Dear Momentum Options Subscriber,
The market pulled back on Thursday during another choppy session and a continued tight trading range. Although the bulls held support for the most part, the small-caps’ fall back below the 1,200 level was another bearish development.
The Dow dipped 29 points, or 0.2%, to close at 18,169. The blue-chips made a run to 18,253 on the open, with resistance at 18,300-18,350 holding for the 13th-straight session. The low of 18,149 held support at 18,100-18,000. Below is a chart that shows why I predicted a major market move could be forthcoming this week or next.
The S&P 500 slipped 6 points, or 0.3%, to end at 2,133. The index traded up to 2,147 to split resistance at 2,145-2,150, but the close below the 100-day moving average for the second-straight session was not a pretty sight. The backtest to 2,132 held upper support at 2,135-2,125, but there is risk to 2,100 on a move below the latter. The October intraday low is at 2,114, which is the signal to possibly go “short” the index.
The Nasdaq gave back 34 points, or 0.7%, to finish a shade under 5,216. Tech traded to the tip of lower resistance at 5,275-5,300 after kissing 5,274, but it was all downhill into the closing bell. The low of 5,211 held support at 5,200, but a move below this level and the October low of 5,196 could create additional selling pressure to 5,150-5,100 today.
The Russell 2000 fell nearly 15 points, or 1.2%, to settle just below 1,190. The small-caps opened a point higher but stalled at 1,208. Fresh resistance is at 1,215-1,220. I have been warning that any moves below support at 1,200-1,195 could get some panties in a knot, as there is risk to 1,175 in a heartbeat. Thursday’s low tapped 1,188. A move below this level could lead to panic-selling down to 1,150-1,125 and the 200-day moving average.
The S&P 500 Volatility Index ($VIX, 15.36, up 1.12) added another 8% after the bears pushed a peak of 15.43. Fresh resistance is at 14.50-15, which are levels the bulls need to hold ahead of the weekend. Support has moved up to 15-14.50, with a move below the latter offering some relief.
For those that read every detailed word I write, I mentioned previously that, to my naked eye, a “symmetrical triangle” triangle was setting up on the Dow, and this type of pattern usually foreshadows a MAJOR move in the market. The breakout or breakdown comes after trading tightens into “the point” of the triangle.
As you can see, a picture is worth a thousand words, or in this case, it could easily mean a 500-1,000 point move in the Dow from current levels into year-end. This means that the blue-chips could surge past 19,000 or tumble towards 17,000 over the next two months — and I can’t wait. We will be using index put or call options, and we started nibbling yesterday with a bearish PowerShares QQQ Trust (QQQ) trade. However, I have now protected profits in case the whipsaw action continues.
I could have additional bearish index trades along with a possible VIX recommendation, so stay locked and loaded throughout the morning in case I decide to pull the trigger. If support holds, we will continue to wait out the trading range before getting too aggressive.
From desk to press, futures look like this: Dow (+18); S&P 500 (+2); Nasdaq 100 (+9); Russell (+3).
Momentum Options Play List
Closed Momentum Options Trades for 2016: 76-30 (72%). 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).
PowerShares QQQ Trust (QQQ, $117.84, down $0.54)
QQQ November 115 puts (QQQ161118P00115000, $1.09, up $0.32)
Entry Price: $0.82 (10/27/2016)
Exit Target: $1.65
Stop Target: $0.87 (Stop Limit)
Action: Set a Stop Limit at $0.87 to start protecting profits.
Near-term support is at $117.50-$117. Resistance is at $118-$118.50.
Six Flags Entertainment (SIX, $53.28, down $0.61)
SIX November 50 puts (SIX161118P00050000, $0.33, up $0.04)
Entry Price: $1.46 (10/25/2016)
Exit Target: $3.00 (Limit Order on first half)
Stop Target: $0.15 (Stop Limit)
Action: Fresh resistance is at $53.50 and the 200-day moving average. Support is at $53-$52.50.
Lattice Semiconductor (LSCC, $6.26, down $0.01)
LSCC December 7.50 calls (LSCC161216C00007500, $0.20, down $0.04)
Entry Price: $0.30 (10/12/2016)
Exit Target: $0.60-$0.90
Stop Target: None
Action: Support is at $6.30-$6.25 and the 50-day moving average. Near-term resistance is at $6.60-$6.75.
Viavi Solutions (VIAV, $7.15, down $0.10)
VIAV December 8 calls (VIAV161216C00008000, $0.13, down $0.01)
Entry Price: $0.51 (8/19/2016)
Exit Target: $1.05
Stop Target: $0.05 (Stop Limit)
Action: Thursday’s low reached $7.09. Support is at $7.10-$7 and the 100-day moving average. Resistance is at $7.25-$7.35 and the 50-day moving average. This has been one of our longest-running trades of the year, and I like the fundamentals of this small-cap company. We should know next week on how this trade is going to play out into December, as earnings are due out on Tuesday.
Editor and Chief Options Strategist