Dear Momentum Options Subscriber,
Trading was extremely tight on Monday, with Wall Street still waiting for a major breakout or breakdown to occur. Although the bulls and bears offered no clues, the small-caps and the VIX traded higher after holding support and resistance, respectively.
The Dow gave back 18 points, or 0.1%, to settle at 18,142. The blue-chips held support at 18,100-18,000 following the morning low of 18,130. The tight 63-point range afterwards reached a high of 18,193 but failed to clear the 18,200 hurdle. Additional resistance remains at 18,275-18,300 and the mid-October brick wall.
The S&P 500 dipped a quarter of a point, or 0.01%, to end at 2,126. The index traded in a tight 8-point range, with lower support at 2,135-2,125 holding for the second-straight session. The intraday high of 2,133 fell shy of short-term resistance at 2,135-2,140. A close above the latter would be a slightly bullish development.
The Nasdaq slipped a point, or 0.02%, to close at 5,189. Tech tested a low of 5,186 during the morning action, with shaky support at 5,175 holding. A move below this level could lead to 5,150-5,100 this week. The 20-point rebound to 5,206 cleared lower resistance at 5,200-5,225, but these levels failed to hold.
The Russell 2000 gained 3 points, or 0.3%, to finish at 1,191. The small-caps held the 1,185 level shortly after the open despite the choppiness, and support at 1,180-1,175 is waiting in the wings. The second-half rebound to just below 1,193 failed to clear near-term resistance at 1,195-1,200. I mentioned yesterday that a close above 1,210 and the 100-day moving average would be a bullish development this week.
The S&P 500 Volatility Index ($VIX, 17.06, up 0.87) added another 5% after trading higher throughout the session and reaching a peak of 17.63. Continued closes above 16.50-17.50 should keep 20-22 in play. Support has moved up to 16.50-16, followed by 15-14.50.
“Symmetrical triangle” formations often show tighter trading ranges playing out before a possible breathtaking move. I’m showing a little patience this week, as trading ranges are dangerous for option premiums.
I mentioned that November options expire in less than three weeks, and time decay will start to rapidly erode premiums, so the regular December and January options will be targeted in my next batch of trades. I will continue to profile possible candidates from my watch list throughout the week, like Microsoft (MSFT) from yesterday’s Mid-Market Update, so stay tuned.
From desk to press, futures look like this: Dow (+24); S&P 500 (+4); Nasdaq 100 (+6); Russell (+3).
Momentum Options Play List
Closed Momentum Options Trades for 2016: 77-31 (71%). 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).
Lattice Semiconductor (LSCC, $6.09, up $0.03)
LSCC December 7.50 calls (LSCC161216C00007500, $0.24, up $0.05)
Entry Price: $0.30 (10/12/2016)
Exit Target: $0.60-$0.90
Stop Target: None
Action: Support is at $6.05-$6 and the 100-day moving average. A close below the latter could lead to $5.90-$5.75 and the 200-day moving average. Resistance is at $6.25-$6.30 and the 50-day moving average.
The company is scheduled to announce earnings next Monday, and I will have a preview ready later in the week.
Viavi Solutions (VIAV, $7.13, up $0.02)
VIAV December 8 calls (VIAV161216C00008000, $0.11, flat)
Entry Price: $0.51 (8/19/2016)
Exit Target: $1.05
Stop Target: $0.05 (Stop Limit)
Action: Support is at $7-$6.90, but there is risk to $6.75 and the 200-day moving average on a move below the latter. Resistance is at $7.20-$7.25 and the 100-day moving average.
Earnings are due to be released this morning. Wall Street is expecting a $0.07 profit on revenue north of $208 million.
Editor and Chief Options Strategist