Pre-Market Update for 1/4/2019

Bears Growl, Push Mid-December Support Levels

8:00am (EST)

The market showed weakness from the open on Thursday following a couple of major revenue warnings out of the Tech and Airline sectors. The news comes ahead of the “official” start of 4Q earnings season and upcoming comments from Fed Chairman Jerome Powell on Friday.

With mid-December support levels back in play, the market will want to hear the Fed will be pausing its tightening posture and may be done with hikes for awhile. The dots are showing 2 possible rate hike this year but concerns over signs of slowing growth, weakness in interest sensitive sectors, and tightening financial conditions could box the Fed in a corner.

The Nasdaq had its 5-session winning streak snapped after tumbling 3% while tapping an intraday low of 6,457. Prior support at 6,450-6,400 held with a move below the latter signaling additional weakness.

The Dow dropped 2.8% following the pullback to 22,638. Fresh and upper support at 22,600-22,400 held with close below the latter signaling additional risk towards 22,200-22,000 and possible fresh 52-week lows.

The S&P 500 stumbled 2.5% after trading to a second-half low of 2,443. Fresh and upper support at 2,450-2,425 was breached with a move below the latter being a bearish signal for a continued backtest towards 2,400-2,350.

The Russell 2000 was down 1.3% after testing a late session low of 1,325. Major support at 1,325 held for the 4th-straight session with a move below this level opening up risk towards 1,315-1,300.

Real Estate was up 0.5% and was the only sector that showed strength.

Technology plunged 5.1% and led sector weakness. Industrials and Materials sank 3% and 2.8%, respectively.

The S&P 500 Volatility Index ($VIX) closed higher for the first time in 6 sessions after trading up to 26.60 shortly after the open. It was a lower low than the previous session with lower resistance at 27.50-28 holding.

Rising support at 24-23.50 with more important levels to recover at 22.50-22 and the 50-day moving average.

The Spiders Dow Jones Industrial Average ETF (DIA) has]d its 2-session winning streak snapped following the pullback to $226.36. Prior support at $226-$225.50 held with a close below $225 signaling additional risk towards $222.50-$220.

A death-cross has officially formed with the 50-day moving average falling below the 200-day-day moving average. This technical pattern often signals lower lows down the road.

Lowered resistance at $227-$227.50.

RSI is is back in a downtrend with support at 35-30. A move below the latter would be a continuing bearish signal. Near-term resistance is at 40-45 with a move above the latter signaling additional momentum and a relief from the current selling pressure.

The Spiders S&P Homebuilders ETF (XHB) was down for just the 2nd time in 6 session following the backtest to $32.21. Upper support at $32.25-$32 was breached but held with a move below the latter signaling additional weakness.

Resistance is at $33-$33.25 with additional hurdles at $33.50-$33.75 and the 50-day moving average.

RSI is approaching support at 40 with a close below this level signaling additional weakness. Resistance is at 45-50.

While I did open a new bearish position yesterday, the action in the small-caps holding 1,325 kept me on pause. However, if this level is breached, I could use near-term IWM put options to play continued weakness.

Additionally, some of the other bearish put option trades I wanted to get into gapped higher on Thursday’s open. The VIX’s lower low was encouraging if you are a bull but the biggest takeaway from this week’s action is that February support levels are now serving as near-term resistance – not good.

A retest of December lows appears to be in the works unless corporate America has some good things to say about the recently closed quarter. However, given the news out of Apple and Delta, it is apparent both the U.S. and China are suffering from the trade war.

I could have new trades today, especially if the Russell 200 cracks 1,325, so stay locked-and-loaded throughout the session and into the closing bell.


Momentum Options Play List

Closed Momentum Options Trades for 2019: 0-0 (0%). All trades are dated and time stamped for verification. New subscribers can look at the past history to see how the trades have played out or to research our Track Records. Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades. 

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Imax (IMAX, $18.58, down $0.17)

IMAX February 18 puts (IMAX190215P00018000, $0.65, down $0.02)

Entry Price: $0.60 (1/3/2019)

Exit Target: $1.20

Return: 9%

Stop Target: None

Action: Shares tested a high of $19.06 with resistance at $19-$19.25 and the 50-day moving average holding. A close above the latter would be a slightly bullish development. Near-term support is at $18.50-$18.25 with a move below $18 being a bearish development.