9:00 a.m. (EST)
Just kidding.
I have run out of toes and fingers to count on after hearing today’s headline throughout the year by many so-called market experts. Although the possibility of a market top could have been set yesterday, chances are that the bulls aren’t done, as the indexes continues to push my March, July and year-end fluff targets.
The Nasdaq was the only official index that set a fresh 52-week peak on Monday, but its cousins made a fantastic push past the second layers of resistance.
The Dow jumped 175 points, or 1.1%, to end at 16,838. The blue-chips tested resistance at 16,800 within the first 30 minutes of trading and were able to hold this level throughout the session. The index reached a high of 16,840 and is 1% away from tripping 17,000 again. Support will try to hold at 16,800 and prior resistance, with backup at 16,600.
The S&P 500 soared 16 points, or 0.9%, to finish at 1,971. The index cleared the first wave of resistance at 1,960 shortly after the opening bell and tested the second wave at 1,970-1,975 throughout the day. The bulls pushed a high of 1,971.99, and the close into this zone was bullish. If cleared, there is some resistance at 1,985, but, if taken out, a run past 2,000 is a high probability. Fresh support is at 1,960 followed by 1,950.
The Nasdaq surged 43 points, or 1%, to close at 4,508. I mentioned that tech would be “the” major force in a possible short-covering rally on Monday once 4,485 cleared. The index opened at 4,490 and went out a point below its peak of 4,509.16. This was a very bullish development, as it puts my year-end target of 4,800-5,000 squarely in focus. There will likely be a battle at 4,550-4,600 that could take time to play out, but all-time highs could be in play by the end of the year. It will be crucial that 4,450-4,400 holds on any pullback.
The Russell 2000 rocketed 16 points, or 1.5%, to settle 1,158. The small-caps led the charge higher and provided further conviction that higher highs could be in store — providing 1,960 clears. The index went out at its session high but needs to clear the upper end of resistance to get 1,175 back in the mix.
The S&P 500 Volatility Index ($VIX, 12.32, down 0.83) dropped 6% and closed below 12.50. This was another bullish sign, as I mentioned that the bulls needed to get the VIX under 12.50 to confirm higher highs. The low checked in at 12.26, and the next layer of “support” is at 11.50. To the bulls, this level is resistance and would get the 52-week low of 10.28 in play if cleared.
This is still an extremely dangerous market environment to trade, as headline risk will likely continue to play a role in direction. The geopolitical concerns seem to move to the back burner at the start of week if things remain calm between Russia/Ukraine over the weekends, while the end of the week seems to bring saber rattling and a little weakness.
This means that profits still need to be protected, especially on trades that do well in a short time frame, and positions need to be watched like a hawk. Limit orders and stop limits also help in these types of environments.
I have a lot to cover with the current trades, so let’s go check the numbers.
Ahead of the open, futures look like this: Dow (+36); S&P 500 (+2); Nasdaq 100 (+7).
MEMBERS AREA
Closed Trades for 2014: 81-39 — the Weekly Wrap is 22-4 (85%) for 2014 (107-11, or 91% win rate, since 2011) and is designed for traders that want to use options with less risk. 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.
GT Advanced Technologies (GTAT, $18.23, up $0.87)
September 20 calls (GTAT140920C00020000, $0.90, up $0.35)
Entry Price: $0.70 (8/18/2014)
Exit Target: $1.40 (Limit Order to close half)
Return: 29%
Stop Target: $0.70 (Stop Limit)
Action: I have set a limit order at $1.40 to close half of the trade on momentum.
Shares traded to a high of $18.50 on Monday, and these options were very active. Volume was over 3,500 contracts, and open interest is north of 11,000. My initial near-term target is $20, and that’s where I would like to take half profits.
I have also set a stop limit of $0.70 on the trade in case shares have peaked and there is a back test.
I covered why I was in this trade yesterday, and the most improved feature users want in the new iPhone is the sapphire technology. Evidently, a lot of people are walking around with cracked display screens.
The talking heads were buzzing about this stock in after-hours trading last night and must have read the Daily newsletter, as they nearly echoed my exact comments yesterday.
Sony (SNE, $18.52, up $0.11)
October 19 calls (SNE141018C00019000, $0.45, flat)
Entry Price: $0.45 (8/18/2014)
Exit Target: $0.90
Return: 0%
Stop Target: None
September 18 calls (SNE140920C00018000, $0.80, up $0.05)
Entry Price: $0.50 (8/14/2014)
Exit Target: $1.00 (Limit Order to close a third)
Return: 60%
Stop Target: $0.60 (Stop Limit)
Action: Set a limit order at $1.00 to close a third of the September 18 calls. This would lock-in a triple-digit return from the entry price of $0.50 on a third of the trade, if filled. I have also set a stop limit of $0.60 on the position.
I added the October 19 calls yesterday on a feeling that shares would clear near-term resistance at $18.50. They did. This was a bullish sign, as it brings $19-$20 in play. Near-term support is at $18.
Yahoo (YHOO, $37.38, up $0.91)
September 38 calls (YHOO140920C00038000, $1.55, up $0.25)
Entry Price: $1.25 (8/11/2014)
Exit Target: $1.90-$2.50
Return: 24%
Stop Target: $1.25 (Stop Limit)
October 43 calls (YHOO1018C00043000, $0.90, up $0.15)
Entry Price: $0.80 (8/11/2014)
Exit Target: $1.20-$1.60
Return: 13%
Stop Target: None
Action: Yahoo traded to a high of $37.77 on Monday. Nearly 10,000 contracts traded in the September 38’s, and open interest is over 20,000 contracts. The action is suggesting higher prices are in store. However, if shares slip, I have set a stop limit of $1.25 on the September 38 calls.
Shares have been hovering in a tight range for three weeks between $35.50-$36.50. I have been expecting a breakout to $40 once $37 clears, and I would like to see $37-$36.75 hold on any pullback.
World Wrestling Federation (WWE, $14.06, up $0.20)
September 15 calls (WWE140920C00015000, $0.35, flat)
Entry Price: $0.50 (8/6/2014)
Exit Target: $1.00+
Return: -30%
Stop Target: None
Action: The close above $14 was bullish. If shares can clear $14.25, another round of short covering could follow. Support is at $13.50, and a drop below this level will likely push me out of the trade.
The two prior WWE trades made 203% (in early March) and 133% (in early August). This is a piggy-back trade that I’d like to see perform just as well.
Pool (POOL, $56.43, up $0.83)
October 50 puts (POOL141018P00050000, $0.55, down $0.10)
Entry Price: $1.10 (7/16/2014)
Exit Target: $2.20-$3.30
Return: -50%
Stop Target: None
Action: A break below the July low of $54.16 would be bearish and could lead to $50 and fresh 52-week lows. Longer-term resistance is at $57 along with the 200-day moving average.
The break-even point for the trade is at $48.90, technically, by mid-October. These options have over two months before they expire.
Other 2014 Portfolio Open positions (4): These are trades that are still open in the portfolio but are down over 50%. They have longer expiration dates and are on “hold” but are not worth mentioning until they turn around. This means I would not open any new positions. I’m still keeping track of the trades and will record the results accordingly, when the trade closes or if the options expire. Click on the 2014 Portfolio link in the Members Area to view all open/closed trades.
Fortinet September 28 calls (from June 2013) — continue to hold
CVS Caremark September 82.50 calls (from July 2014) — continue to hold
S&P 500 Spiders September 180 puts (from August 2014) — continue to hold
Fossil September 90 puts (from August 2014) — continue to hold