Dear Momentum Options Subscriber,
The market was choppy throughout last week as Wall Street anxiously awaited Friday’s nonfarm payrolls report. While near-term support and resistance was tested, the end-of-week action gave the bulls the weekly win, and it now appears that the odds of a Fed rate hike in September have lessened.
The Dow jumped 72 points, or 0.4%, to close at 18,491 on Friday. The blue-chips tested resistance at 18,500-18,600 following the intraday trip to 18,544. Continued closes above the latter should get blue-sky territory up to 18,800-19,000 in play. The record high is at 18,722. Support at 18,400-18,350, and the 50-day moving average continues to look strong despite the stretch to 18,295 last Thursday. The signal to go short will be on a close below 18,250, as it would likely lead to a backtest to 18,200-18,000 or worse.
The S&P 500 advanced 9 points, or 0.4%, to end a hair under 2,180. The index kissed a high of 2,184 shortly after the open to clear upper resistance at 2,175-2,180. The all-time high is at 2,193, with fluff up to 2,200-2,225 on continued momentum. Support has moved up to 2,185-2,170, but there is risk to 2,160-2,150 and the 50-day moving average on a drop below the latter.
The Nasdaq climbed 22 points, or 0.4%, to settle just below 5,250. Tech opened at 5,249 while reaching a peak of 5,263. Resistance is at 5,275 and the all-time high, followed by 5,300-5,325. Short-term support has moved up to 5,225-5,200, but a move below the latter would likely signal another near-term market top.
The Russell 2000 rallied 12 points, or 1%, to finish at 1,251. The small-caps opened above the 1,240 level, which now represents short-term support, and closed above 1,250. The close at its session high gets 1,260 in play this week, with fresh resistance at 1,270-1,275 if cleared.
The S&P 500 Volatility Index ($VIX, 11.98, down 1.50) tanked 11% on Friday, which was a story that went uncovered by the talking heads. The slick-talking pros that do mention the VIX have the story all wrong and are calling for a market pullback. On the other hand, I have consistently talked about the VIX possibly trading to 10 and single-digits on a continued run to all-time highs. The close below 12.50 was a bullish signal, with the low checking in at 11.90. A move below 11.50 would confirm my thesis. The recent 52-week low is at 11.02, which was set on Aug. 9. Resistance is now at 12.50-13.50.
It was hard for Wall Street to stay long ahead of the three-day weekend, but the clues I continue to talk about have kept us focused. Despite the numerous calls to “buy” index put protection throughout the summer, most of those positions expired worthless, as the major averages closed August with mixed results.
The losses on the Dow and S&P 500 were minimal, as these indices fell 31 and 3 points, respectively. The pullback ended a six-month winning streak for the blue-chips and a five-month run for the S&P 500. January was the last month in which the Dow closed lower with a 958-point, or 5.45%, loss. The S&P fell 103 points, or 5%, in January and 8 points in February.
As far as the Nasdaq, it is on a two-month winning streak following its 51-point, or 1%, gain in August and 319-point, or 6.6%, gain in July. Meanwhile, the Russell 2000 gained nearly 20 points last month, or 1.64%, following a 68-point surge, or 5.9%, in July.
With Friday’s gains, the bulls are off to a good start, but it is important to remember that September is the second most volatile month over the past decade. I cover the VIX daily, and this week I wanted to show the longer-term 10-year chart for the VIX. As you can see, the VIX has traded in the single-digits and can stay at low levels for weeks and months.
Although the market was closed on Monday, the Dow ended a three-week slide with last Monday’s win. However, the blue-chips have closed lower during four of the past six Monday’s, which is signaling a bearish trend. Obviously, I would like to see a higher close next Monday, and a higher close today would be a slightly bullish signal.
As far as the Friday closes, the Dow closed higher to end last week, but it has also closed lower in four of the past six. Mixed Monday/Friday closes often signal a trading range. Up Monday/Friday closes usually indicate that money is moving into the market, while down closes signal cash is moving to the sidelines.
As far as the technical outlook, the 50- and 100-day major moving averages remain in strong uptrends, and the 200-day moving averages on the indices are also turning bullish. I mentioned earlier that a lot of “insurance” money has been lost using index put options, as many of the out-of-the-money strikes have expired worthless.
I have used put options sparingly throughout the summer, as most of my trades have remained bullish and in stocks that I cover daily. At some point, there will be a time to go short, but don’t get caught up in the hype of expecting a market pullback too soon. The market action will let us know exactly when we need to loosen up on bullish positions, and that will be when the VIX closes above 14.50-15 and its 200-day moving average for several sessions.
I have also been the lone cheerleader for higher highs and a possible run to 1,300 on the Russell 2000. I mentioned throughout last month and last week that the small-caps would need to lead the next leg higher, as they are still playing catch-up. The leadership in tech and the small-caps has remained intact, and I’m looking for this theme to carry over into September.
Apple (AAPL, $107.73, up $1.00) could play a major role in market direction this week and for the month depending on how well its upcoming iPhone upgrade goes. The chart below shows a “golden cross” has formed, with the 50-day moving average crossing above the 200-day moving average in late August.
This is usually a bullish signal, with near-term resistance at $108-$110. A close above the latter could lead to a possible run to $112.50-$115. Support is at $106-$105.50, with risk to $104 on a move below the latter.
Apple will be holding a special event tomorrow and could start selling the “iPhone 7” as soon as Sept. 16. Expectations for the device are pretty low, and customers will want to see some new “wow” factors before upgrading. Any incremental features, such as an improved camera or more battery life, could be a positive for the stock. However, some industry experts believe that Apple will hold back more features until the 10th anniversary of the iPhone next year.
Analysts argue that the “iPhone 8” could be a more meaningful update and drive more demand given the large number of users who own older iPhones that may be looking to upgrade. I believe Samsung’s recent issues and the decision to stops sales of its Galaxy Note7 smartphones will hurt the company over the near term, as their customers may replace their current devices with Apple products.
Samsung decided to stop sales of the Galaxy Note7 following a thorough investigation that found 35 cases of battery cell issues. For current users of the smartphone, the company said it would voluntarily replace the Galaxy Note7 with a new one over the coming weeks. This is going to be a major inconvenience and enough to cause some users to switch to Apple.
I have been watching the action in the Apple near-term call options, and I’m tempted to take a trade if shares can clear Friday’s high of $108 this week. The AAPL September 110 calls (AAPL160916C00110000, $0.75, up $0.10) traded over 10,000 contracts on Friday, and open interest is just under 100,000. The one caveat I don’t like about these options is that they expire in 10 days. Shares of AAPL would need to be at $110.75 by next Friday if held through expiration, but they would double if shares reached $111.50. This is a risky play, but one that could be rewarded on a breakout.
The AAPL October 110 calls (AAPL161021C00110000, $1.95, up $0.20) traded over 6,200 contracts on Friday, while the AAPL October 115 calls (AAPL161021C00115000, $0.70, up $0.05) had volume north of 13,600 contracts.
I would probably target the AAPL October 110 calls ahead of the AAPL October 115 calls, as they are closer to being in the money, and the AAPL October 110 calls would double from current levels if shares clear $114, technically, by Oct. 21.
Apple’s recent woes and its $14.5 billion tax bill have made for some negative headlines for the stock. However, the tax issue could take several years to resolve and shouldn’t have a near-term, or even much of a longer-term, impact on the stock.
September headlines that could help or hurt the market in the coming weeks when they cross the tape include the Federal Reserve meeting, the first of the three presidential debates and an OPEC meeting that could influence oil prices. Volume has been extremely light, but it should start to pick up this week as Wall Street traders get back from their summer vacations.
I’m expecting September to be an extremely busy month for us, and we could open up to 10-15 trades over the next four to six weeks! My goal is to post another 100-win year in 2016, with a win rate on all trades pushing 75%-80%. On that note, I have a New Trade this morning, so let’s go get our orders ready.
From desk to press, futures look like this: Dow (+18); S&P 500 (+2); Nasdaq 100 (+5); Russell (+1.4).
Momentum Options Play List
Closed Momentum Options Trades for 2016: 65-23 (74%). 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).
Vuzix (VUZI, $8.81, down $0.11)
Buy to open the VUZI October 10 calls (VUZI161021C00010000) for a maximum price of $1.20.
Action: I like these call options at current levels, and you can use a Limit Order up to $1.20 to get the best fills on this morning’s open.
This is a “piggy-back” trade to our current VUZI position shown below. These are the regular monthly options that expire on Oct. 21. I will provide the parameters of the trade in today’s Mid-Market Update.
Below is a five-year chart for VUZI:
Vuzix (VUZI, $8.81, down $0.11)
VUZI October 7.50 calls (VUZI161021C00007500, $1.85, flat)
Entry Price: $0.95 (8/23/2016)
Exit Target: $2.50
Stop Target: $1.25, raise to $1.40 (Stop Limit)
Action: Raise the Stop Limit from $1.25 to $1.40.
Shares tested a high of $9.02 on Friday before closing slightly lower. Support at $8.75-$8.50 held on the intraday fade to $8.70. Resistance is at $9-$9.25. The 52-week peak is at $9.30. My near-term price target is $10+.
T-Mobile (TMUS, $47.29, up $1.04)
TMUS October 48 calls (TMUS161021C00048000, $1.30, up $0.37)
Entry Price: $1.00 (9/1/2016)
Exit Target: $2.00
Stop Target: $1.05 (Stop Limit)
Action: Set a Stop Limit at $1.05 to protect profits.
Shares traded to a high of $47.30 on Friday. Fresh resistance is at $47.50-$48 and the 52-week high of $48.11. A close above the latter should get $49-$50 in play. Support has moved up to $47-$46.75, followed by $46-$45.50 and the 50-day moving average.
Nucor (NUE, $48.95, down $0.35)
NUE October 52.50 calls (NUE161021C00052500, $0.47, down $0.11)
Entry Price: $0.63 (8/25/2016)
Exit Target: $1.30
Stop Target: $0.30 (Stop Limit)
Action: Set a Stop Limit at $0.30 to preserve the remaining premium.
Shares traded to a high of $50.34 but failed to clear resistance at $50-$50.25 and the 100-day moving average. The backtest to $48.77 held support at $48.50-$48. A close below the latter would be a bearish development.
Energous (WATT, $18.57, up $0.22)
WATT November 17.50 calls (WATT161118C00017500, $3.35, up $0.14)
Entry Price: $1.15 (8/22/2016)
Exit Target: $5.00 (closed first half at $2.50 on 8/29/2016)
Stop Target: $2.50, raise to $2.75 (Stop Limit)
Action: Raise the Stop Limit from $2.50 to $2.75.
WATT traded to a high of $19 on Friday. The 52-week peak and all-time high of $19.29 was set last week. Energous become a publicly traded stock on March 28, 2014, and it closed the day at $10.58. Shares tested a high of $16.44 two sessions later but came into 2016 just south of $8. The mid-January low reached $4.99, and it has been a steady ride higher ever since as you can see from the chart below.
I have been cheerleading for a run past $20 throughout the year, and those chants have become louder in recent weeks, as I have been talking about the company’s technology and licensing deals that Wall Street has yet to discover. There is the risk of a breakdown, or the possibility of a continued breakout, this week based on Apple’s news on the rollout of the iPhone 7.
I’m keeping my fingers crossed that Apple’s upcoming iPhone 7 will feature WATT’s incredible new wireless-charging solution. This would easily get shares above $20, but we will have to wait and see. If there is no partnership announced with WATT, it may not come until next year. WATT shares have been volatile around Apple events, so I’m expecting much of the same this week — hopefully to the upside.
Resistance is at $19-$19.25. A close above the latter will likely lead to $19-$19.50 and fresh 52-week peaks. Support is at $17.50-$17 on a close below $18.
Sotheby’s (BID, $40.16, up $0.66)
BID October 37 puts (BID161021P00037000, $0.90, down $0.20)
Entry Price: $1.05 (9/1/2016)
Exit Target: $2.10
Stop Target: None
Action: Shares made a run into resistance at $40-$40.25 and tapped the latter on Friday. There is risk to $41 and fresh highs on a close above $40.50. Support is at $39.50-$39.
You can read my detailed comments in the Sept. 1 Mid-Market Update.
Viavi Solutions (VIAV, $7.84, down $0.01)
VIAV December 8 calls (VIAV161216C00008000, $0.52, up $0.01)
Entry Price: $0.51 (8/19/2016)
Exit Target: $1.05
Stop Target: None
Action: Friday’s peak reached $7.94, with multi-year resistance at $8. A close above this level should get $8.50-$9 in play when looking at the five-year chart. Support is at $7.75-$7.50.
Editor and Chief Options Strategist