Dear Momentum Options Subscriber,
The bulls recovered most of Friday’s losses and reclaimed resistance during Monday’s snapback rally. The bears are still lingering, however, and fresh support is just a sneeze away. The action should heat up throughout the week, with some of the larger blue-chip companies and a number of marquee tech names scheduled to report earnings.
The Dow jumped 208 points, or 1.2%, to end just below 18,035. The blue-chips traded in positive territory throughout the session after opening at 17,841 and racing past resistance at 18,000 shortly after the open. The run to 18,092 and close above 18,000 gets 18,100-18,200 back in play. Support is at 17,900-17,800 on another drop below 18,000.
The S&P 500 surged 19 points, or 0.9%, to settle at 2,100. The index cleared resistance at 2,090-2,100 and held the latter into the close after peaking at 2,103. Further resistance is at 2,110-2,120. The 52-week and all-time high is north of 2,119. Support is at 2,080-2,075.
The Nasdaq zoomed higher by 62 points, or 1.3%, to close at 4,994. Tech made a run to short-term resistance at 4,975-5,000 after posting an intraday high right at 5,000. The bulls failed to hold this level, but fresh support at 4,975-4,950 stayed firm into the close.
The Russell 2000 rumbled higher by 13 points, or 1%, to finish just under 1,265. The small-caps opened at 1,257 and powered past resistance at 1,260 an hour into the session. The index reached a peak just below 1,267, and the next hurdles are at 1,270-1,275. Support is at 1,250-1,240.
The S&P 500 Volatility Index ($VIX, 13.30, down 0.59) fell 4% and closed back below 13.50. The bulls pushed a low of 12.83 and still need to get below the 12.50 level before flexing their muscles. The bears will be trying to regain 13.50, but I’m not concerned about them until 15-17.50 comes back into play.
I have updated the Exit Targets for yesterday’s new trades below. There are no Stop Limits at this time.
From desk to press, futures look like this: Dow (+88); S&P 500 (+10); Nasdaq 100 (+23).
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 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.
Dot Hill Systems (HILL, $6.53, up $0.41)
HILL September 7.50 calls (HILL150918C00007500, $0.60, up $0.30)
Entry Price: $0.45 (4/20/2015)
Exit Target: $1.35-$1.80
Return: 33%
Stop Target: None
Action: The Exit Target is set at $1.35-$1.80, but it is not a Limit Order. Shares are pushing fresh 52-week highs, and the next level of longer-term resistance is at $7. Support is at $6-$5.80 on dips below $6.25.
Earnings are due out on May 7. Wall Street is expecting $0.06 a share on revenue of $58.9 million. Last week, the company narrowed its earnings for the first quarter to $0.06 a share, from a previous range of $0.04-$0.07, on revenue of $60-$60.5 million.
The company has matched or beat expectations in the past four quarters, and the higher revenue forecast is a positive sign. In March, the company said that 2015 earnings would come in at $0.25-$0.35 per share on revenue of $230-$270 million. Analysts have penciled in $0.29 a share on revenue just over $246 million this year.
Shares have been in a strong uptrend all year and could easily make a run at $8-$10 by mid-September on continued momentum. The 15-year chart shows resistance at $8-$10.
The downside to the trade will be if shares stay below $7.50, as these calls will expire out of the money or nearly worthless if a run past this level doesn’t come. I mentioned that support is at $6 on a backtest, followed by $5.80. I like the trade as long as $5.50 holds.
The company currently sports a market cap just under $400 million and could become a takeover target based on its software technology. Continued earnings beats and raised guidance will be crucial in maintaining the rally in the stock. I have set aggressive exit targets that represent 200%-300% returns, but they could get raised or lowered based on the action.
Sony (SNE, $30.36, up $0.35)
SNE May 32 calls (SNE150515C00032000, $0.55, up $0.15)
Entry Price: $0.50 (4/20/2015)
Exit Target: $1.00
Return: 10%
Stop Target: None
Action: The Exit Target is set at $1.00, but it is not a Limit Order. 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, $12.77, down $0.14)
RMBS August 14 calls (RMBS150821C00014000, $0.65, down $0.05)
Entry Price: $0.65 (4/20/2015)
Exit Target: $1.30 (Limit Order on first half)
Return: 0%
Stop Target: None
Action: Set a Limit Order to close the first half of the trade at $1.30.
Shares made a late-session run past $13 before a sharp pullback to $12.65 into the close. In after-hours trading, shares were all over the map and were down 3% at one point before finishing near even.
The company beat Wall Street’s estimates for a profit of $0.06 a share after posting earnings of $0.14 a share. The 8-cent beat also came on better-than-expected revenue of $72.9 million versus forecasts for $72.88 million.
The bad news is that Rambus may have sandbagged its second-quarter outlook after saying that revenue would come in at $70-$74 million. The suit-and-ties have penciled in an estimate of $75 million, which could impact the stock today.
In March, Rambus licensed its patents and technology solutions to IBM. In April, the company partnered with overseas company Barco Silex to provide point-of-sale security solutions. Yesterday, Rambus hooked up with Athena Group to tackle advanced security attacks.
A move above $13 would be a bullish sign today, and that level would need to hold into the close. Otherwise, there is risk to $12.50-$12 and the major moving averages on a pullback. The shorts sellers haven’t been aggressive in covering, but they could do so a move above $13.25.
PowerShares QQQ Trust (QQQ, $107.60, up $1.59)
QQQ May 110 calls (QQQ150515C00110000, $0.45, up $0.20)
Entry Price: $0.60 (4/10/2015)
Exit Target: $1.20
Return: -25%
Stop Target: None
Action: The QQQs traded to a high of $107.79 on Monday. Resistance is at $108-$108.50. Support is at $106.
Jabil Circuit (JBL, $23.34, up $0.27)
JBL May 24 calls (JBL150515C00024000, $0.30, up $0.05)
Entry Price: $0.60 (4/10/2015)
Exit Target: $1.20
Return: -50%
Stop Target: None
Action: Monday’s high reached $23.47. Resistance is at $23.50-$24. Support is at $23.
Rigel Pharmaceuticals (RIGL, $4.15, up $0.06)
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. Shares reached a peak of $4.18 yesterday. 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