Dear Momentum Options Subscriber,
It’s Friday the 13th, so I thought I would show you some scary charts and possible trade setups.
Although Thursday’s rally looked good on the surface, one of the things that worried me was the action in the “Three Musketeers.”
I mentioned that Microsoft (MSFT, $40.91, down $0.11), Intel (INTC, 30.63, down $0.17) and Cisco (CSCO, $27.71, down $0.53) shares all ended lower on Thursday, and each chart looks ugly.
Microsoft is on track to test $40 following its recent “death cross,” and a close below this level would be bearish. A death cross forms when the 50-day moving average crosses below the 100- and 200-day moving averages.
I’m not a big fan of shorting some of my favorite stocks, as I have followed these companies for over two decades. However, with options, it’s easier to do, as I can use put options to take advantage of short-term or longer-term downside moves.
As far as Microsoft, a break below $39.95 and its February 2015 low would likely get the May 2014 low of $37.50 in play. As far as a clear signal, I’m waiting for a possible drop below $39.85 to use the MSFT April 39 puts (MSFT150417P00039000, $0.40, up $0.05) or the MSFT May 39 puts (MSFT150515P00039000, $0.85, up $0.05) to go “short.”
The MSFT April 39 put options expire in a month and would more than double if shares traded down to $38 by mid-April. These options would be worth at least $1.00 if this price target was achieved.
The MSFT May 39 puts would have the potential to nearly double if shares trade down to $37.50 by mid-May. The May options would give the trade more time to play out, as they don’t expire for two months.
If shares hold $40 for a few weeks, then it might signal a near-term bottom. If so, I would then turn my attention towards call options.
As far as Intel, the chart below shows that a “mini” death-cross has formed, as the 50-day moving average has fallen below the 100-day moving average.
The company lowered its current-quarter guidance yesterday on weak personal computer demand, with the shares falling 5%. The current action is suggesting a test to $29, with risk to $28-$27.50.
The INTC April 29 puts (INTC150417P00029000, $0.50, up $0.05) look tempting on a break below $30.25-$30. The INTC May 29 puts (INTC150515P00029000, $0.80, up $0.05) would buy more time, obviously, but both put options are on my watch list.
Cisco Systems shares are dancing with their 50-day moving average, as the slight uptrend in its line is starting to level off. A test to $27-$26 and the other major moving averages is possible on continued closes below $28-$27.75.
As far as the options, I’m considering the CSCO April 27 puts (CSCO150417P00027000, $0.50, up $0.15) or the CSCO May 27 puts (CSCO150515P00027000, $0.85, up $0.15) on continued weakness.
These trade setups could come in handy if the Nasdaq fails to recover 5,000 this month or next. Although each chart and each company has different pros and cons, their businesses have been solid for decades. Each of these tech titans are all possible longer-term “holds” at current levels if you are in them already, but I like the risk/reward they offer to make money on the downside on a continued slide lower.
Today’s trading action has been bearish to end the week, as the trading range is looking to stay intact. The Dow is down 207 points to 17,687, while the S&P 500 is lower by 19 points to 2,046. The Nasdaq is declining 40 points to 4,853, and the Russell 2000 is off 15 points to 1,221.
I have updated our current trades ahead of the weekend. I will likely wait until next week to open new positions, as the current portfolio is light. I mentioned that I wanted to be down to a handful of trades, as I have planned for the current volatility and the mini trading range. I will be back on Monday morning with a full update. Until then, have a great weekend.
Momentum Options Play List
Closed Momentum Options Trades for 2015: 22-5-1 (79%). 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 12:45 p.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.
Yahoo! (YHOO, $42.50, down $0.45)
YHOO April 47 calls (YHOO150417C00047000, $0.31, down $0.07)
Entry Price: $0.80 (2/26/2015)
Exit Target: $1.60
Return: -61%
Stop Target: None
Action: Support is at $43-$42 and the 200-day moving average. Resistance is at $43.50.
Western Union (WU, $19.36, down $0.06)
WU April 20 calls (WU150417C00020000, $0.27, down $0.08)
Entry Price: $0.36 (2/25/2015)
Exit Target: $0.75
Return: -25%
Stop Target: None
Action: Support is at $19.25-$19. Resistance is at $19.50-$19.75.
American Express (AXP, $80.35, down $1.21)
AXP April 87.50 calls (AXP150417C00087500, $0.18, down $0.12)
Entry Price: $0.56 (2/25/2015)
Exit Target: $1.15
Return: -68%
Stop Target: None
Action: Support is at $80. Resistance is at $82.
Flextronics (FLEX, $11.62, up $0.07)
FLEX April 12 calls (FLEX150417C00012000, $0.22, up $0.02)
Entry Price: $0.67 (2/24/2015)
Exit Target: $1.35
Return: -67%
Stop Target: None
Action: Support is at $11.25. A break below this level could lead to $11 and a test of the 100- and 200-day moving averages. Resistance is at $11.50-$11.75.
Marvell Technology (MRVL, $16.03, down $0.04)
MRVL May 18 calls (MRVL150515C00018000, $0.35, flat)
Entry Price: $0.50 (2/18/2015)
Exit Target: $1.00
Return: -30%
Stop Target: None
Action: Support is at $16-$15.75 and the 50-day moving average. Resistance is at $16.25-$16.50.
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) — The Limit Order to close the position at $0.95 has failed to trigger this week. This trade from January is running out of time, and these options expire next week. I don’t believe shares will trade down to $74, which is where the break-even price is for the trade. Sell to close the PM March 75 puts at current levels to save the current $0.25 in premium.
BlackBerry (BBRY) June 13 calls (from March 2015) — Continue to hold.
Trade on!
Rick Rouse
Editor and Chief Options Strategist
Momentum Options