In This Issue:
Dear Momentum Options Subscriber,
The bulls showed strength last week, as the Dow started with a win on Monday. The VIX closed below 15 but was stretched for the second-straight session as the bottom of the trading ranges were tested. Wall Street sold on the nonfarm payrolls report from the previous Friday, but, when support held, it was a good sign.
Tuesday’s final-hour pullback was enough to keep the suits and ties bearish before Wednesday’s run at resistance. Thursday’s follow-through rally gave the bulls their fourth win in five sessions, with the VIX closing below 13.50. Friday’s run to the top of the trading ranges came right on cue and ahead of the start of first-quarter earnings season.
The Dow jumped 99 points, or 0.6%, to close at 18,057 on Friday. The blue-chips were strong throughout the session following an opening dip to 17,945. The 13-point fade turned into an intraday high of 18,066, with a close above 18,000. The bulls just missed clearing 18,100 and a close above 18,200 and the top of the trading range would be bullish. Support is at 17,900 and the 50-day moving average, followed by 17,800 and the 100-day moving average.
The S&P 500 surged 11 points, or 0.5%, to finish at 2,102. The index held positive territory throughout the session and closed half of a point off of its intraday peak while clearing 2,100. Thursday’s close above 2,090 was a great clue that 2,100 would trigger following the backtest to 2,075 and the 50-day moving average. Additional hurdles remain at 2,110-2,120 and the top of the trading range.
The Nasdaq added 21 points, or 0.4%, to end at 4,996. Tech fell 4 points on the open to 4,970, with support at 4,950 easily holding. The bulls fell short at ringing 5,000 and clearing the top of the trading range but look poised to do so on additional strength. Resistance is at 5,050-5,100 once cleared. Backup support is at 4,900 and the 50-day moving average on closes below 4,975-4,950.
The Russell 2000 climbed 5 points, or 0.5%, to settle at 1,264. The small-caps were also strong throughout Friday’s session after reaching a peak of 1,266. The closes above the top of the trading range occurred last Monday and throughout the week. The bulls came within two points of setting another all-time high on Friday. A near-term run to 1,275 is nearly a given, and 1,290-1,300 is possible on a continued short-covering rally. Support is at 1,250 and the uptrend line, followed by 1,240-1,230 and the 50-day moving average.
The S&P 500 Volatility Index ($VIX, 12.58, down 0.51) traded to a low of 12.51 on Friday after testing 13.26 on the open. I mentioned that once the bulls held down 15, the next waves of resistance would be at 13.50-12.50. The current chart shows a possible test to 11-10 could come on a continued breakout. The 52-week low is at 10.28. It is too early to say if single-digits will come into play, but, if they do, Wall Street will freak. There is no need to turn bearish until 17.50 trips. Otherwise, continue to stay bullish, although the action could get elevated with first-quarter earnings season starting this week.
The downside targets that I gave last week for the major indices were:
- Dow: 17,600
- S&P: 2,040
- Nasdaq: 4,800
- Russell: 1,200
These levels denoted the bottoms of the trading ranges from the start of February, which are represented by the green boxes in the index charts above. I covered these trading ranges and the exact same trading ranges two weeks ago and said to stay patient.
Monday’s low reached 17,646 on the Dow and 2,056 on the S&P. The Nasdaq kissed 4,852, while the Russell tapped danced with 1,249. All of these lows were higher than the previous week’s lows, which showed that a possible bottom was in.
The Monday/Friday closes were also important clues, and that is something I want to talk about, as they have turned very bullish over the past month. Last Monday’s win was the Dow’s second-straight positive session, which was a good first clue for us to stay long. The index has closed higher over five of the past six Monday sessions.
Last Friday’s win was the Dow’s third-straight up-Friday, following an up-Thursday ahead of the Good Friday market holiday. For new subscribers, up-Monday/Friday closes usually signal that money is moving into the market, while down-M/F closes signal that cash is moving to the sidelines. Mixed Monday/Friday closes can indicate trading ranges.
The Fed minutes from last week revealed that the zombies are still hesitant on raising interest rates. The Fed still seems divided on when they might raise rates, and a June hike is now a big question mark. There were several Fed officials who believed June would be the right time to raise rates, while others thought it would be too soon and that it would be best to wait longer. There were some members still suggesting the Fed should wait until 2016. Hard to believe, but it’s true.
I have been in the “who cares?” camp, as I couldn’t care less about the debate on when rates will rise. Wall Street believes an interest-rate hike will crush stocks, but I have said that it might help the financial stocks get into second gear.
The Fed remains worried about low inflation, falling energy prices and a stronger dollar, which lowers the cost of imported goods. While all of this might affect the multi-national companies, it’s a great environment for smaller, or small-cap, companies.
The Dow Jones Transportation Average ($TRAN, 8,767, up 59) caught the suit-and-ties’ attention on the drop below the 200-day moving average on the prior Friday. Last Monday’s low reached 8,527, with a rebound to the 200-day moving average on Tuesday and Wednesday. I mentioned that the transports might spend a few days below this level like they did in October 2014 before rebounding.
Thursday and Friday were also bullish sessions, with the Transportation index closing just below the 8,800 level while reclaiming the 200-day moving average. I mentioned last week that a recovery of 8,800-9,000 and the 100- and 50-day moving averages would be bullish, and last week’s rebound was a step in the right direction. Hopefully these levels trigger this week to confirm higher highs.
The financial stocks stayed in a tight range throughout last week, but a very bullish development occurred. A mini “golden cross” has formed in the Financial Select SPDR (XLF, $24.24, down $0.01), as the 50-day moving average has crossed back over above the 100-day moving average.
I have talked about the underperformance of the financial stocks all year and, at current levels, the XLF is still down nearly $0.50, or 2%, year to date. A move above $24.50 would be bullish, while a pop above $24.75 could signal a breakout. The XLF closed at $24.73 to end 2014 and on the first trading session to start 2015. The intraday highs on those days were $25.12 and $24.90, respectively.
First-quarter earnings season kicks off this week, and sentiment couldn’t be worse for corporate profits. Wall Street had high expectations coming into 2015, as they expected year-over-year first-quarter earnings growth of over 4%, with second-quarter growth of over 5%.
Coming into this week, analysts had tempered their expectations to declines of nearly 5% for the first-quarter and nearly 2% for the second quarter.
These are dramatic earnings estimate swings over the past three months, which is why everyone is so bearish coming into first-quarter earnings season. My best guess is that the suit-and-ties were a little high on expectations to end 2014 and have now become too low coming into earnings season.
This kind of flip-flopping can be a circus to watch, and analysts will likely change their minds again over the next three months — for better or for worse — for third- and fourth-quarter numbers. If the Fed does hike interest rates, it will only add to Wall Street’s confusion on how to play the remainder of the year.
Although March was an incredibly choppy month, the S&P 500 offered one clue that April could be brighter. The index had gone 26 sessions, or since mid-February, before it closed higher on back-to-back sessions in late March.
In early April, the S&P closed higher on Friday and (last) Monday and is currently working on a three-session win streak. This is a very bullish sign and one that could last for a few more weeks given Friday’s close above 2,100. The all-time high for the index is at 2,119, which was reached in late February. This level is just 1% away and could start a short-covering rally if cleared.
I have said since last year and all this year that the Nasdaq hasn’t come this far not to test or take out its all-time high. The index reached an all-time intraday peak of 5,132 on March 10, 2000, and this level is just under 3% away.
I would like to think that there is another 2%-3% of upside ahead this month before we have to worry about the bears again. If all goes well this week (and next), we can then worry about a possible top ahead of the “sell in May and go away” adage that Wall Street has become accustomed to.
From desk to press, futures look like this: Dow (-25); S&P 500 (-3); Nasdaq 100 (-1).
Momentum Options Play List
Closed Momentum Options Trades for 2015: 34-11-1 (74%). 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.
Jabil Circuit (JBL, $23.91, up $0.02)
JBL May 24 calls (JBL150515C00024000, $0.60, up $0.05)
Entry Price: $0.60 (4/10/2015)
Exit Target: $1.20
Return: 0%
Stop Target: None
Action: Shares touched a 52-week high of $24 last week. A run to $26-$28 could come on a continued closes above this level. The 10-year chart shows a possible run to $30.
We will double our money on a move past $25-$25.25, as the options will be worth $1.00-$1.25 if these levels are reached by mid-May. Near-term support is at $23.50, followed by $23.
Rambus (RMBS, $13.73, up $0.37)
RMBS May 14 calls (RMBS150515C00014000, $0.55, up $0.20)
Entry Price: $0.38 (4/10/2015)
Exit Target: $1.00
Return: 45%
Stop Target: None
RMBS August 15 calls (RMBS150821C00015000, $0.70, up $0.15)
Entry Price: $0.53 (4/10/2015)
Exit Target: $1.25
Return: 32%
Stop Target: None
Action: Shares traded to a high of $13.80 on Friday. The intraday move above $13.75 was a bullish sign for a possible run past $14. Support is at $13-$12.75 if $13.50 fails.
A mini golden cross formed in February, with the 50-day moving average crossing above the 100-day moving average. Another golden cross recently developed, with the 50-day moving average crossing above the 200-day moving average. The 52-week high is $14.82.
PowerShares QQQ Trust (QQQ, $107.75, up $0.44)
QQQ May 110 calls (QQQ150515C00110000, $0.65, up $0.05)
Entry Price: $0.57 (4/10/2015)
Exit Target: $0.85-$1.15 (Limit Order on first half at $0.85)
Return: 14%
Stop Target: None
Action: I have said that a run to $108-$110 could come this month as long as $106 and the 50-day moving average hold. Friday’s high reached $107.76. There is a limit order to close the first half of the trade at $0.85, which will hopefully trigger today or tomorrow.
iShares Russell 2000 (IWM, $125.62, up $0.60)
IWM May 128 calls (IWM150515C00128000, $0.98, up $0.13)
Entry Price: $0.90 (4/10/2015)
Exit Target: $1.35-$1.80 (Limit Order on first half at $1.35)
Return: 9%
Stop Target: None
Action: I’m expecting a possible push towards $127-$128 over the near-term as long as $125-$124 holds. There is additional help at $122 and the 50-day moving average. The 52-week and all-time highs are at $126.32. I would like to close the first half of the trade on a move above this level with the Limit Order at $1.35.
Sony (SNE, $30.56, up $0.66)
SNE May 31 calls (SNE150515C00031000, $1.05, up $0.25)
Entry Price: $0.70 (4/6/2015)
Exit Target: $1.40
Return: 50%
Stop Target: $0.80 (Stop Limit)
Action: My near-term target is $32, with a shot at $35 on continued momentum. Friday’s high reached a fresh 52-week peak of $30.69. Support is at $30, followed by $29. Earnings are due out on April 30.
You can read my full update on what to expect in the April 7 Mid-Market Update.
Comcast (CMCSA, $59.81, up $0.22)
CMCSA May 60 calls (CMCSA150515C00060000, $1.45, up $0.05)
Entry Price: $1.05 (4/6/2015)
Exit Target: $2.10 (closed first half at $1.55 on 4/10/2015)
Return: 43%
Stop Target: $1.30 (Stop Limit)
Action: Shares traded to a high of $60.17 on Friday but missed holding the $60 level. The 52-week high is at $60.70, which will likely be challenged on continued strength. Support is at $58-$57.75 and the 50-day moving average.
Rigel Pharmaceuticals (RIGL, $3.93, up $0.12)
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: Friday’s top touched $3.98. Resistance is at $4, followed by the 52-week high at $4.20. Support is at $3.60, followed by $3.40 on a drop back below $3.80-$3.75.
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) — Continue to hold.
BlackBerry (BBRY) June 13 calls (from March 2015) — This is a speculation trade that BBRY will receive a takeover offer of $14 or better by mid-June — Continue to hold.
Cypress Semiconductor (CY) June 16 calls (from March 2015) — Continue to hold.
Trade on!
Rick Rouse
Editor and Chief Options Strategist
Momentum Options