9:00am (EST)
The bulls managed to hold onto their gains during the final hour of trading on Wednesday as they once gain pushed resistance but came up short. Since mid-September, the market has drifted lower but is still holding the first wave of support. The lower trading range is still bullish until the second and third waves crack.
The Wall Street pros who have been looking for a pullback of 3%-5% continue to call this the most hated rally they have ever seen but many of these knuckleheads are severely underperforming the major averages. At some point the market will turn bearish but support has been super strong. On the flip side, we believe if there is a pullback, it could be much worse than anticipated, which will make them think twice about buying a dip. We could spend the rest of the week testing resistance but a breakout or breakdown is upon us.
The Dow was up a dozen points, or 0.1%, to finish at 13,494. The blue-chips fell to a low of 13,439 but rebounded nearly triple-digits to reach 13,536. However, it was another lower high and nearly a lower low for the week which is bearish. Monday’s peak of 13,598 has been the closest to 13,600 the bulls have reached. Support is at 13,350, followed by 13,200.
The S&P 500 advanced 5 points, or 0.4%, to settle at 1,450 which was bullish. The index traded down to 1,441 at the open but bounced back to a peak of 1,454 midday. More importantly, the S&P held 1,450 which is serving as both near-term support and resistance. They is a 25 point swing, or 2%, the bulls or bears are fighting over. Any real estate above 1,475 favors the bulls for a continued run higher. A move below 1,425 could cause a rush for the exits. Monday’s high of 1,457 needs to be cleared by Friday while Tuesday’s low of 1,439 needs to be pushed by the bears. These will be the clues we watch for today.
The Nasdaq popped 15 points higher, or 0.5%, to end at 3,135. Tech held steady at the start of trading after dipping to a low of 3,115 and managed to power its way up to 3,142 on Wall Street’s lunch break. The index still fell short of kissing or clearing 3,150 which is bearish. A close below 3,100 could cause a ruckus. The Nasdaq closed at 3,093 on September 27 after touching 3,080. These levels are only 1% away from triggering and with volatility picking up we need to watch for early clues of a breakdown. Of course, if 3,150 is cleared, the bulls could make another run at our September fluff target of 3,200-3,250.
The Russell 2000 fell 2 points, or 0.2%, to close at 838. The index made a run to 843 but the negative close was bearish. The S&P Volatility Index ($VIX, 15.43, down 0.28) traded between 15-16 all session which was neutral.
As you can see, we are still getting mixed signals on market direction which has lead to a choppy week.
We wanted to take a quick minute to talk about the massive move in shares of Sarepta Therapeutics (SRPT, $44.93, up 29.94) yesterday. Biotech companies are one of our favorite sectors to research for option trades and we love discovering new companies with promising pipelines. Shares of Sarepta soared 200% after the company announced positive results on its muscular dystrophy drug.
The stock opened at 31.81 and reached a peak of $45 into the close. Some of the near-term option zoomed 700% or more on the news.
We checked out the October 15 calls (SRPT121020C00015000, $29.40, up $26.00) shortly after the open to see what the previous day’s premium was and how much they were up. The options closed at $3.40 on Tuesday when shares were at $14.99 which shows these options were already super inflated.
When a stock is a penny away from its strike price from being in-the-money on options that expire in a little over 2 weeks, the premium should be no more than 50 cents or else you are paying too much.
For example, shares of General Electric (GE, $22.91, up $0.12) are just under $23 and the October 23 calls (GE121020C00023000, $0.33, up $0.06) were up 20% on GE’s half-percent move yesterday. In other words, Sarepta’s near-term almost in-the-money call options are are selling for 10 times those of GE.
The easy money has already been made but remember option trading is all about getting the right price and not overpaying.
Futures are showing another higher open this week and look like this: Dow (+36); S&P 500 (+5), Nasdaq 100 (+9). We are close to closing another triple-digit winning trade this week and while we do have stops in place to protect profits, we are trying to squeeze a little more juice out of the call options before Friday’s close.
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