Dear Momentum Options Subscriber,
While Tuesday’s relief rally looked promising, it is too early to tell if Monday was “the” temporary bottom from the Brexit woes, as one day doesn’t make a trend. However, the oversold bounce cleared resistance, and volatility plummeted 21%. One famous talking head said yesterday that the VIX doesn’t tell investors anything, but the suits-and-ties certainly don’t know how to trade volatility.
The Dow surged 269 points, or 1.6%, to close at 17,409. The blue-chips opened 50 points higher at 17,190 and cleared two layers of resistance into the final bell. The move above 17,350-17,400 should get 17,600 back in play. Support has moved up to 17,200-17,150.
The S&P 500 climbed 35 points, or 1.8%, to end at 2,036. The index held positive territory throughout the day and went out at its peak after opening at 2,006. The close above 2,035 should get upper resistance at 2,040-2,050 back in the mix. Support will try to hold at 2,025-2,020 on a pullback.
The Nasdaq soared higher by 97 points, or 2.1%, to finish at 4,691. Tech was steady throughout the session and closed a point off of its intraday high of 4,692. The close above 4,650-4,675 and run to upper resistance at 4,700 was a bullish signal. Additional hurdles are at 4,725-4,750 if 4,700 is cleared. Support is at 4,625-4,600 on a drop back below 4,650.
The Russell 2000 advanced 17 points, or 1.6%, to settle at 1,107. The small-caps stayed on pace with the blue-chips, although they lagged tech and the broader market. The push to 1,110 and close above 1,100 were bullish clues, but the bulls need continued closes above the former to keep momentum intact. Support is at 1,100-1,090.
The S&P 500 Volatility Index ($VIX, 18.75, down 5.10) opened at 21.76 and traded to 22.07 before falling solidly below 20 during the final hours of trading. However, the bulls fell shy of clearing the magical 17.50 level that would confirm higher highs are in store. Resistance is at 19-20.
I have updated our latest trade in Energous (WATT) below, and I could issue additional New Trades shortly after the open today, so stay tuned.
From desk to press, futures look like this: Dow (+86); S&P 500 (+10); Nasdaq 100 (+24); Russell (+8).
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Closed Momentum Options Trades for 2016: 52-18 (74%). All trades are dated so new subscribers can look at the past history to see how the trades have played out.
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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).
Energous (WATT, $12.16, up $1.05)
WATT August 12.50 calls (WATT160819C00012500, $1.55, up $0.45)
Entry Price: $1.57 (6/28/2016)
Exit Target: $3.15
Stop Target: $0.75
Action: The Exit Target for the trade is $3.15, while the Stop Target is at $0.75. However, these are not Limit Orders at this time.
Support at $11-$10 and the 50-day moving average has held for several sessions. Resistance is at $12.50-$12.75. Tuesday’s high reached $12.69.
I have a Stop Target listed at $0.75, as the premium in the options was over $1.50. I usually carry 50% stops on “higher priced” options, but this is not a Stop Limit order right now. I will talk more about WATT in the Momentum Q&A section below.
Morgan Stanley (MS, $24.61, up $1.00)
MS August 28 calls (MS160819C00028000, $0.22, up $0.04)
Entry Price: $0.79 (6/23/2016)
Exit Target: $1.50
Stop Target: None
Action: Resistance is at $24.75-$25. Support has moved up to $24.25-$24.
Viavi Solutions (VIAV, $6.63, up $0.21)
VIAV September 7 calls (VIAV160916C00007000, $0.27, up $0.02)
Entry Price: $0.55 (6/23/2016)
Exit Target: $1.10
Stop Target: None
Action: Near-term resistance is at $6.75-$7. Support is at $6.50-$6.40.
Q: Can you talk more about the “double bottom” that you are seeing in the market? At what level was the bottom made? — L.S.
A: Monday’s action appeared to make a “double bottom,” as both the Dow and S&P 500 set slightly lower lows into the close than they did during the morning session. The Russell 2000 and the Nasdaq came close to setting lower lows as well, but they didn’t.
The VIX was also lower on Monday despite a volatile day for the market, and it closed below 20 yesterday. I mentioned that the major indices could have another 3%-4% to fall ahead of Monday’s open to account for the 7%-8% losses around the globe. The intraday pullbacks of 3% for U.S. indices, on average, and the rebound in the overseas markets were also confirmation clues.
While it does appear that a temporary bottom has been made, I’m fairly certain that at some point in the near future and over the summer that we might see lower lows. For now, let’s enjoy the potential rebound rally.
Q: What catalyst do you think will take Energous (WATT) higher since its technology won’t be included in the next iPhone? — C.H.
A: An Apple (AAPL) and Energous partnership is still pure speculation on my part, but I do believe it will happen. Energous has already formed partnerships with other manufacturers that will include their technology.
Shares were also added to the Russell 2000, the Russell 3000 and the Russell Global Indexes this week, which should give the company more exposure.
Q: What sectors are you looking at post-Brexit for potential new trades in the coming weeks? — R.T.
A: Right now, I’m looking at oil, gold, retail, tech and industrials. I have been profiling various stocks over the past few weeks, and we made some of them official trades for the portfolio. In Monday’s Pre-Market Update, I highlighted possible gold and VIX trades, although I decided against getting into them due to the gap-openings this week. I will continue to highlight other possible trades on my watch list into July as we build out our next batch of trades.
Editor and Chief Options Strategist