Mid-Market Update for 12/28/2016

Bears Push Near-Term Support

1:40pm (EST)

Futures were showing a nice open this morning for stocks with the bulls on track to push higher highs. The question would be if a breakout would occur if upper resistance was cleared. It was quickly answered as the major indexes turned south within 30 minutes of trading.

The lack of volume this week will be tricky to play as volatility has remained low but could pickup into week’s end. Although a mini trading range has formed over the past few weeks, much larger price swings are almost certain come January.

While I mentioned I had new trades ready, today’s action is a slight cause for concern as far as opening bullish positions. My Watch List has numerous bearish candidates but I’m also not ready to load up on short positions until several key layers of support crack. Once they do, there will be an unbelievable opportunity to play an inevitable 5%-10% pullback in the coming months.

This means we will still need to be patient and why trading light during trading ranges is something so important to remember. Trading ranges drain option premiums and it is also why I have been user “cheaper” priced option plays over for much of the month.

It is also wise to trade “half positions” during trading ranges. In other words, if you normally trade 10-20 contracts, slim down to 5-10. If you normally invest $1,000-$2,000 a trade, lower it to $500-$1,000. I use the latter for all of my trades and I certainly don’t trade $5,000-$10,000 positions during tight ranges and low volume.

We have done well locking in a number of high double-digit winners this month while preserving premium on the few trades that have gone against us. Trending markets are when we will open up the playbook.

The Dow is down 73 points to 19,871 while the S&P 500 is off 16 points to 2,253. The Nasdaq is declining 41 points to 5,445 and the Russell 2000 is lower by 15 points to 1,362.

I have updated our current trades so let’s go check the tape.
Momentum Options Play List

Closed Momentum Options Trades for 2016: 87-37 (70%). 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.
Sony (SNE, 28.35, down $0.03)

January 27.50 puts (SNE170120P00027500, $0.35, down $0.05)

Entry Price: $0.30 (12/23/2016)
Exit Target: $0.60
Return: 17%
Stop Target: None

February 27 puts (SNE170217P00027000, $0.65, flat)

Entry Price: $0.65 (12/23/2016)
Exit Target: $1.30
Return: 0%
Stop Target: None

Action: Support is at $28.25-$28. Resistance is at $28.75-$29.
Array Biopharma (ARRY, $8.69, down $0.10)

ARRY March 10 calls (ARRY170317C00010000, $0.95, flat)

Entry Price: $0.85 (12/21/2016)
Exit Target: $1.70
Return: 11%
Stop Target: None

Action: Support at $8.50-$8.25. Resistance is at $8.75-$9.
CVS Health (CVS, $78.80, down $0.49)

CVS January 82.50 calls (CVS170120C00082500, $0.35, down $0.10)

Entry Price: $0.68 (12/20/2016)
Exit Target: $1.40
Return: -49%
Stop Target: None

Action: Support is at $78.50-$78. Resistance is at $80-$80.50 and the 50-day moving average.
Viavi Solutions (VIAV, $8.28, down $0.13)

VIAV March 9 calls (VIAV170317C00009000, $0.26, down $0.02)

Entry Price: $0.37 (12/8/2016)
Exit Target: $1.00
Return: -30%
Stop Target: None

Action: Support is at $8.25-$8. Resistance is at $8.50-$8.60.
Rick Rouse