Dear Momentum Options Subscriber,
The bears snapped a two-session winning streak on Tuesday as they made their first appearance in May. Their return was expected, however, as resistance and the top of the trading ranges continue to hold ahead of Friday’s nonfarm payroll report.
The bulls are trying to hold the major moving averages and the bottom of the trading ranges, but further weakness could trigger another fresh round of selling pressure.
The Dow dropped 142 points, or 0.8%, to close at 17,928. The blue-chips opened lower but traded up to 18,086 to test resistance at 18,100. The 16-point gain quickly faded, as the bears cracked 18,000 to push a low of 17,905. The close below the 50-day moving average was slightly bearish and keeps 17,800 and possibly 17,600 in play.
The S&P 500 sank 25 points, or 1.2%, to finish at 2,089. The index tried to make a run to resistance at 2,115-2,125 but started to pull back once the lower end of the range was tested. Support at 2,100-2,090 and the 50-day moving average failed to hold following a low of 2,088. There is additional risk to 2,075-2,070 on continued weakness. Resistance is at 2,100 again.
The Nasdaq tumbled 77 points, or 1.6%, to end at 4,939. Tech traded in negative territory throughout the session after opening at 5,000 and struggling to reach 5,008. The elevator drop to 4,934 breached several layers of support. I mentioned at the beginning of the week that another close below 4,950 and the 50-day moving average would be a bearish development. Backup support at 4,900 held, and there is further help at 4,850 and the 100-day moving average. Resistance is at 4,975-5,000.
The Russell 2000 stumbled 18 points, or 1.4%, to settle at 1,215. The small-caps failed at making a run to resistance at 1,240, as the one-point pop to 1,234 on the open looked weak. Support at 1,225-1,220 and the 100-day moving average failed during the first half of trading, with backup at 1,215-1,210 being tested in the second half. The bears pushed a low of 1,211 and are just over 1% away from getting below the 1,200 level. Resistance is at 1,220-1,225.
The S&P 500 Volatility Index ($VIX, 14.31, up 1.46) soared 11% and stayed elevated throughout the session after reaching a peak of 14.41. The bulls held the 15 level once again but are playing with fire. A close back below 13.50-12.50 would stem yesterday’s damage.
I have raised the stop limit on our KKD trade and, while I didn’t like the price action in LLNW yesterday, I have left its stop limit unchanged.
From desk to press, futures look like this: Dow (+67); S&P 500 (+7); Nasdaq 100 (+5).
Momentum Options Play List
Closed Momentum Options Trades for 2015: 46-14-1 (75%). 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 8:30 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.
Wells Fargo (WFC, $55.72, down $0.01)
WFC June 57.50 calls (WFC150619C00057500, $0.35, flat)
Entry Price: $0.31 (5/4/2015)
Exit Target: $0.65
Return: 13%
Stop Target: None
Action: Shares traded to a high of $56.20 on Tuesday before finishing a penny lower. The 52-week high is at $56.26. Support is at $55-$54.75. The options reached a high of $0.45 yesterday.
Limelight Networks (LLNW, $3.95, down $0.23)
LLNW September 4 calls (LLNW150918C00004000, $0.50, down $0.05)
Entry Price: $0.35 (4/29/2015)
Exit Target: $0.80 (Limit Order on half)
Return: 43%
Stop Target: $0.40 (Stop Limit)
Action: Shares fell below support at $4 to test a low of $3.93. There is further risk to $3.80-$3.75 on continued weakness. Resistance is at $4.00-$4.20.
You can read my full update on LLNW in the May 1 Pre-Market Update.
Krispy Kreme Doughnuts (KKD, $17.54, down $0.60)
KKD June 17 puts (KKD150619P00017000, $0.80, up $0.20)
Entry Price: $0.35 (4/28/2015)
Exit Target: $1.05 (closed first half at $0.70 on 4/29/2015)
Return: 114%
Stop Target: $0.50, raise to $0.60 (Stop Limit)
Action: Raise the Stop Limit from $0.50 to $0.60 on the second half of the trade.
The bears pushed support at $17.50 on yesterday’s drop below $18. The low reached $17.34, and I would love to see a close below $17 ahead of the weekend. Resistance is at $17.75-$18.
Earnings are due out the first week of June. I have a target of $15 for KKD going into, or after the announcement, as long as $18.50 holds.
You can read my full update on KKD in the April 29 Pre-Market Update.
Opko Health (OPK, $13.88, down $0.39)
OPK June 16 calls (OPK150619C00016000, $0.30, down $0.10)
Entry Price: $0.50 (4/27/2015)
Exit Target: $1.00
Return: -40%
Stop Target: None
Action: Support is at $13.75-$13.50 on a continued pullback. Resistance is at $14-$14.25. Shares traded lower following news that the company acquired EirGen Pharma yesterday.
Earnings are scheduled to be released this week or early next. I have an unconfirmed date of this Friday. Analysts are looking for a loss of $0.08 a share on revenue of $23 million. I believe OPK will top these numbers.
Dot Hill Systems (HILL, $6.61, up $0.17)
HILL September 7.50 calls (HILL150918C00007500, $0.55, up $0.05)
Entry Price: $0.45 (4/20/2015)
Exit Target: $1.35-$1.80
Return: 22%
Stop Target: None
Action: Shares cleared resistance at $6.50-$6.75 after trading to a fresh 52-week high of $6.83 on Tuesday. Near-term support is at $6.25 if $6.50 fails to hold.
Earnings are estimated to be released tomorrow, May 7. Wall Street is expecting a profit of $0.06 a share on revenue north of $59 million. The company has beaten or matched estimates the past four quarters, and another upside surprise could have shares pushing $7. There is risk back to $6 on an earnings miss or lowered guidance.
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.
SunPower (SPWR) June 38 calls (from April 2015) — I will likely close this trade if support at $30 fails. Resistance is at $32.50 — Continue to hold.
iShares Russell 2000 (IWM) May 127 calls (from April 2015) — I would like to be out of this trade by this Friday, win, lose or draw — 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.
Trade on!
Rick Rouse
Editor and Chief Options Strategist
Momentum Options