Dear Momentum Options Subscriber,
The nervousness on Wall Street went up a notch following Thursday’s continued pullback and ahead of this morning’s jobs report. Good or bad, the lower lows came on continued volatility, as another key level of resistance was cleared. The upcoming weekend and presidential election will make it hard for investors to stay long, and buying on weakness seems to have gone out of style.
The Dow dipped 29 points, or 0.2%, to end at 17,930. The blue-chips made a brief return back above the 18,000 level to tap a high of 18,006 shortly after the open. Resistance at 18,100-18,200 easily held before the tumble 17,904. Fresh support at 17,900-17,800 was tested, and a move below the latter would be a bearish development.
The S&P 500 slipped 9 points, or 0.4%, to close at 2,088. The index made a run past 2,100 to 2,102 but failed to clear resistance at 2,115-2,120. The 5-point gain evaporated into the second half of the action, with the low reaching 2,085. Near-term support remains at 2,075-2,060.
The Nasdaq tumbled 47 points, or 0.9%, to finish at 5,058. Tech’s 10-point pop to 5,115 failed to clear lower moving resistance at 5,100-5,125 within the first 30 minutes of the action. The backtest to 5,053 held lower support at 5,075-5,050, but there is risk to 5,000 on a move below the latter.
The Russell 2000 declined 5 points, or 0.5%, to settle at 1,156. The small-caps held positive territory throughout the first half of the action, with the high reaching 1,168. The 6-pack party failed to clear near-term resistance at 1,170-1,175, and I have been warning of continued risk to 1,150 and the 200-day moving average this week. It will be imperative for the bulls to hold these levels on weakness today and ahead of the weekend.
The S&P 500 Volatility Index ($VIX, 22.08, up 2.76) surged another 14% to reach a peak of 22.57. The close above 22 was a bearish development and opens up risk to 25-27.50 over the short term on a close above 22.50. Support has moved up to 20-19.50.
I have set a Stop Limit for our trade in Microsoft (MSFT) to start protecting profits, and I’ve also set the parameters for our Starbucks (SBUX) trade from yesterday, so let’s get to it.
From desk to press, futures look like this: Dow (+16); S&P 500 (+4); Nasdaq 100 (+7); Russell (+2).
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).
Starbucks (SBUX, $51.77, down $1.21
SBUX January 47.50 puts (SBUX170120P00047500, $0.95, up $0.29)
Entry Price: $0.95 (11/3/2016)
Exit Target: $1.90
Stop Target: None
Action: The Exit Target is at $1.90, but it is not a Limit Order at this time. There is no Stop Target at this time.
Although the company topped estimates by a penny and revenues came in above expectations, gross margins were a tad light overseas. Starbucks also slightly lowered its 2017 numbers for a profit of $2.12-$2.14 a share, while analysts had been expecting $2.16 a share.
Shares cleared $54 on the initial news but settled at $52.50 in after-hours trading last night. There is risk to $53.50-$54 today, but I’m looking for shares to finish today’s session in the red. Support is at $51.50, which is a level I would like to see cleared heading into the weekend.
Microsoft (MSFT, $59.21, down $0.22)
MSFT December 57.50 puts (MSFT161216P00057500, $1.13, up $0.15)
Entry Price: $0.86 (11/1/2016)
Exit Target: $1.75
Stop Target: $0.95 (Stop Limit)
Action: Set a Stop Limit at $0.95 to protect profits.
Thursday’s low tapped $59.11. Support is at $58-$57.75 and the 50-day moving average. Resistance is at $59.50-$60.
You can read my previous comments on MSFT in the Oct. 31 Mid-Market Update.
Lattice Semiconductor (LSCC, $7.55, up $1.18)
LSCC December 7.50 calls (LSCC161216C00007500, $0.30, up $0.02)
Entry Price: $0.30 (10/12/2016)
Exit Target: $0.90 (Limit Order), Lower to $0.70 (Limit Order)
Stop Target: None
Action: Lower the Exit Target from $0.90 (Limit Order) to $0.70 (Limit Order).
Shares tested a high of $7.74 yesterday. The takeover offer by Canyon Bridge Capital Partners for $8.30 a share was an all-cash deal for $1.3 billion. The deal was approved by both company boards and is expected to close early next year. This means we are in a waiting game.
The 30% premium was a reasonable offer, but a higher bid can’t be ruled out. These options will be worth $0.80 if shares are at $8.30 and are converted at $7.50 by mid-December. The problem is that shares are below this level, which is why I lowered the Exit Target to $0.70. This should get us quicker fills if shares can make a move past $8 over the near term.
Viavi Solutions (VIAV, $7.24, up $0.07)
VIAV December 8 calls (VIAV161216C00008000, $0.10, down $0.01)
Entry Price: $0.51 (8/19/2016)
Exit Target: $1.05
Stop Target: $0.05 (Stop Limit)
Action: Resistance is at $7.20-$7.25 and the 100-day moving average. Support is at $7-$6.90. Thursday’s high reached $7.31, but the options traded to a low of $0.07.
Editor and Chief Options Strategist