MomentumOptionsTrading.com Morning Update for 5/14/14
Dow Up Five-Straight
The bulls powered fresh closing highs on the Dow and S&P 500 but Tech and the small-caps failed to keep their momentum. The action gave the blue-chips their first 5-session win streak for the year but the bears are still lingering.
The Dow gained 20 points, or 0.1%, to settle at 16,715. The blue-chips tripped another intraday all-time high of 16,735.51 shortly after the open but traded sideways the remainder of the day. The bulls held positive territory throughout the session as there was no fade into the close and remain on track for a run to 16,800-17,000. Support is at 16,600 followed by 16,400.
The S&P 500 added nearly a point, or 0.04%, to end at 1,897. The index traded to a high of 1,902 but failed to hold the 1,900 level. There is upside to 1,909-1,925 as long as 1,875 holds up.
The Nasdaq fell 13 points, or 0.3%, to finish at 4,130. Tech reached a peak of 4,155 but I talked strong resistance at 4,150 being a major hurdle. The bulls held shaky support at 4,125 but there is risk back to 4,100-4,075 again on a break below this level.
The Russell 2000 dropped a dozen points, or 1.1%, to close at 1,121. The small-caps made a run to 1,134 an hour into the session but the one-point pop was unimpressive given Monday’s strong performance and was quickly sold. I wanted to see support at 1,125 hold but there is further risk to 1,115-1,100 if there is continued weakness.
The S&P 500 Volatility Index ($VIX, 12.13, down 0.10) spiked to 12.79 shortly after the open and the surge past 12.50 may or may not have been a warning sign. If the VIX trades above this level today chances could be good the market is setting up for a short-term top this week. Otherwise, a grind to higher highs could be in store.
There is a new trade I’m considering for today on a stock I have followed for years and appears regularly on my Watch List. Shares are currently at $62.31 and the recent 52-week low is just north at $60. The longer-term chart shows a possible test to double-nickels ($55) with risk down to $45.
The put options I am pricing look “cheap” and will give us until August to wait for the breakdown. The trade will easily return 100%-300% if certain levels are triggered.
There is a chance I get us into the trade between 10am-11am (EST) as it is rare I buy options at the open. However, I will likely wait until noon and the Midday update to get into the trade as I also want to see how the market trades up until lunch.
From desk to press, futures look like this: Dow (-18); S&P 500 (-3); Nasdaq (-8).