a good signal that higher highs would be coming into play.
As far as the Friday closes, the Dow returned to a positive trend that has posted 6 wins out of 7 since the start of March. Last week’s positive closes were continued bullish signs that traders feel “safe” with their money in the market.
Earnings season has been somewhat of a mixed picture so far, with the typical surprise beats and misses. The majority of companies are still beating analyst estimates, but revenue shortfalls seem to be a common theme.
The start of the first-quarter earnings season earlier this month was greeted well by the financial sector. However, it still needs a rising-rate environment to make its profits look better. I’ve mentioned that I don’t expect the Fed to raise rates again this year, so it will continue to be a tough environment for financials.
The Financial Select Sector SPDR (XLF, $23.55, up $0.22) finally cleared its leveling 200-day moving average for the first time this year. This breakout and the strong technical setup have been unnoticed by fund managers.
The 50-day moving average is in the process of clearing the 100-day moving average, which would form a mini golden cross. Fresh resistance is now at $24-$24.50. Clear support is at $23.
I also want to update my thoughts on gold ($GOLD, $1,233.70, down $15.80) following Friday’s close below its 50-day moving average. As you can see from the chart below, the yellow metal has been in a tight trading range this month between $1,260 and $1,220. While it is still early to say how his technical picture will play out, we can use a break above or below these levels to make bullish or bearish trades.
I often mention that one of the best ways to trade gold is by tracking the SPDR Gold Trust Shares ETF (GLD, $117.89, down $1.53). The same technical setup shows Friday’s drop below the 50-day moving average, with near-term support at $116.
Bearish traders could target weekly or monthly put options if GLD closes below $116-$115.75. If breached, a test to $114-$112 could be coming. To give the trade plenty of time to play out, one could use longer-term options. Weekly options are good for very quick trading, but the bid/ask prices are wider, and volume is thinner in most cases.
The GLD May 115 puts (GLD160520P00115000 $0.95, up $0.30) are slightly out of the money and zoomed over 40% on Friday. These options opened at $0.74 on Friday and traded to a high of $1.11. Over 1,700 contracts traded, and open interest is currently north of 35,000 contracts. This means that these put options are very liquid, with less than a nickel spread on the bid/ask.
If the current trading range does hold, bullish traders could target call options if GLD recovers $120-$121. I would wait until the latter is cleared before possibly thinking about going long with the GLD May 120 calls (GLD160520C00120000, $1.29, down $0.77). The call options fell nearly 40% during Friday’s action and tapped a low of $1.14. Obviously, these call options will get cheaper if GLD continues to backpedal, but they may be worth a look if $116 holds.
While the easy trade appears to be on the short side, I’m still looking for the bulls to push higher highs into May. The bulls are having a successful April, and they will be trying to finish the week on a high note. The bears are within striking distance of stealing the show, however, so this week’s action in tech will be crucial as to how next month might play out.
We are in great position to capitalize on continued market strength with our current trades, although the portfolio is still somewhat light. This keeps our options open to add more bullish positions or to start getting more aggressive with put options.
From desk to press, futures look like this: Dow (-45); S&P 500 (-6); Nasdaq 100 (-13); Russell (-4).
Momentum Options Play List
Closed Momentum Options Trades for 2016: 42-7 (86%). 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.
Inovio Pharmaceuticals (INO, $10.33, up $0.14)
INO May 10 calls (INO160520C00010000, $0.90, up $0.10)
Entry Price: $0.60 (4/13/2016)
Exit Target: $1.20
Stop Target: $0.65 (Stop Limit)
Action: Set a Stop Limit at $0.65 to protect profits.
Friday’s high reached a peak of $10.44. Resistance is at $10.50, followed by the 52-week high at $10.77. Support is at $9.75-$9.50 on a move back below $10.
You can read my extended write-up on INO in the April 4 Pre-Market Update.
Oracle (ORCL, $40.70, down $0.29)
ORCL May 42 calls (ORCL160520C00042000, $0.26, down $0.09)
Entry Price: $0.55 (3/29/2016)
Exit Target: $1.10
Stop Target: $0.20 (Stop Limit on first half)
Action: Set a Stop Limit at $0.20 on the first half of the trade.
Shares kissed $41.43 on Friday before fading towards a session low of $40.67. Support is at $40.75-$40.50. Resistance is at $42.50-$43.
Halozyme Therapeutics (HALO, $11.99, down $0.06)
HALO May 13 calls (HALO160520C00013000, $0.60, down $0.11)
Entry Price: $0.65 (4/20/2016)
Exit Target: $1.30
Stop Target: None
Action: Shares have been in a tight trading range over the past few weeks, and they have held the 100-day moving average.
Continued closes above $12 would be bullish for a run at $13-$14 over the near term. Support is at $11.75-$11.50 and the rapidly rising 50-day moving average.
You can read my original write-up on HALO in the April 15 Mid-Market Update.
Whole Foods Market (WFM, $29.76, up $0.23)
WFM May 33 calls (WFM160520C00033000, $0.33, up $0.03)
Entry Price: $0.48 (4/18/2016)
Exit Target: $0.75-$1.00
Stop Target: None
Action: Support is at $29.50-$29. Resistance is at $31.25-$31.50 and the 50- and 100-day moving averages.
You can read my original write-up on WFM in the Feb. 9 Pre-Market Update.
Wal-Mart Stores (WMT, $68.72, up $0.25)
WMT May 65 puts (WMT160520P00065000, $0.51, down $0.03)
Entry Price: $0.73 (4/12/2016)
Exit Target: $1.50
Stop Target: $0.25 (Stop Limit on first half)
Action: Support is at $68-$67.50 and the 50-day moving average. Resistance is at $69.50-$70. A close above the latter will likely trip our Stop Limit on the first half at $0.25.
Editor and Chief Options Strategist