Dear Momentum Options Subscriber,
The market moved within a tight range on Monday, and the major indices traded on both sides of the ledger following the pullback in the price of WTI crude oil. While there were other factors in play, the 2% drop in oil caught traders off guard, and it did not offer any real clues on how the current trading range might unfold.
The Dow dipped 34 points, or 0.2%, to end at 17,705. The blue-chips made a run to 17,783 shortly after the open, with resistance at 17,800 holding for the fifth-straight session. The 43-point pop quickly turned into a 72-point loss ahead of Wall Street’s lunch break. The low of 17,668 held support at 17,600. The close between near-term support and resistance was a neutral signal.
The S&P 500 gained nearly 2 points, or 0.1%, to settle at 2,058. The index traded in positive territory for much of the session following an intraday drop to 2,054. Support at 2,050-2,040 easily held before the late-day high of 2,064 was reached. A close above 2,060 would have been bullish, but the high keeps 2,070-2,075 in play.
The Nasdaq advanced 14 points, or 0.3%, to finish at 4,750. Tech slipped a point on the open to 4,735, with support at 4,725-4,700 standing strong. The bulls pushed a high of 4,771 into the final hour of trading, and the close at 4,750 was slightly bullish. However, upper hurdles at 4,775-4,800 need to be cleared before we can say that a recovery in tech is underway.
The Russell 2000 added 3 points, or 0.3%, to close at 1,118. The small-caps also showed strength throughout the session after reaching a peak of 1,123. Resistance at 1,120-1,125 was tested but held. The bears tried to scratch support at 1,110-1,100 mid-day, but the 1-point loss to 1,113 did no damage.
The S&P 500 Volatility Index ($VIX, 14.57, down 0.15) traded above 15 for much of the first half of the session, with the high checking in at 15.39. Upper resistance at 16.50-17.50 continues to be a brick wall for the bears. The bulls managed a trip to 14.17, but they are also struggling with support at 13.50-12.50.
I have updated our current trades below, including a brief write-up and the parameters for our latest trade in Potash (POT), so let’s go check them out.
From desk to press, futures look like this: Dow (+61); S&P 500 (+7); Nasdaq 100 (+10); Russell (+4).
Momentum Options Play List
Closed Momentum Options Trades for 2016: 44-10 (81%). All trades are dated 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).
Potash (POT, $15.61, down $0.28)
POT June 15 puts (POT160617P00015000, $0.51, up $0.08)
Entry Price: $0.51 (5/9/2016)
Exit Target: $1.05
Stop Target: None
Action: Potash recently reported a mixed quarter that included earnings of $0.09 a share on revenue of $1.2 billion. Analysts were looking for a profit of $0.16 a share on revenue of $1.16 billion. The company also lowered its 2016 earnings guidance to $0.60-$0.80 versus the forecast for $0.90 a share.
The technical picture is bearish, as all of the major moving averages are in a downtrend. Yesterday’s low tapped short-term support at $15.50. A close below this level will likely lead to $15-$14.50. The 52-week low is at $14.64. Resistance is at $16.
Microsoft (MSFT, $50.07, down $0.32)
MSFT June 47 puts (MSFT160617P00047000, $0.48, up $0.01)
Entry Price: $0.62 (5/3/2016)
Exit Target: $1.25
Stop Target: None
Action: Near-term support is at $49.50-$49.25. A move below $49 could lead to a retest of the February low of $48.19. Resistance is at $50.50-$51.
You can read a more detailed write-up on MSFT and view the chart in the May 4 Pre-Market Update.
Bank of America (BAC, $13.99, down $0.12)
BAC June 15 calls (BAC160617C00015000, $0.15, down $0.06)
Entry Price: $0.58 (4/28/2016)
Exit Target: $1.20
Stop Target: None
Action: Short-term support is at $14-$13.75. Resistance is at $14.75-$15.
Editor and Chief Options Strategist