Dear Momentum Options Subscriber,
Futures were strong throughout the night and into this morning’s open as the bulls got off to a strong start. The upper levels of resistance were pushed on the opening pop, but the enthusiasm has faded heading into the second half of trading.
Shares of Harley-Davidson (HOG, $56.42, down $5.35) are down nearly 9% near their 52-week low following the release of the company’s earnings report this morning. The company reported a profit of $1.27 a share on revenue of $1.67 billion, which topped Wall Street’s expectations. The suit-and-ties were looking for $1.25 share on sales of $1.58 billion.
Despite the earnings beat, management had a negative tone on their conference call and said that motorcycle sales for the current quarter are down 1.3%. They also blamed a lousy foreign currency exchange, as year-over-year results were down, and said that sales are being impacted by weather and competitive prices.
The 52-week low for HOG is $54.22, which could be challenged on continued weakness. The company intends to protect its premium brand and will not resort to the price-slashing tactics used by its competitors to rev up sales.
As a Harley shareholder, I’m glad to see management take a stance, but I also know profits move stocks. I would like to see current levels hold, but, if shares fall into the $40s, I could be adding to my retirement position. I could also use longer-term leap options to play a rebound into 2016, but the dust needs to settle first before I commit new money.
In other earnings news, Yahoo! (YHOO, $44.74, up $0.08) and Yum! Brands (YUM, $80.64, down $0.45) will confess their quarterly numbers after today’s close. Yahoo! is expected to post a profit of $0.18 on revenue of $1.06 billion. Yum is expected to post a profit of $0.72 a share on sales of $2.64 billion.
Heading into the second half of trading, the Dow is down 50 points to 17,984, while the S&P 500 is up fractionally at 2,100. The Nasdaq is gaining 28 points to 5,023, and the Russell 2000 is higher by a point to 1,266.
I usually don’t take too many earnings trades because too many factors have to go right for them to pay off. However, with extended research, they can provide big paydays. With the portfolio relatively light at the moment, I can press the action a little, but I’m more interested in playing the next trend once the market breaks out of its trading range.
I took a swing on an earnings trade yesterday, and we knocked it out of the park. I could have another trade ahead of the close, but I’m still doing the research and running the numbers. For now, let’s go check on the current action.
Momentum Options Play List
Closed Momentum Options Trades for 2015: 40-11-1 (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 1:35 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.
Dot Hill Systems (HILL, $6.46, down $0.07)
HILL September 7.50 calls (HILL150918C00007500, $0.55, down $0.05)
Entry Price: $0.45 (4/20/2015)
Exit Target: $1.35-$1.80
Return: 22%
Stop Target: None
Action: Support is at $6-$5.80 on dips below $6.25. Resistance is at $6.50-$6.75.
You can read my earnings outlook and review the stock’s chart in this morning’s Pre-Market Update.
Sony (SNE, $30.76, up $0.40)
SNE May 32 calls (SNE150515C00032000, $0.65, up $0.10)
Entry Price: $0.50 (4/20/2015)
Exit Target: $1.00
Return: 30%
Stop Target: None
Action: Support is at $30-$29.50. Resistance is at $32. A close above this level into earnings would be bullish for a run at $35. The recent 52-week high is at $31.77.
Earnings are due out on April 30. You can read my outlook on what to expect in the April 7 Mid-Market Update.
Rambus (RMBS, $14.24, up $1.47)
RMBS August 14 calls (RMBS150821C00014000, $1.20, up $0.55)
Entry Price: $0.65 (4/20/2015)
Exit Target: $1.30, raise to $1.70 (closed first half at $1.30 on 4/21/15)
Return: 92%
Stop Target: $0.75 (Stop Limit)
Action: Raise the Exit Target to $1.70 on the second half of the trade.
Shares have traded to a high of $14.51 today. I would like to see $14.25-$14 hold into the close.
PowerShares QQQ Trust (QQQ, $108.29, up $0.69)
QQQ May 110 calls (QQQ150515C00110000, $0.60, up $0.15)
Entry Price: $0.60 (4/10/2015)
Exit Target: $1.20
Return: 0%
Stop Target: None
Action: The QQQs have traded to a high of $108.41 today. Resistance is at $108-$108.50, and a close above the latter would be bullish. Support is at $106.
Jabil Circuit (JBL, $23.45, up $0.11)
JBL May 24 calls (JBL150515C00024000, $0.30, flat)
Entry Price: $0.60 (4/10/2015)
Exit Target: $1.20
Return: -50%
Stop Target: None
Action: Today’s peak has reached $23.57. Resistance is at $23.50-$24. Support is at $23.
Rigel Pharmaceuticals (RIGL, $4.22, up $0.07)
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: Resistance is at $4.20-$4.25. Continued closes above these levels would be bullish for a possible run to $4.50-$5. Support is at $3.80-$3.60 on a close below $4.
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) — The sector could see heated M&A activity in the coming months, and MRVL tends to move on takeover chatter — Continue to hold.
BlackBerry (BBRY) June 13 calls (from March 2015) — This is a speculation trade from early March on BBRY receiving a takeover offer of $14 or better by mid-June — Continue to hold.
Cypress Semiconductor (CY) June 16 calls (from March 2015) — Earnings are due out next Thursday, April 30 — Continue to hold.
Trade on!
Rick Rouse
Editor and Chief Options Strategist
Momentum Options