Dear Momentum Options Subscriber,
The bears won their third-straight session and did some damage on Wednesday, as the major moving averages are now back in play. Wall Street threw the baby out with the bathwater, and the “selloff” continued right into the closing bell.
The Dow tanked 292 points, or 1.6%, to finish at 17,718. The blue-chips traded to a high of 18,041 on the open, but the 30-point gain was swallowed by a tidal wave. The closes below the 50- and 100-day moving averages opened up risk to 17,600. A close below this level could lead to 17,350-17,300 and a test to 200-day moving average. Resistance is at 17,800-18,000.
The S&P 500 sank 30 points, or 1.5%, to end at 2,061. The index traded up to 2,097 at the start of trading, but resistance at 2,100 served as a brick wall. I talked about risk to 2,075 and possibly 2,060-2,050 on any dip below 2,090, and here we are. The bulls held the 100-day moving average by a nickel, while the bears have the 50-day moving average by a six-pack. I will be watching this action carefully today. Resistance is at 2,075.
The Nasdaq tumbled 118 points, or 2.4%, to settle at 4,876. I was worried about tech after the kiss and fade at 5,006, as I knew dips below 4,975-4,950 would be double-bearish. Once these levels cracked, 4,900-4,875 was a given. Yesterday’s low checked in at 4,876, and the bulls held 4,850 and the 50-day moving average. There is further weakness to 4,800-4,775 and the 100-day moving average on continued panic selling. Resistance is at 4,900-4,925.
The Russell 2000 stumbled 29 points, or 2.4%, to close at 1,233. The small-caps tested 1,265 in the opening minutes, but the 2-point pop got ugly. The bears cracked 1,260-1,250 ahead of Wall Street’s lunch break, with most of the suit-and-ties heading out for an early happy hour. The bulls held 1,230-1,225, and there is another 2% to go before the 50-day moving average triggers. A close below 1,215 will likely lead to 1,200. Resistance is at 1,240-1,250.
The S&P 500 Volatility Index ($VIX, 15.44, up 1.92) went ballistic, as the bears cleared 15 and pushed a high of 15.55. I often talk about “stretch,” but the close above 15 was bearish. I was hoping 15 would hold into the close, but now it is a level that the bulls will need to recover ahead of the weekend. In the meantime, there is risk to 17.50 and possibly 20. I wouldn’t get aggressively short until the latter clears. This means no flinching until 20 is tripped.
I have set a Stop Limit for one of our current trades and will talk more this afternoon about what to expect into Friday’s close. I have also been doing work this week on possible index trades, as I knew they might come in handy this week or next.
The current “uptrend” lines are in play, so the action over the next few sessions should offer great clues on how next week might play out. I will talk about them today and take a look at the QQQs.
It’s too early to jump into this fire, but we should get some excellent clues on whether there will be another rebound or not. I went long during January’s pullback, and February was a home-run month. March has been successful for the portfolio, overall, but it has felt like hitting singles.
Right now, it’s batting practice, as my Watch List for possible New Trades is exploding. I have both calls and puts ready, so stay locked and loaded throughout the rest of the week, as the action could get fast and furious!
The selling pressure could last into next Monday, so try to stay patient. The real selling pressure will come if the 200-day moving averages fail to hold. A possible test to the February (2015) lows and December (2014) lows is also a possibility. Stay relaxed while others start to panic.
After few hours after midnight, futures looked like this: Dow (-300); S&P 500 (-1); Nasdaq 100 (-105). Needless to say, I slept with one eye open.
Ahead of this morning’s open, futures look like this: Dow (-118); S&P 500 (-13.5); Nasdaq 100 (-44.25).
Momentum Options Play List
Closed Momentum Options Trades for 2015: 25-7-1 (76%). 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.
Dot Hill Systems (HILL, $5.28, down $0.13)
HILL June 5 calls (HILL150619C00005000, $0.71, down $0.14)
Entry Price: $0.65 (3/24/2015)
Exit Target: $1.30
Return: 9%
Stop Target: $0.67 (Stop Limit)
Action: Set a Stop Limit at $0.67.
I’m not trying to get “cute” with this position, but, if there is a further pullback in the market or these options, it will give us more cash to play with into April and help build out our next batch of trades. We can always come back to these options and HILL as well.
Shares traded to another 52-week high of $5.46 before testing $5.25 yesterday. My near-term price target for the stock is $6+, which is where I would like to close the first half of the trade. Support is at $5.
Cypress Semiconductor (CY, $14.43, down $0.89)
CY April 16 calls (CY150417C00016000, $0.20, down $0.20)
Entry Price: $0.40 (3/18/2015)
Exit Target: $0.80
Return: -50%
Stop Target: None
CY June 16 calls (CY150619C00016000, $0.45, down $0.35)
Entry Price: $0.75 (3/18/2015)
Exit Target: $1.50
Return: -40%
Stop Target: None
Action: The semiconductor stocks got crushed yesterday, and CY falls into this category. Shares dropped 6%. The close below the 50-day moving average was a bummer, but I still like the trades. There is risk to $14-$13.50 and the 100-day moving average on further weakness. Resistance is at $15.
Veeva Systems (VEEV, $25.70, down $1.54)
VEEV April 29 calls (VEEV150417C00029000, $0.30, down $0.15)
Entry Price: $0.60 (3/18/2015)
Exit Target: $1.20
Return: -50%
Stop Target: None
Action: Shares tested a low of $25.55 yesterday. I will likely exit the trade if $25 fails to hold, or possibly by Friday’s close, depending on where shares are trading.
Gogo (GOGO, $19.04, down $0.47)
GOGO April 23 calls (GOGO150417C00023000, $0.10, down $0.05)
Entry Price: $0.55 (3/17/2015)
Exit Target: $1.10
Return: -82%
Stop Target: None
Action: I mentioned coming into the week that shares were on the verge of a major move. Unfortunately, it’s been to the downside. With the option premium at a dime, I’m placing the trade on hold, as I want see how the next few weeks play out. This trade will appear in the “Trades on Hold” section of subsequent updates.
There will still be a little premium in the options into expiration, and the short interest is huge. Any good news, or possibly a merger, could easily send shares back above $20. M&A activity is heating up, with Kraft (KRFT) catching a bid yesterday.
Yahoo! (YHOO, $44.20, down $0.22)
YHOO April 47 calls (YHOO150417C00047000, $0.33, down $0.04)
Entry Price: $0.80 (2/26/2015)
Exit Target: $1.60
Return: -59%
Stop Target: None
Action: YHOO held up rather well despite Tuesday’s widespread pullback.
Near-term support is at $44. Continued closes above $45 should lead to a run to $47-$48 and the 100-day moving average. I plan to keep this trade open into April, but $44 needs to hold to make me feel good.
Additionally, the company will be announcing earnings the week these options expire, which is another reason I will likely hold the trade open. A 10% move on earnings could be in the cards, and that would put shares past $48 (or $40) if current levels hold.
Flextronics (FLEX, $12.21, down $0.24)
FLEX April 12 calls (FLEX150417C00012000, $0.40, down $0.20)
Entry Price: $0.67 (2/24/2015)
Exit Target: $1.35
Return: -40%
Stop Target: None
Action: Shares traded to a 52-week high of $12.61 before ending at their session low. This was very frustrating, but I didn’t want to bail on the trade until I completed my chart work.
Support is at $12 following the close below $12.25. A drop below $12 could force me to bite the bullet. Short-term resistance is at $12.50.
Trades on Hold — other 2015 Portfolio Open positions (2): 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 Open Trades and Closed Trades pages to see all open and closed positions.
Marvell Technology (MRVL) May 18 calls (from February 2015) — Continue to hold.
BlackBerry (BBRY) June 13 calls (from March 2015) — Earnings are due out on Friday, March 27 — Continue to hold.
Trade on!
Rick Rouse
Editor and Chief Options Strategist
Momentum Options