Bulls Looking Healthy but Bears are Hungry

Dear Momentum Options Subscriber,

Geopolitical concerns overshadowed earnings and economic news last week as the bulls and bears battled over near-term support and resistance levels.

The top of the trading ranges stayed intact, and the higher highs and higher lows were bullish leading into Thursday’s action.

Greece was the word that was worrying Wall Street last week, along with the ongoing saber-rattling between Ukraine and Russia. However, these issues eased after Thursday’s close and into the three-day weekend as the bulls reached fresh all-time highs.

The Dow advanced 47 points, or 0.3%, to end at 18,019 on Friday. The blue-chips traded to a high of 18,037 shortly after the open before a late-day fade to 17,961. The bulls cleared resistance at 17,900-18,000 but fell just shy of the all-time high of 18,103 reached on Dec. 26, 2014. Once cleared, a run to 18,300-18,500 could come on an overshoot. Fresh support is at 17,800-17,600 and the 50-day moving average.

The S&P 500 advanced 8 points, or 0.4%, to settle just below 2,097. The index went out near its session high following an intraday dip to 2,086. The bulls powered past the previous all-time high of 2,093 and came within a stone’s throw of tripping 2,100. Continued closes above this level could lead to 2,125-2,150 over the near term. Support is moving up and now lies at 2,075-2,050 on a pullback. A close below 2,040 and the 50-day moving average might signal a short-term top is in.

The Nasdaq soared 36 points, or 0.8%, to close just under 4,894. Tech took a little while to get going but held positive territory and the 4,850 level during the first half of trading. The bulls made a serious run at 4,900 ahead of the weekend and remain on track to trip 5,000. Continued closes above this level could lead to 5,050-5,100. The all-time was reached in March 2000 following an intraday high of 5,132.52 and an all-time closing high of 5,048. Support is at 4,850-4,800. A close below the latter could lead to a quick test to 4,725-4,700 and the 50-day moving average.

The Russell 2000 advanced 6 points, or 0.6%, to finish at 1,223. The small-caps tested the previous all-time high of 1,221 on the open before a drop to 1,215 shortly afterwards. The one-point drop and reversal to 1,220 lasted into the second half of trading before a final hour surge to an all-time intraday high of 1,223.74. Continued closes above 1,225 should lead to a short-term climb to 1,235-1,250. The bulls will try to hold 1,215-1,210 on weakness, and any dips back below 1,200 need to be watched. Additional support is at 1,190-1,185 and the 50-day moving average.

The S&P 500 Volatility Index ($VIX, 14.69, down 0.65) dropped 4% and closed below 15 for the first time in 2015. I mentioned that a close below 15 would confirm higher highs, and the bulls made me look good on that prediction. The next layer the VIX needs to get below is 13.50-12.50, which are levels I believe can be reached over the near term. The bears will be looking to force the action back above 15, and any spikes past 17.50-18.50 would signal a change in momentum.

The problems with Greece are nothing new, as the country seems to get a yearly bailout from its European creditors, but they do worry Wall Street. Coming into last week, the fear was that Greece would leave the eurozone once again, but it softened its stance after agreeing to enter negotiations with its international lenders.

The ceasefire agreement between Ukraine and Russia was also good news and gave the bulls additional firepower. While doubts remain on how quickly Greece can reach a deal or how long cooler heads can prevail, it was enough to get the bulls over the hump.

There have been predictions and debates as to whether oil can test the $20 level at some point this year, but I would be shocked if it does. It would be great for gas prices, as a gallon of gas might push $1.00 if that were the case. While some of the bigger conglomerates say lower oil prices won’t help them out for another six months, I think they were underestimating and sand-bagging their numbers for future quarters and year-end guidance.

I covered Brent Oil ($BRENT, $61.58, up $2.19) last week and mentioned that a bottom may have formed with near-term support at $55. The close above $60 and the 50-day moving average could quiet talk of $40 oil, or even $20 oil, for a while.

The Financial Select SPDR (XLF, $24.43, down $0.02) showed continued strength last week after holding the 50-day moving average and making a move past $24.50. There is additional resistance at $24.75-$25, and a close above the latter would signal a possible breakout.

The XLF March 25 calls (XLF150320C00025000, $0.21, down $0.01) were at $0.17 coming into last week, and I mentioned that they were a “cheap” way to play a rebound. The 52-week high for the XLF is at $25.14. At $25.34, these options would double from their profiled price if this level were reached by mid-March.

American Express (AXP, $78.08, down $2.40) fell another 3% on Friday following Thursday’s 6% drop from $86 to $80. Shares have been punished following the news that Costco Wholesale (COST, $147.10, down $0.66) and the company would end their 15-year long merchant acceptance agreement. While shares are starting to look attractive at current levels, there is further risk to $75 on a close below $78.

The Dow traded to a low of 17,037 on Feb. 3 intraday and coming into the month I said to expect a 1,000-point move. With the index reaching a high of 18,037 on Friday, I would say that prediction was pretty accurate.

I would like to see a continued run to all-time highs for the rest of February, but I also mentioned that it’s a tricky month to trade. Fortunately, I’ve been nimble during the four-month trading range and didn’t fall for the catcalls for a complete selloff following the October, December and January pullbacks.

I have said all along that the bulls have not come this far not to challenge the all-time high in Tech. While the catcalls for Nasdaq 5,000 will come quickly, I will be more interested in the Nasdaq’s run to 5,500-6,000 this year.

I usually make my “official” year-end market predictions in February and, for the past two years, they have been money. I predicted the Dow’s move from 13,000 to 16,000 in 2013 and the S&P’s run from 1,848 to nearly 2,100 last year.

I will cover the 10-year charts in more detail next week, but I covered them in early December, and again in January, and gave these upside targets for the major indexes in 2015:

S&P 500: 2,300-2,400
Dow: 19,000-20,000
Nasdaq: 6,000
Russell: 1,300-1,400/1,450

The suit-and-ties will be under pressure to get back on the bull bandwagon, as I have said that fund managers will need to start showing performance. However, I’m a little worried there could be a week or two of consolidation before another run higher.

The day after President’s Day has been bearish in recent years, and this is February option expiration week. February expiration day (this Friday, Feb. 20) has been a bull-killer during the past 15 years, as the tech sector has fallen in 12 of them. This is an 80% win rate for the bears during this time frame.

A higher close for the indexes today, a continued decline in the VIX and another up-Friday would signal continued bullish momentum this week and a run to the upper near-term targets I have listed for the indexes.

A lower Tuesday and Friday, along with a rising VIX, could signal another week or two of a continued trading range.

From desk to press, futures look like this: Dow (+4); S&P 500 (-1); Nasdaq 100 (+7).

Momentum Options Play List

Closed Momentum Options Trades for 2015: 8-0 (100%). 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.

Western Union (WU, $19.02, up $0.71)

WU March 19 calls (WU150320C00019000, $0.50, up $0.25)

Entry Price: $0.40 (2/13/2015)

Exit Target: $0.80

Return: 25%

Stop Target: None

Action: Shares cleared $19 into Friday’s close after ending at its session high.

The company recently beat Wall Street’s earnings expectations by $0.08 after reporting earnings of $0.42 a share on revenue of $1.47 billion. This represented the fourth-straight quarter WU has beat or matched Wall Street’s expectations.

For 2014, the company posted a profit of $1.59 a share versus forecasts for $1.50 a share. The results represented a year-over-year earnings improvement of 11%. For 2015, WU is expecting earnings between $1.58-$1.65 a share.

The company upped its quarterly dividend by 24% to $0.155 cents, or $0.62 per year. The next payout is scheduled for the end of March to investors that own the stock by St. Patrick’s Day.

Western Union’s management also realized its shares were undervalued and signed-off on a new $1.2 billion three-year share repurchase program. This shows faith in the company’s improving fundamentals.

Near-term support is at $18.50-$18.25 on a pullback. A close below $18-$17.75 and the 50-day moving average would suggest momentum has peaked.

The six-year chart shows clear resistance at $20 with room for a run to $22.

The 10-year chart shows a surge to $24-$27 could come if $22 clears.

The WU February 19 calls (WU150220C00019000, $0.25, up $0.17) traded nearly 3,000 contracts on Friday, while our March call options traded close to 3,400 contracts.

Brocade Communications Systems (BRCD, $12.56, up $0.50)

BRCD March 13 calls (BRCD150320C00013000, $0.33, up $0.14)

Entry Price: $0.24 (2/13/2015)

Exit Target: $0.50-$0.75

Return: 38%

Stop Target: None

BRCD April 12 calls (BRCD150417C00012000, $0.95, up $0.30)

Entry Price: $0.80 (12/31/2014)

Exit Target: $1.60

Return: 19%

Stop Target: None

Action: I normally don’t “double-down” on a trade or open new trades ahead of a three-day weekend, but I wanted to take advantage of the run to fresh highs on Friday.

The previous 52-week high was $12.43, and shares closed a penny off of their session high. Brocade is at multi-year highs, but, before I show you the longer-term chart, here is the short-term snapshot:

Near-term support is at $12.25-$12 on a pullback, with additional help at $11.75 and the 50-day moving average.

The 20-year chart is what’s exciting about this trade. However, don’t get too giddy about the breakout north of $100 way back when because I doubt shares are headed anywhere near that level anytime soon. However, I do believe a run to the mid-teens could be coming.

Earnings are due this Thursday, and Wall Street is looking for a profit of $0.24 a share on revenue just south of $570 million. The spread on the high/low estimate is $0.23-$0.25. This could mean a penny beat or miss.

Over the past four quarters, the company has topped or matched expectations by $0.01, $0.04, $0.00 and $0.04, respectively. The high estimate on revenues is $573 million, so I’d like to see an earnings beat with sales north of $575 million. Raised guidance for the current quarter would also be nice.

An earnings miss could have a negative impact on the stock.

I have listed two exit targets on the BRCD March 13 calls. I would like to close half of the trade ahead of earnings at $0.50 and hopefully the other half at $0.75 in March on a breakout past $13.

The BRCD April 12 calls will also do well if shares continue higher, and we can close part of the trade on an initial move higher as well.

Sony (SNE, $27.30, up $0.19)

SNE March 28 calls (SNE150320C00028000, $0.75, up $0.05)

Entry Price: $0.60 (2/12/2015)

Exit Target: $1.80

Return: 25%

Stop Target: None

Action: Shares traded to another 52-week peak of $27.46 on Friday. I have a near-term target of $30 for the stock. Support is at $27-$26. A close below $25 would suggest momentum is fading.

Boston Scientific (BSX, $14.98, up $0.24)

BSX March 15 calls (BSX150320C00015000, $0.55, up $0.12)

Entry Price: $0.45 (2/10/2015)

Exit Target: $0.90

Return: 22%

Stop Target: None

Action: Shares kissed $15 on Friday. A close above this level gets the 52-week peak at $15.28 in play. Support is at $14.75-$14.50.

The 10-year chart shows that the next layers of resistance are between $17-$18 if $15.50 clears.

AT&T (T, $34.66, up $0.05)

T March 36 calls (T150320C00036000, $0.15, flat)

Entry Price: $0.26 (2/6/2015)

Exit Target: $0.75

Return: -42%

Stop Target: None

Action: Shares traded to $35.07 last week but finished below resistance at $35. My near-term target is calling for a run to $37 by mid-March. The 52-week high is at $37.48. Support is at $34.25-$34 and the 200-day moving average.

CBOE Holdings (CBOE, $63.01, up $0.84)

CBOE March 67.50 calls (CBOE150320C00067500, $0.25, flat)

Entry Price: $0.80 (2/4/2015)

Exit Target: $0.60 on second half (Limit Order), (closed half at $1.10 on 2/5/15)

Return: -16%

Stop Target: None

Action: A close above $64 and the 50-day moving average would be bullish. Friday’s peak reached $63.15. Support is at $61 and the 100-day moving average. A close below these levels could force me to exit the trade for a slight loss.

Marvell Technology (MRVL, $16.59, up $0.08)

MRVL March 17 calls (MRVL150320C00017000, $0.70, flat)

Entry Price: $0.50 (2/3/2015)

Exit Target: $1.00

Return: 40%

Stop Target: $0.55 (Stop Limit)

Action: Set a Stop Limit of $0.55 to protect profits.

Shares touched a 52-week high of $16.75 on Friday. A close above this level should get $17-$17.25 in play. A “golden cross” has formed in the chart, and a run to $20 could be coming if the aforementioned resistance levels are cleared. Support is at $16.25-$16.

The 10-year chart shows multi-year resistance at $20.

Hilton Worldwide Holdings (HLT, $28.57, up $0.13)

HLT April 29 calls (HLT150417C00029000, $1.00, flat)

Entry Price: $0.40 (1/8/2015)

Exit Target: $1.20 (closed half at $0.80 on 2/11/15)

Return: 125%

Stop Target: $0.70 (Stop Limit)

Action: Shares traded to another multi-year and all-time high of $28.94 on Friday. My near-term target is $29-$30. A close below $28.25-$28 and fresh support will likely trigger the $0.70 Stop Limit. Earnings are due out on Wednesday. I could close the trade ahead of the announcement depending on how today’s action plays out.

Veeva Systems (VEEV, $30.12, up $0.17)

VEEV February 31 calls (VEEV150220C00031000, $0.25, flat)

Entry Price: $0.75 (1/8/2015)

Exit Target: $1.50

Return: -67%

Stop Target: None

Action: The break-even point for the trade is at $31.75. Support is at $28 on a close below $29.50. Resistance is at $31-$32. The options expire this Friday and will be worthless if shares stay below $31.

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.

JDS Uniphase (JDSU) March 14 calls (From January 2015) — JDSU reclaimed its 100-day moving average last week and traded up to $13.29 on Friday. A close above $13.40 and the 50-day moving average would be bullish for a run to $13.75-$14. Support is $13-$12.80 on weakness — Continue to hold.