Dear Momentum Options Subscriber,
The bears showed up to ruin the Nasdaq’s 15-year anniversary of its all-time high on Tuesday, and they cracked key levels of support in the process.
The Dow dropped 332 points, or 1.9%, to end at 17,662. The blue-chips traded in negative territory throughout the session and closed at their low. The break below 17,800 and the 50-day moving average was bearish and opens the door for additional risk to 17,600 and the 100-day moving average. A close below this level could lead to 17,350-17,250. Resistance is at 17,800-17,900 over the near term.
The S&P 500 skidded 35 points, or 1.7%, to settle at 2,044. The index opened at 2,076 but failed to hold 2,075-2,067, as the selling pressure increased throughout the day. I mentioned that a drop below the 50-day moving average could lead to a test to 2,050. The bulls held the 100-day moving average at 2,040, but a close below this level will likely lead to 2,025-2,000. Resistance is at 2,050-2,060.
The Nasdaq tumbled 82 points, or 1.7%, to close at 4,859. Tech opened below the 4,900 level by a point, which immediately indicated that further weakness to 4,850 would be in store. The bears nearly cleared this level as well, with the index closing at its session low. There is further risk to 4,800-4,775 and the 50-day moving average if that level is breached. The bulls will be looking to reclaim 4,900 over the near term.
The Russell 2000 stumbled 15 points, or 1.2%, to finish at 1,208. The small-caps opened with a 10-point loss below support at 1,225-1,220. The index tested a low 1,206 but held the 50-day moving average by 3 points. A close below 1,200 will likely lead to 1,180-1,175 and the 100-day moving average. Resistance is at 1,215-1,220, and a close above 1,225 is needed to reverse a possible bearish trend developing.
The S&P 500 Volatility Index ($VIX, 16.69, up 1.63) jumped 11% after reaching a peak of 16.91. The bulls held 17.50, but a close above this level will likely get 20-22 in play. The bears will be trying to hold 15 for the rest of the week to keep the momentum.
The portfolio is light at the moment, as there are only eight open trades. I mentioned that I would like to be at five open trades by the end of the week, and we should be at 5-6 depending on our earnings trade.
While predicting market tops and market bottoms is never easy, I wanted to be “light” while holding a few open bullish positions.
The first round of trades from January through March have performed extremely well, and I mentioned that we would need to be patient during the current volatility. I try to cut the trading years into quarters to focus on the finish line, and we are off to a great start.
I also made it a point not to open new trades with March expirations coming off of the February highs because I did expect some type of a bull breather.
The current dust needs to settle this week, but it is too early to “load up” on bearish positions. I am still hopeful that we can squeeze a profit out of our PM trade. The KKD trade carries risk with earnings, and the stock is a Wall Street favorite.
I could open additional bearish positions on continued weakness, but let’s see how the rest of the week plays out while holding our cards close to the vest.
From desk to press, futures look like this: Dow (+42); S&P 500 (+6); Nasdaq 100 (+10).
Momentum Options Play List
Closed Momentum Options Trades for 2015: 21-5-1 (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 8:30 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.
Krispy Kreme Doughnuts (KKD, $20.36, down $0.42)
KKD April 20 puts (KKD150417P00020000, $1.05, up $0.27)
Entry Price: $0.95 (3/10/2015)
Exit Target: $1.90
Return: 11%
Stop Target: None
Action: Earnings are due to be released after the close. I’m expecting a possible test to $18 or a rebound to $22.
You can read my earnings preview for KKD in last Friday’s Mid-Market Update.
Yahoo! (YHOO, $42.67, down $0.31)
YHOO April 47 calls (YHOO150417C00047000, $0.38, down $0.02)
Entry Price: $0.80 (2/26/2015)
Exit Target: $1.60
Return: -53%
Stop Target: None
Action: Support is at $43-$42 and the 200-day moving average. A close below the latter could get $40 into play. Resistance at $43.50-$45.
Western Union (WU, $19.38, down $0.19)
WU April 20 calls (WU150417C00020000, $0.35, flat)
Entry Price: $0.36 (2/25/2015)
Exit Target: $0.75
Return: -3%
Stop Target: None
Action: These options traded nearly 6,500 contracts on Tuesday. The action is suggesting that a run back above $20 is coming despite yesterday’s pullback.
Support is at $19.25-$19 on continued weakness. Resistance is at $19.50-$19.75.
American Express (AXP, $79.11, down $1.40)
AXP April 87.50 calls (AXP150417C00087500, $0.15, down $0.05)
Entry Price: $0.56 (2/25/2015)
Exit Target: $1.15
Return: -73%
Stop Target: None
Action: Support is at $78 following the close below $80. This level will serve as short-term resistance.
Flextronics (FLEX, $11.41, down $0.24)
FLEX April 12 calls (FLEX150417C00012000, $0.17, down $0.08)
Entry Price: $0.67 (2/24/2015)
Exit Target: $1.35
Return: -75%
Stop Target: None
Action: Support at $11.50 and the 50-day moving average was breached. Additional support is at $11.25, but a break below this level could lead to $11 and a test of the 100- and 200-day moving averages. Resistance is at $11.75-$12.
Marvell Technology (MRVL, $16.32, down $0.18)
MRVL May 18 calls (MRVL150515C00018000, $0.40, down $0.05)
Entry Price: $0.50 (2/18/2015)
Exit Target: $1.00
Return: -20%
Stop Target: None
Action: Near-term support is at $16.25-$16 on a continued backtest. A close below the latter could lead to $15.75 and the 50-day moving average. Resistance is at $16.75-$17.
Trades on Hold — other 2015 Portfolio Open positions (2): 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.
Philip Morris (PM) March 75 puts (From January 2015) — Keep the Limit Order to sell to close the position at $0.95 in place — Continue to hold.
BlackBerry (BBRY) June 13 calls (from March 2015) — Continue to hold.
Trade on!
Rick Rouse
Editor and Chief Options Strategist
Momentum Options