Dear Momentum Options Subscriber,
The bears got a slice of the quarterly pie following a late-day pullback on the Dow. The blue-chips failed at holding their first-quarter gains, as they stumbled at the March finish line. However, the other major indexes closed the quarter with gains following the late-day reshuffling.
The Dow dropped 200 points, or 1.1%, to finish at 17,776. The blue-chips traded in negative territory throughout the session, while testing a low 17,773. The index held its 100-day moving average by a couple of points, but the close below the 50-day moving average was bearish. There is additional risk to 17,600-17,350 and the 200-day moving average on further weakness. Resistance is at 17,800-17,900.
The S&P 500 sank 18 points, or 0.9%, to end at 2,067. The drop below 2,075 was a warning sign along with the close below the 50-day moving average. The index easily held 2,060 and the 100-day moving average, but there is trouble to 2,050-2,040 on another bad day. Resistance is at 2,070-2,075.
The Nasdaq tanked 46 points, or 0.9%, to settle at 4,900. Tech opened at 4,925 and tried to make another run at 4,950 after testing 4,940. The dip back below 4,925 ahead of Wall Street’s lunch break confirmed that traders weren’t going to buy into the close. The bulls held 4,900 on a dime following a low of 4,899. This was a slightly bullish sign, and there is additional support at 4,875-4,850. A close below the latter and the 50-day moving average would spell trouble.
The Russell 2000 slipped 5 points, or 0.4%, to close at 1,252. The small-caps opened where they closed and made a high of 1,255 and a low of 1,248 in between. The finish above 1,250 looks promising as long as backup support at 1,240 holds. Hopefully, another move back above 1,260 will be the “all clear” signal.
The S&P 500 Volatility Index ($VIX, 15.29, up 0.78) tested the 15 level throughout the session, but the last hour was a struggle. The bears reached a peak of 15.74 but failed at making a serious run at 17.50. It was almost a given that the VIX would close above 15, but I won’t worry until the bears get a close above 17.50. I doubt 20 comes into play this month, but it could, as the 17.50 level held throughout March.
Speaking of which, March was a tough month, but I feel fortunate with the first-quarter gains the portfolio made. While I was hoping to get aggressive this week and next with New Trades, the market is still giving mixed signals. This means I still need to baby some of the current trades, but it doesn’t mean I won’t be aggressive if there is a major selloff this month.
Remember, you can make just as much in a down market as you can in up markets. However, a trend needs to be in place. Monday morning’s chart work showed the trading ranges in green boxes. The black lines show the levels when we will go short. Otherwise, try to ignore the noise. I will update the bigger picture this afternoon.
From desk to press, futures look like this: Dow (-51); S&P 500 (-8); Nasdaq 100 (-14).
Momentum Options Play List
Closed Momentum Options Trades for 2015: 29-7-1 (78%). 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.
Rigel Pharmaceuticals (RIGL, $3.57, up $0.22)
RIGL June 5 calls (RIGL150619C00005000, $0.35, up $0.17)
Entry Price: $0.25 (3/31/2015)
Exit Target: $0.75-$1.00
Return: 40%
Stop Target: None
Action: I was hesitant to open a New Trade yesterday, but this one was too powerful to pass up. My research was showing that shares could make a run to $5-$6, but when my homework was trumped by a $10 price target, the risk/reward of buying these options became so much more interesting.
Trading options on stocks in the single-digits and under $5 carries risk because sometimes it may be better to just buy the stock. However, I have mentioned the company’s partnership with Bristol-Myers Squibb (BMY) and its unique business model. With a market cap of just over $300 million, Rigel could make a good acquisition target. The company also recently received FDA approval for its lung cancer drug, Opdivo.
Resistance is at $3.80, followed by $4. The 52-week high is at $4.20. Support is at $3.40-$3.20.
Flextronics (FLEX, $12.68, up $0.03)
FLEX May 13 calls (FLEX150515C00013000, $0.40, down $0.02)
Entry Price: $0.32 (3/30/2015)
Exit Target: $0.65
Return: 25%
Stop Target: $0.33 (Stop Limit)
Action: Shares traded to another 52-week high of $12.78 yesterday. A close above $12.75 keeps $13-$14 in play. Support is at $12.50, and a dip below this level could trigger the Stop Limit.
US Steel (X, $24.40, down $1.04)
X May 21 puts (X150515P00021000, $0.68, up $0.18)
Entry Price: $0.60 (3/26/2015)
Exit Target: $1.20
Return: 13%
Stop Target: None
Action: Yesterday’s low reached $24.25. Support is at $24, followed by $23.50 and the 50-day moving average. I’m looking for a test to $20 by mid-May. Resistance is at $25-$26.
You can read my full thoughts on the trade in the March 27 Pre-Market Update.
Cypress Semiconductor (CY, $14.11, flat)
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, $0.40, down $0.05)
Entry Price: $0.75 (3/18/2015)
Exit Target: $1.50
Return: -47%
Stop Target: None
Action: Support is at $14-$13.50 and the 100-day moving average. Tuesday’s low touched $13.90. Resistance is at $14.25-$14.50.
Veeva Systems (VEEV, $25.53, up $0.09)
VEEV April 29 calls (VEEV150417C00029000, $0.15, flat)
Entry Price: $0.60 (3/18/2015)
Exit Target: $1.20
Return: -75%
Stop Target: None
Action: Support is at $25. Resistance is at $26-$27 and the 200-day moving average. If shares close below $24, I will exit the trade. If shares can’t clear $27 by Thursday, I may also exit the trade then.
Yahoo! (YHOO, $44.44, down $0.51)
YHOO April 47 calls (YHOO150417C00047000, $0.30, down $0.10)
Entry Price: $0.80 (2/26/2015)
Exit Target: $1.60
Return: -63%
Stop Target: None
Action: Near-term support at $44.50 was breached on yesterday’s pullback. There is additional risk to $44-$43 and the 200-day moving average this week.
I wanted to hold this trade open through earnings, but, if shares can’t recover $45 by Thursday, I might bail to save some premium.
I can come back for YHOO with May calls on a move past $45.75. Last Friday’s high was $45.67.
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) — 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