I found myself singing the song “Squeezebox” from The Who following the Federal Reserve’s latest statement as the bears were getting squeezed hard. Talk about a sweet spot – my trading advice has been predominately bullish, and I was betting on yesterday’s rebound, but it caught Wall Street totally off-guard.
The Dow zoomed 227 points, or 1.3%, to close at 18,076. The blue-chips traded to a low of 17,697 ahead of the Fed announcement while holding support at 17,800-17,600. The rebound reached a peak of 18,097 and easily cleared resistance at 17,900-18,000. The move above these levels gets 18,100-18,300 back in play.
The S&P 500 soared 25 points, or 1.2%, to finish a half of a point below 2,100. The index tested a low of 2,061 intraday, with support at 2,060-2,050 sticking. The turnaround touched a high north of 2,106 after prior resistance at 2,085-2,100 was cleared. The next layers of resistance are at 2,120-2,150. I would like to see 2,085-2,075 hold on a pullback.
The Nasdaq jumped 45 points, or 0.9%, to end at 4,982. Tech tested support at 4,900 intraday after the bears pushed 4,907 ahead of the Fed news. This was a solid signal that higher highs would come. They did, and the bulls pushed the index past the 5,000 level by a point. Although this level failed to hold, the move was bullish as long as 4,975-4,950 holds on a backtest.
The Russell 2000 advanced nearly 10 points, or 0.8%, to settle at 1,252. The small-caps were down a touchdown at halftime after trading to a low of 1,235. Support at 1,230-1,225 was strong before a second-half run to 1,255. I believe a move to 1,250-1,260 could come quickly, and the bulls will split the middle of this range. A move above the latter could lead to a short-term push to 1,275.
The S&P 500 Volatility Index ($VIX) has a huge impact on my trading advice. It was absolutely on point and gave us the best single clue there could be for a breakout on Wednesday. The VIX’s low of 13.69 shortly after the open was breached on the run past resistance, as the bulls pushed another low of 13.38. I have talked about a return to 13.50-12.50 once the VIX got back below 15, but this level needs to hold for the rest of the week and into next.
While I’ve played a few pockets of weakness and taken some quick profits because of it – like my Krispy Kreme (KKD) put play – my recommendations and trading advice are definitely tilted toward the bulls going forward, and I want to share a new idea with you now.
Shares of Cypress Semiconductor (CY) have been in a tight range following the mid-December run to $15. Support is at this level, as well as at the 50-day moving average, which has been holding during the trading range. Continued closes for CY above $16.00 would be bullish for a run to $18.00-$20.00, and I like cheap, near-term call options to play it.
My trading advice: Buy to open the CY April 16 calls (CY150417C00016000) at current levels. The calls closed Wednesday at 46 cents.
My exit target is 80 cents, and I don’t have a stop loss in place, as I tend not to use stops on options below 50 cents because the volatility can be excessive. Instead, I’ll be watching for CY to either hit my upside targets or will watch its chart for any signs of weakness to exit.
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