Dear Momentum Options Subscriber,
I often say that one day doesn’t make or break a trend, especially when one side battles back the following session. The bulls did exactly that during Monday’s rebound following another bearish attack at the open. The lack of follow-through by the bears and the recovery of prior support levels from last Friday’s pullback were bullish signs. Another pullback would likely lead to continued elevated volatility, but today’s action should provide better clues as to how the rest of the week will play out.
The Dow jumped 239 points, or 1.3%, to settle at 18,325. The blue-chips traded to a low of 17,994 at the start of Monday’s session, with upper support at 18,000-17,800 holding. The bounce to 18,358 pushed lower resistance at 18,350-18,400 and the 50-day moving average. A move above the latter should get 18,500-18,600 back in play. The bulls need to hold 18,200 on a pullback.
The S&P 500 soared 31 points, or 1.5%, to finish at 2,159. The index tested a low of 2,119, with support at 2,125-2,120 and the 100-day moving average getting slightly stretched. Near-term resistance at 2,150-2,160 and the 50-day moving average was challenged and held, for the most part, following the run to 2,163. This gets 2,175-2,180 back in focus on a move above 2,165 and the 50-day moving average. The 2,140-2,135 area needs to hold on any weakness going forward.
The Nasdaq zoomed 86 points, or 1.7%, to close at 5,211. Tech tumbled to 5,097 shortly after the opening bell, with support at 5,100-5,050 getting tested. I mentioned yesterday morning that a recovery of the 5,200 level would be a bullish signal, as it would temporarily re-establish the prior trading range of 5,200-5,300 from early August. Short-term resistance is at 5,225-5,250, with yesterday’s peak touching 5,217. A move back below 5,175-5,150 and the 50-day moving average would favor the bears.
The Russell 2000 climbed nearly 17 points, or 1.4%, to end just below 1,236. The small-caps were weak at the start of trading, with the bears pushing a low of 1,211 and testing the 50-day moving average. Support at 1,210-1,200 was challenged, but it held before the 2% rebound to session highs into the close. Lower resistance at 1,235-1,240 was cleared, and a move above the latter would likely lead to a retest of 1,250-1,260. The bulls need to hold 1,225-1,220 on a pullback.
The S&P 500 Volatility Index ($VIX, 15.16, down 2.34) soared past lower resistance at 20-22.50, with the bears pushing a high of 20.51. The plunge to a low of 14.76 and close below support at 16.50 and the 200-day moving average was a very bullish sign. A move below 15-14.50 will likely lead to a backtest to 13.50-12.50. Fresh resistance is at 16.50-17.50.
I have updated the parameters of yesterday’s Xilinx (XLNX) trade below, and I could have another New Trade shortly after this morning’s open, so stay close to your email inboxes.
From desk to press, futures look like this: Dow (-116); S&P 500 (-15); Nasdaq 100 (-26); Russell (-10).
Momentum Options Play List
Closed Momentum Options Trades for 2016: 69-24 (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.
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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).
Xilinx (XLNX, $53.12, up $1.04)
XLNX October 57.50 calls (XLNX161021C00057500, $0.72, up $0.25)
Entry Price: $0.71 (9/12/2016)
Exit Target: $1.45
Stop Target: None
Action: Shares are near their recent 52-week high of $54.82 that was set last week. A close above resistance at $54.75-$55 could lead to a blue-sky breakout towards $57.50-$60. Support is at $53-$52.50.
I will have a more detailed write-up on XLNX in today’s Mid-Market Update.
Kroger (KR, $30.89, down $0.62)
KR October 30 puts (KR161021P00030000, $0.62, up $0.14)
Entry Price: $0.78 (9/7/2016)
Exit Target: $1.60 (Limit Order on first half)
Stop Target: None
Action: Shares traded to a 52-week low of $30.70 yesterday. Support is at $31-$30.50. Resistance is at $31.50-$32.
Vuzix (VUZI, $9.28, up $0.08)
VUZI October 10 calls (VUZI161021C00010000, $0.65, down $0.11)
Entry Price: $0.68 (9/7/2016)
Exit Target: $1.40
Stop Target: $0.25 (Stop Limit)
Action: Monday’s low tapped $8.50 before the rebound to $9.30.
Support is at $8.75-$8.50 if $9 fails to hold again. Resistance is at $9.50-$9.75.
Viavi Solutions (VIAV, $7.68, up $0.15)
VIAV December 8 calls (VIAV161216C00008000, $0.40, up $0.03)
Entry Price: $0.51 (8/19/2016)
Exit Target: $1.05
Stop Target: None
Action: Support is at $7.50-$7.25 and the 50-day moving average. Resistance is at $7.75-$8.
Editor and Chief Options Strategist