Dear Momentum Options Subscriber,
While the market exhibited both bullish and bearish clues during Monday’s continued pullback, the losses incurred over the last two trading days have made for the worst two-day decline since last August. However, the mini “selloff” has been orderly by most standards. Surprisingly, volatility was lower yesterday, but I mentioned in Monday’s Pre-Market Update that a quick recovery could be in store based on this year’s past performance.
The Dow dropped 260 points, or 1.5%, to settle at 17,140. The blue-chips traded in negative territory throughout the session, with the bears pushing a low of 17,063. Short-term support at 17,200-17,000 was split, and a close below the latter would be a bearish development. Near-term resistance is at 17,200, followed by 17,350-17,400.
The S&P 500 declined 37 points, or 1.8%, to close at 2,000. The index traded to a low of 1,991 during the first half of the action, as backup support at 2,000 was stretched. A move below 1,990 will likely get 1,975-1,970 in play. Resistance is at 2,010, followed by 2,025-2,020.
The Nasdaq gave back 113 points, or 2.4%, to end at 4,594. Tech tumbled to a low of 4,574, and the close below support at 4,600 was another nasty blow to the bulls. There is additional risk to 4,575-4,550 and a chance that 4,500 could be seen on capitulation. Near-term resistance is at 4,600-4,625. We might be able to trust a rebound rally on a move above 4,650-4,675.
The Russell 2000 fell nearly 38 points, or 3.4%, to finish at 1,089. The small-cap index was the weakest link once again, and it tested a low of 1,085. There is risk to 1,075-1,070 on continued weakness and a move below 1,085. Resistance has moved down to 1,090-1,100 over the near term. We can start looking at longer-term call options if the index clears 1,110 this week or next.
The S&P 500 Volatility Index ($VIX, 23.85, down 1.91) traded up to 26.72 shortly after the opening bell, but it spent the majority of the session in negative territory. I mentioned that there was risk to 27.50-30 this week and that another run to 27.50 and a fade from there would be the perfect bullish clue to start getting long. If support at 22.50-22 is cleared, it could be a buying opportunity.
I talked previously about waiting for a “double bottom” to form this week, and the market may have established that yesterday without the suits-and-ties noticing. The bears pushed the intraday lows during the morning session before the bulls rebounded. In some cases, however, the lows were breached by a few points during the final hours of trading on Monday.
The talking heads are once again trying to figure out the VIX, which is an index they only pay attention to once 20+ comes into the picture. While they are trying to overthink the situation, I mentioned that we might use put options on volatility if the VIX has indeed peaked.
I could also have a New Trade this morning on a favorite name of mine that is currently holding support during this market turbulence. As much as I wanted to enter New Trades yesterday, we needed to be a little patient. Stay close to your email inboxes or listen for a text alert in case I decide to take action this morning ahead of the Mid-Market Update.
From desk to press, futures look like this: Dow (+191); S&P 500 (+20); Nasdaq 100 (+44); Russell (+12).
Momentum Options Play List
Closed Momentum Options Trades for 2016: 51-18 (74%). 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).
Microsoft (MSFT, $48.43, down $1.40)
MSFT July 48 puts (MSFT160715P00048000, $0.96, up $0.31)
Entry Price: $0.71 (6/16/2016)
Exit Target: $1.45 (closed first half at $0.92 on 6/27/2016)
Stop Target: $0.70, raise to $0.82 (Stop Limit)
Action: Raise the Stop Limit from $0.70 to $0.82 on the second half of the trade.
Shares bottomed at $48.04 on Monday. Support is at $48.50-$48 on continued weakness. Resistance is at $49.50-$50.
Morgan Stanley (MS, $23.61, down $0.91)
MS August 28 calls (MS160819C00028000, $0.18, down $0.06)
Entry Price: $0.79 (6/23/2016)
Exit Target: $1.50
Stop Target: None
Action: Monday’s low on the stock tapped $23.11. Support is at $23.50-$23. Resistance is at $24-$24.25 going forward.
Viavi Solutions (VIAV, $6.42, down $0.29)
VIAV September 7 calls (VIAV160916C00007000, $0.25, down $0.12)
Entry Price: $0.55 (6/23/2016)
Exit Target: $1.10
Stop Target: None
Action: Support is at $6.50-$6.40. Yesterday’s low on the stock reached $6.36. Near-term resistance is at $6.75-$7.
Editor and Chief Options Strategist
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