Dear Momentum Options Subscriber,
The bulls gave good clues that higher highs might be in store after starting last week off with their third-straight Monday win. The push to prior resistance and the top of the trading ranges was a tease, however, as Tuesday’s pullback continued to worry Wall Street.
The action got progressively worse into the Fed’s announcement regarding interest rates on Wednesday. As the saying goes, it’s always darkest before the dawn, and panic was in the air. The good news is that there is light after the darkness, and the bulls remembered this.
Thursday’s mixed action kept Wall Street off-guard and had analysts believing that Wednesday’s action was a “dead cat bounce.” Friday’s win capped off a great week, and there is likely more upside ahead as the suits and ties try to catch up to the market’s gains for the year.
The Dow jumped 168 points, or 0.9%, to end at 18,127 on Friday. The blue-chips traded in positive territory throughout the session, while reaching a high of 18,197. The close above 18,100 gets the all-time high of 18,288 and resistance at 18,300 in play. If triggered, there is fluff up to 18,500-18,600. Support is at 18,000-17,900, followed by 17,800 and the 50-day moving average.
The S&P 500 soared nearly 19 points, or 0.9%, to settle at 2,108. The index easily cleared resistance at 2,100 shortly after the open, while trading to a top of 2,113. The bulls were a six-pack shy of triggering a fresh all-time high. A close above 2,120 could lead to a test to 2,150-2,175. Support is at 2,100-2,090 on a pullback, with backup at 2,075 and the 50-day moving average.
The Nasdaq zoomed 34 points, or 0.7%, to close at 5,026. Tech opened at 5,033 and traded to a fresh 15-year high of 5,042. The bulls needed another six-pack here as well, after missing the all-time closing high of 5,048. The index reached an intraday high of 5,132.52 in March of 2000, which now represents further resistance. A move above these levels could lead to 5,200. Support is at 5,000-4,975.
The Russell 2000 gained 11 points, or 0.9%, to finish at 1,266. The small-caps opened a point below 1,260 and traded to an all-time high of 1,267. It was the 14th record close of 2015 for the index, which is a story Wall Street has ignored. I talked about a possible surge to 1,275 once 1,260 cleared and mentioned that the small-caps would lead the way higher. This level is less than 1% away, and the 1,300 level is roughly 3% away. Support is at 1,260-1,250 on a backtest, which are levels that need to be watched carefully.
The S&P 500 Volatility Index ($VIX, 13.02, down 1.05) dropped 7% on Friday and closed below 13.50. By far, the VIX gave the single-best clue mid-week ahead of the Fed meeting following a “flash crash” to 13.38. Coming into last week, I said it would be imperative that the bulls hold 17.50 into the Fed announcement and 15 afterwards. It was a “discount double-check,” as I also said that a move to 13.50-12.50 was needed to sustain the rally. Friday’s low touched 12.54.
The battleground this week will be at VIX 12.50, as continued closes below this level could lead to 11.50-10. While it is too early to say if these levels will be tested, they could be on continued spikes higher. Closes above 13.50 are “safe” as long as 15 holds, but any pops above this level could signal a short-term top.
“The setup here is an easy one and probably the most telling market sign we will get this week. If the VIX closes above 17.50, it could lead to panic selling. If the VIX closes below 15 on consecutive sessions, it would be a very bullish sign for a retest to 13.50-12.50.”
This was my most important message from last Monday ahead of the Federal Reserve’s statement on interest rates.
Given the chaos and elevated volatility going into the announcement, it was important to stay “patient” while Wall Street and the talking heads were clearly getting “impatient.”
Janet Yellen followed the game plan, as the Fed dropped “patient” from its policy meeting minutes while lowering guidance for any future rate hikes. The chairwoman told Wall Street and the world that although the Fed was dropping the word “patient,” it wouldn’t be “impatient” to raise rates.
It was exactly what the suits and ties didn’t want to hear because most of them have been calling for a slight pullback or a 5%-10% correction.
While it is easy to say that the market rallied following the Fed’s more dovish stance, the real reason was based on the technicals, which is why it is so important to track them each and every week.
A slower economy, a stronger dollar and low commodity inflation contributed to the zombies leaving rates unchanged and only delayed the debate on when the Fed will raise them. It can be a maddening process, and it’s one I have largely chosen to ignore.
Gold ($GOLD, $1,181.70, up $11.20) rebounded on the Fed news, as the dollar weakened and the threat of higher rates was removed over the short term. The yellow metal traded past the $1,300 level (per ounce) in mid-January before falling off a cliff and below all of its major moving averages within a month. Gold may have formed a temporary “double-bottom” after holding $1,140 and the early November 2014 lows. A run to $1,200 looks certain, and a close above the 100-day moving average would be bullish for the gold bugs.
The best way to trade gold is by following the SPDR Gold Shares ETF (GLD, $113.57, up $1.28). Options are available to trade, and the GLD April 116 calls (GLD150417C00116000) closed at $0.90 on Friday. They could be used to play further strength in GLD, with a stop at $0.45 for super-aggressive traders. This is not an official trade recommendation, but one that is on my Watch List.
Silver ($SILVER, $16.73, up $0.61) was testing $15.50 ahead of the Fed decision and made a strong run at $17 afterwards. Friday’s high reached $16.89, with silver reclaiming its 50-day and 100-day moving averages. A run to $18 and the 200-day moving average could come on additional strength.
The Financial Select SPDR (XLF, $24.71, up $0.33) held up well despite the drop in yields following the Fed announcement. Last week, I talked about the mini “death cross” that has formed on the chart, with the 50-day moving average falling below the 100-day moving average. This setup still bears watching, but the major moving averages are “curling” higher. A run to $25 looks certain, and a move above this level would be bullish. The 52-week high is at $25.14. Near-term support is at $24.50-$24.25. A close below $24 would be bearish.
The Dow Jones Transportation Average ($TRAN, 9,148, up 29) is trying to work itself out of its recent “death cross” pattern and could be on the verge of setting fresh highs. Resistance is at 9,200-9,300, and a close above the latter would be super bullish. Short-term support is at 9,100, followed by 9,000-8,975 and the 50- and 100-day moving averages.
Oil prices still look like they are headed lower despite the rebound to $47.50 a barrel last week. The chart for Light Crude Oil ($WTIC, $46.45, up $0.84) shows the 50-day moving average holding, but it is still in a downtrend along with the other major moving averages. A move above $48 needs to be watched, but my feeling is that there will be a flush to $40 if $45 fails to hold again.
The Monday/Friday closes have turned bullish, as the bulls have won three-straight March Monday’s following a sloppy February. Fridays have been choppy, as the bears won two-straight before this past Friday’s rebound. If the bulls can get another win today, it would be a bullish sign for a continued rally into the week. However, the bulls need to get a Friday win as well this week to confirm that money from the sidelines is flowing into the market. If not, there could be some choppiness as traders book profits.
March is historically weak later in the month, and the week after “triple-witching” and option expiration week tends to be bearish. However, I have been talking about the market hitting a “sweet spot,” and this week should give us that clue.
The Dow has made significant moves following triple-witching week and has advanced in seven of the past 11 years. In 2000, the blue-chips jumped nearly 5% during the week after triple-witching and, in 2007, the index gained over 3%. During the same time period in 2009, the Dow zoomed roughly 7% and, in 2011, the bulls recorded another 3% gain.
It’s no secret that 80% of mutual fund managers underperformed the market last year, but it’s not because they are dumb. They just don’t do the homework. Given the market’s performance this year, my guess is that there are a number of money managers underperforming the market once again.
With the first quarter winding down, fund managers are going to have to put some money to work this week. If money starts moving from the sidelines and into the market this week and next, there is a good chance that another 3% move higher is possible by month end.
From desk to press, futures look like this: Dow (-8); S&P 500 (-2); Nasdaq 100 (-2).
Momentum Options Play List
Closed Momentum Options Trades for 2015: 24-6-1 (77%). 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.
Every new Momentum Options recommendation is listed with the price at which I entered my own position. If the price is slightly different than my recommended entry or exit price when you receive the alert, don’t let that keep you from getting into or out of a trade. Occasionally, you might even get a better “fill” price than what is posted in the Open Trades and Closed Trades.
Cypress Semiconductor (CY, $15.70, up $0.28)
CY April 16 calls (CY150417C00016000, $0.55, up $0.05)
Entry Price: $0.40 (3/18/2015)
Exit Target: $0.80
Return: 38%
Stop Target: None
CY June 16 calls (CY150619C00016000, $0.90, up $0.05)
Entry Price: $0.75 (3/18/2015)
Exit Target: $1.50
Return: 20%
Stop Target: None
Action: Shares held support at $15 and the 50-day moving average following Friday’s dip to $15.20. The rebound into the resistance at $15.50-$15.75 was a bullish sign and sets up another run at $16. The 52-week high is at $16.25, which was tripped on March 13.
Veeva Systems (VEEV, $27.28, down $0.65)
VEEV April 29 calls (VEEV150417C00029000, $0.60, down $0.20)
Entry Price: $0.60 (3/18/2015)
Exit Target: $1.20
Return: 0%
Stop Target: None
Action: Support is at $27 and the 200-day moving average. There is additional risk to $26-$25 on a close below this level. A move above $28.50 and the 50- and 100-day moving averages could lead to additional short covering and a run past $30.
Gogo (GOGO, $20.91, down $0.17)
GOGO April 23 calls (GOGO150417C00023000, $0.40, down $0.05)
Entry Price: $0.55 (3/17/2015)
Exit Target: $1.10
Return: -27%
Stop Target: None
Action: Resistance is at $21.50-$22. Short-term support is at $20.50-$20. A mini “symmetrical triangle” is forming at current levels and could be signaling that a strong breakout or breakdown is forthcoming.
Additionally, a “golden cross” is forming, as the 50-day moving average is on the verge of crossing above the 200-day moving average. This is a bullish sign, as a breakout could lift shares to $22-$24.
Yahoo! (YHOO, $45.04, up $0.06)
YHOO April 47 calls (YHOO150417C00047000, $0.60, flat)
Entry Price: $0.80 (2/26/2015)
Exit Target: $1.60
Return: -25%
Stop Target: None
Action: Friday’s close above $45 and the 50-day moving average was bullish. I have mentioned that continued closes above this level should lead to a run to $47-$48 and the 100-day moving average. Near-term support is at $44.
Western Union (WU, $19.20, down $0.05)
WU April 20 calls (WU150417C00020000, $0.20, flat)
Entry Price: $0.36 (2/25/2015)
Exit Target: $0.75
Return: -44%
Stop Target: None
Action: Support is at $19, with risk to $18.75 on a close below this level. Resistance is at $19.25-$19.50.
The major moving averages are sloping higher, which is why I still like the trade, but last week’s action was slightly disappointing. I mentioned that a large short position was initiated last week by short-sellers on the open market, and a close below $19 could force me out of the trade despite a bullish-looking chart.
American Express (AXP, $82.70, up $1.16)
AXP April 87.50 calls (AXP150417C00087500, $0.25, up $0.05)
Entry Price: $0.56 (2/25/2015)
Exit Target: $1.15
Return: -55%
Stop Target: None
Action: Friday’s run to resistance at $83 and the 50-day moving average looked bullish. A close above $84 could ignite a Wall Street fire as fund managers look for beaten-down, quality stocks. If cleared, a move to $86-$87 and the 100-day moving average could come quickly. Support is at $81-$80.
Flextronics (FLEX, $12.28, up $0.16)
FLEX April 12 calls (FLEX150417C00012000, $0.50, up $0.10)
Entry Price: $0.67 (2/24/2015)
Exit Target: $1.35
Return: -25%
Stop Target: None
Action: Short-term resistance is at $12.25-$12.50. The 52-week high is at $12.48. A close above this level could lead to a run at $13. Support is at $11.75 and the 50-day moving average if $12 fails to hold.
Marvell Technology (MRVL, $15.72, down $0.09)
MRVL May 18 calls (MRVL150515C00018000, $0.20, down $0.05)
Entry Price: $0.50 (2/18/2015)
Exit Target: $1.00
Return: -60%
Stop Target: None
Action: Shares continue to struggle with their 50-day moving average following Friday’s attempt to clear $16. Continued closes below $15.75 could lead to $15.50-$15 and a test to the 100-day moving average.
The two-week pullback has been frustrating, but these are May options and they still have a ton of time premium. A trading range could be developing as well. I’m placing this trade on “hold,” and it will appear in the “Trades on Hold” section of subsequent issues. I will bring back coverage once shares clear $16-$16.25.
BlackBerry (BBRY, $9.51, down $0.19)
BBRY June 13 calls (BBRY150617C00013000, $0.20, down $0.05)
Entry Price: $0.60 (3/2/2015)
Exit Target: $1.20+
Return: -67%
Stop Target: None
Action: Support at $9.75 was breached throughout last week and lead to Friday’s test to $9.50. There is additional risk to $9.25-$9 on closes below this level. Resistance is at $9.75-$10 and the 200-day moving average.
This is a speculation play that BBRY will get a takeover offer by mid-June. I’m placing this trade on “hold” as well, and it will appear in the “Trades on Hold” section of subsequent issues. I will bring back coverage once the takeover chatter resumes.
Trade on!
Rick Rouse
Editor and Chief Options Strategist
Momentum Options