The cross-current winds are still indicting that we are in a trading range, but the bulls looked like they were fully caffeinated with Starbucks, showing some moxie that tilted the seesaw action in their favor.
The Dow held positive territory throughout the session. Upper resistance at 16,350-16,400 was pushed, and the bulls held lower resistance at 16,200. Support is at 16,000 on a close below this level, followed by 15,800-15,600.
The S&P 500 advanced and cleared the first wave of resistance at 1,900. The close just off of session highs looked strong, and a move above 1,925 would be bullish for a retest of 1,950-1,960. Support is at 1,900, followed by 1,875-1,850.
The Nasdaq surged 102 points and cleared resistance at 4,600 following a trip to 4,616 shortly after the open. The close at session highs was bullish, but there are additional hurdles at 4,625-4,650, followed by 4,700. Support is at 4,550-4,500 on another drop below 4,600.
The Russell 2000 climbed 16 points, and the small-caps tested 1,098 during the first 30 minutes of trading, with resistance at 1,100 holding firm. However, this level was cleared into the close, fractionally, which will likely get 1,115-1,125 in play. Support is at 1,075-1,070 on a print below 1,090.
The S&P 500 Volatility Index ($VIX) stayed in negative territory throughout Wednesday’s action and pushed a low of 23.25 into the close. The bulls first need to recover 23.50-22.50, and then the 20 level, before we can start trusting any rallies.
As such, while I continue to hold the PayPal (PYPL) calls I recommended a few weeks ago, my newest trades for my Momentum Options subscribers have been in bearish puts.
One I want to share with you today is in Starbucks (SBUX).
I don’t usually “short” Starbucks, as I have mostly traded call options on the name throughout the years. In fact, a bullish Starbucks trade earlier this year was one of our biggest wins so far in Momentum Options with a 286% return in just 10 days.
However, Starbucks shares have struggled to clear $60 and traded to a low of $42.05 on Aug. 24. The next hurdles are at $58-$59. Support is at $55, followed by $54.50 and the 100-day moving average.
The best way to trade a slump in Starbucks is with a put option:
Buy the SBUX November 50 puts (SBUX151120P00050000) at current levels.
If Starbucks shares test $48 by mid-November, these options will easily double, as they will be $2 in the money, and my exit target is $1.80. I do not have a stop loss in place at this time and instead I will be watching the SBUX chart for any signs of a reversal to let me know if it’s time to get out.
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