Dear Momentum Options Subscriber,
I talked about the major moving averages in this morning’s Pre-Market Update and, as I was doing the chart work, I wanted to see where the uptrend lines were following Wednesday’s close.
For the Dow and S&P 500, the uptrend lines were already in play. For the Russell 2000 and the Nasdaq, they are dancing with their uptrend lines near the 50-day moving averages.
The uptrend lines coming into 2015 were violated during January’s pullback, with the Dow, S&P 500 and the Russell 2000 testing their 200-day moving averages. The Nasdaq, however, held its 100-day moving average for the most part.
The Nasdaq’s 100-day moving average is currently at 4,774, with “stretch” to 4,750. If the index makes a test to these levels and holds, it could create a great buying opportunity.
The best way to play this action is by watching the PowerShares QQQ Trust (QQQ, $105.32, down $0.14). The aforementioned price action in the Nasdaq would translate to the QQQs testing $104-$103.50.
I often mention that timing market tops and bottoms is never an easy gig, but, by using technical analysis, it gives you better odds of setting up successful trades. The important part of this kind of trade is emotion because it requires you to get bullish when everyone else is bearish.
I used this strategy in late January to build out a batch of trades into March, April, May and June. I also planned for many of the trades to be closed by late March or early April, so I’m still following my trading plan and ignoring the Wall Street pundits.
I still need to be careful because I don’t want to “overload” the portfolio. Some of the longer-term open trades were built to get through this type of environment. I used the run to fresh all-time highs to cash out a number of winning trades and the nearer-term options. However, I still wanted to keep some chips on the table, as April could be a powerful month.
As far as the QQQs, if they trade to $104, I’ll be targeting the QQQ April 108 calls (QQQ150417C00108000, $0.45, down $0.13) or the QQQ May 110 calls (QQQ150515C00110000, $0.55, down $0.12) to play a rebound, “dead cat bounce” or the start of a new trend.
I could also target the QQQ May 100 puts (QQQ150515P00100000, $1.10, up $0.05) if the QQQs trade to or close below $103.50.
If the aforementioned QQQ trade becomes an official recommendation, I will send out a Trade Alert. I wanted to review the action and the trade setup for those of you that might follow my lead. It also takes the emotion out of trading and lets you know exactly why we are in the trade.
I mentioned this morning that I also expected continued market weakness into next Monday. Given the current geopolitical events, there won’t be a lot of faith to hold stocks over the weekend. A bottoming process could take another two to three sessions, and this would give me enough time to watch the QQQs and do continued chart work, with a likely entry point coming on Tuesday or Wednesday of next week. The only question is whether I will be buying calls or puts.
As I always say, “plan the trade, trade the plan.”
Speaking of which, Gold is pushing $1,200 an ounce, and here were my thoughts coming into the week:
“Gold ($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.”
Here is the current chart for Gold:
The SPDR Gold Shares ETF (GLD, $115.70, up $0.97) traded to $115.14 on Wednesday and has kissed $115.84 today.
The GLD April 116 calls (GLD150417C00116000, $1.45, up $0.40) were trading for $0.90 coming into the week. At current levels, these options are up 61%. If you took the trade, ride it out for another day or into next week, but I would suggest locking in half-profits, as they are too juicy to pass up.
Heading into the second half of trading, the Dow is down 21 points to 17,697, while the S&P 500 is lower by 2 points to 2,058. The Nasdaq is off 15 points to 4,861, and the Russell 2000 is declining 3 points to 1,230.
I have updated our current trades, so let’s go check the tape. As a reminder, Blackberry (BBRY) is reporting earnings tomorrow morning.
I could have some additional thoughts ahead of the close and perhaps a New Trade, so stay close to your email inboxes.
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 12:40 p.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.
US Steel (X, $24.27, down $0.54)
X May 21 puts (X150515P00021000, $0.65, up $0.08)
Entry Price: $0.60 (3/26/2015)
Exit Target: $1.20
Return: 8%
Stop Target: None
Action: Shares have made a strong move above their 50-day moving average over the past few sessions. This level held briefly in February for a few days before a backtest to $22. Otherwise, the 50-day moving average hasn’t held since October of 2014.
There is risk to $26, but I wanted to get into these options, as I expect shares to trade to $22-$20 on a drop below $24. I will talk about the fundamentals and other elements of the trade in Friday’s Pre-Market Update.
Dot Hill Systems (HILL, $5.38, up $0.10)
HILL June 5 calls (HILL150619C00005000, $0.80, up $0.09)
Entry Price: $0.65 (3/24/2015)
Exit Target: $1.30
Return: 23%
Stop Target: $0.67 (Stop Limit)
Action: Shares have traded to a high of $5.41 today. My near-term price target is $6+, which is where I would like to close the first half of the trade. Support is at $5.
Cypress Semiconductor (CY, $14.25, down $0.18)
CY April 16 calls (CY150417C00016000, $0.15, down $0.05)
Entry Price: $0.40 (3/18/2015)
Exit Target: $0.80
Return: -63%
Stop Target: None
CY June 16 calls (CY150619C00016000, $0.45, down $0.05)
Entry Price: $0.75 (3/18/2015)
Exit Target: $1.50
Return: -40%
Stop Target: None
Action: I mentioned that there is risk to $14-$13.50 and the 100-day moving average on further weakness, and today’s low has reached $13.85. The selloff in the semiconductor stocks has reached oversold levels. I would like to see $14 hold into the close.
Veeva Systems (VEEV, $25.48, down $0.22)
VEEV April 29 calls (VEEV150417C00029000, $0.25, down $0.05)
Entry Price: $0.60 (3/18/2015)
Exit Target: $1.20
Return: -58%
Stop Target: None
Action: I will likely exit the trade if $25 fails to hold, or possibly by Friday’s close, depending on where shares are trading. Resistance is at $26-$27 and the 200-day moving average.
Yahoo! (YHOO, $44.37, up $0.17)
YHOO April 47 calls (YHOO150417C00047000, $0.35, up $0.02)
Entry Price: $0.80 (2/26/2015)
Exit Target: $1.60
Return: -56%
Stop Target: None
Action: 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, $12.28, up $0.07)
FLEX April 12 calls (FLEX150417C00012000, $0.45, up $0.05)
Entry Price: $0.67 (2/24/2015)
Exit Target: $1.35
Return: -33%
Stop Target: None
Action: Shares traded to a 52-week high of $12.61 before ending at their session low yesterday. 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 (3): 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.
Gogo (GOGO) April 23 calls (from March 2015) — Continue to hold.
Trade on!
Rick Rouse
Editor and Chief Options Strategist
Momentum Options