Oh No; Nonfarm Payrolls Half Expectations

In This Issue:

Market Commentary
Momentum Options Play List

Dear Momentum Options Subscriber,

Although the market was closed on Friday, the nonfarm payrolls report was released, and the results had a negative 1% impact on futures. The report came in much worse than expected, as just 126,000 jobs were added versus expectations for 250,000. The unemployment rate stayed flat at 5.5%, but more Americans are out of work. These results will certainly reheat the Fed’s interest-rate debate, but bigger concerns lay ahead if the bottoms of the trading ranges fail to hold.

The Dow added 65 points, or 0.4%, to settle at 17,763 on Thursday. The blue-chips made a run past resistance at 17,800 to 17,815 shortly after the open before slipping into negative territory by halftime. The dip to 17,673 easily held support at 17,600. There is additional risk to 17,350 and the 200-day moving average, as the bulls failed to hold the 100-day moving average for the second-straight session.

The S&P 500 gained 7 points, or 0.4%, to close just under 2,067. The index tested 2,057 on the open, but the 2-point loss quickly faded as the bulls pushed a high of 2,072. The run at 2,070-2,075 and the 50-day moving average looked promising, although the index failed to hold the lower band of resistance. Support at 2,050 and the 100-day moving average held like a rock. Backup support is at 2,040, which is a level that needs to hold to keep the bottom of the trading range intact.

The Nasdaq advanced almost 7 points, or 0.1%, to finish at 4,887. Tech teased us with the push past resistance at 4,900 to 4,901, and the move looked like a bullish signal. Although the bulls failed to hold this level, they extended the Nasdaq’s winning streak to 15-straight sessions ahead of the Good Friday holiday. Additional overhead beams are at 4,925-4,950, with a close above the latter likely leading to another run at 5,000. Support is at 4,875 and the 50-day moving average. Another drop below 4,850 would be a bearish development. Last Wednesday’s low reached 4,844, and the bottom of the trading range is at 4,800.

The Russell 2000 climbed 4 points, or 0.3%, to end at 1,255. The small-caps also teased us following their run to 1,259.97 shortly after the start of trading. I have been saying that 1,260 could be the “all-clear” sign, as that level held for all of last week. A move above this level and to the top of the trading range could lead to 1,270-1,275. Near-term support is at 1,250, followed by 1,240.

The S&P 500 Volatility Index ($VIX, 14.67, down 0.44) closed back below 15 on Thursday. Hopefully it wasn’t a “rabbit-foot” close, as another trip above 15 would be bearish. The bulls are safe until the VIX fails to hold 17.50. Another dip below 13.50 would confirm higher highs are in store.

Futures gapped down on Friday’s jobs report, with Dow futures dropping 165 points to 17,511. This suggests a gap lower for the market this morning.

I did a ton of detailed chart work last Monday to explain and show you the current market environment. The “trading ranges” for the indices are highlighted in the green boxes on the charts. As a review, the levels that need to hold are:

Downside ranges for a possible breakdown or additional selling pressure:

Dow: 17,600
S&P: 2,040
Nasdaq: 4,800
Russell: 1,200

Upside ranges for a possible rebound or breakout:

Dow: 18,200
S&P: 2,120
Nasdaq: 5,000
Russell: 1,260

I have purposely kept the portfolio “light” as I prepared us for the possible upcoming fork in the road. March was an incredibly choppy month that produced a continued trading range that is still unsettled. I took profits when they were available and have not tried to rush trading the trading range that has developed since the start of February.

Trading ranges are difficult to trade, which is why the portfolio is light. There will come a time where I will suggest short positions, or put options, at some point this year, but I’m still uncomfortable shorting the market until all my technical indicators turn bearish. This could happen this week or next, or in May, but I’m still hanging with the bulls until there is further confirmation that a top is in.

Although the trading ranges are holding, they could crack or get stretched, so I will be watching for additional warning signs. Remember, the longer the trading range, the bigger the breakout or breakdown in a stock (or index) will be.

One troubling development was the Transports, as they closed below their 200-day moving average on Thursday.

The Dow Jones Transportation Average ($TRAN, 8,606, down 67) closed just above 8,600 but, it could test 8,350-8,300 on continued weakness. The 8,600 level has held since mid-December, but the index did spend a few days below the 200-day moving average in October of 2014.

I wouldn’t be surprised to see continued weakness in the Transports this week, and we will have to see where a bottom might lie. A recovery of the 8,800-9,000 level would be bullish.

The financial stocks will also need to show continued strength. I will be watching the Financial Select SPDR (XLF, $24.21, up $0.12) for bullish or bearish clues, as the index is currently holding its 50-day moving average.

A “death cross” formed in mid-March, with the 50-day moving average breaking below the 100-day moving average. However, the process is reversing itself with the transition into a “golden cross.” Resistance is at $24.50-$24.75, with a close above the latter confirming a possible breakout. Support is at $24, but closes below $23.75 would upset the progression of this bullish development.

I’m also keeping a close eye on the PowerShares QQQ Trust (QQQ, $105.12, up $0.07). Last week’s chart showed that a move above $106 would be bullish, while a close below $103.50-$103 would be bearish.

I could use the QQQ options, along with the IWM calls/puts, to play a breakout (or breakdown) on the Nasdaq or Russell 2000, so stay tuned to your email inboxes all week. I could open bullish positions if all of the support levels I follow hold. I could start fresh short positions if the bears are for real this time and my indicators turn bearish.

My best guess is that this week could see a test to the bottom of the trading ranges, with some downside stretch if Monday’s win goes to the bears. If the bulls can hold the aforementioned downside targets and the VIX can hold 17.50, the current choppiness could continue.

Next week is the start of first-quarter earnings season, which is when the rubber will really meet the road. Expectations are super low for corporate America, so hopefully there will be some upside surprises and rosy outlooks for 2015.

It feels like the time to go short is approaching, but I’ve learned in life that when too many riders are leaning to one side, the boat usually capsizes. There has been a lot of money lost by the slick-talking pros trying to go short.

Betting against the bulls hasn’t been the best idea in three years. I know that trading ranges can be frustrating. However, by following the charts and watching the sentiment, we are in great shape to build out our next batch of trades.

The goal is to stay calm this week and to let the dust settle from the two-month trading range that has been keeping both the bulls and bears at bay. Once the all-clear signs are flashed, we will take action. The first quarter was incredibly busy and profitable, so the last thing we want to do is to give away profits.

From desk to press, futures look like this: Dow (-132); S&P 500 (-16); Nasdaq 100 (-33.5).

Momentum Options Play List

Closed Momentum Options Trades for 2015: 31-9-1 (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.

Rigel Pharmaceuticals (RIGL, $3.64, down $0.11)

RIGL June 5 calls (RIGL150619C00005000, $0.40, flat)

Entry Price: $0.25 (3/31/2015)

Exit Target: $0.75-$1.00

Return: 60%

Stop Target: None

Action: Shares reached $3.80 on Thursday. Resistance is at $3.80, followed by $4. The 52-week high is at $4.20. Support is at $3.40.

You can read more on this trade in the April 1 Pre-Market Update.

Cypress Semiconductor (CY, $13.86, down $0.06)

CY June 16 calls (CY150619C00016000, $0.35, down $0.02)

Entry Price: $0.75 (3/18/2015)

Exit Target: $1.50

Return: -53%

Stop Target: None

Action: Support is at $13.75 and the 100-day moving average. A close below $13.50 would be bearish. Resistance is at $14, followed by $14.25-$14.50.

Trades on Hold — other 2015 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 Open Trades and Closed Trades pages to see all open and closed positions.

Yahoo! (YHOO) April 47 calls (from February 2015) — Earnings are due out on April 21, which is after these options expire. If shares can’t clear $45 by Friday, I will likely exit the trade — Continue to hold.