MomentumOptions.com Pre-Market Update for 1/7/2019

VIX Closes Below 50-Day Moving Average

8:00am (EST)

The market rebounded on Friday following a strong jobs number and optimism surrounding the scheduled trade talks between the U.S. and China, which will begin on Monday. Soothing comments from the Fed and news that the U.S. House passed a spending bill package in an effort to end the partial government showdown also helped sentiment.

The Nasdaq zoomed 4.3% following the intraday push to 6,760. Fresh resistance at 6,750-6,800 held with continued closes above the latter being a bullish signal for a possible run towards 7,000 and the 50-day moving average.

The Russell 2000 jumped 3.8% after reaching a peak of 1,383. Lower resistance at 1,380-1,400 was cleared and held with a close above the latter signaling additional strength towards 1,425.

The Russell 2000 was up 3.3% for the week while the Nasdaq rose 2.4%.

The Dow rallied 3.3% following the midday run to 23,518. Prior and lower resistance at 23,400-23,600 with continued closes above the latter getting 23,800-24,000 back in play.

The S&P 500 soared 3.4% after tapping a session high of 2,538. Lower resistance 2,525-2,550 was cleared and held with a move above the latter being a continuing bullish development.

For the week, the S&P was up 1.9% while the blue-chips gained 1.5%.

Technology and Communication Services were up 4.4% and 4.3% to led sector strength. Materials and Industrials rose 3.9% and 3.8%, respectively.

There was no sector laggards.

For the week, Energy and Communication Services rose 4.9% and 4.1%. Real Estate was down 0.7% while Utilities slipped 0.1% and were the only sectors in the red.

In economic news, December Nonfarm Payrolls came in at 312,000, well above estimates of 210,000. The unemployment rate rose to 3.9% versus 3.7%. Average hourly earnings increased 0.4% versus 0.2% previously, for a 3.2% year-over-year pace versus 3.1%. The labor force rose 419,000 while household employment was up 142,000. The labor force participation rate rose to 63.1% from 62.9%. Private payrolls were up 301,000 as the goods producing sector added 74,000 jobs, with 38,000 from construction, and 32,000 from manufacturing. Service sector jobs increased 227,000 while government employment increased 11,000. This was a very strong report.

In Fed news, Chairman Jerome Powell soothed fears he and the FOMC were out of touch with global conditions. He remarked several times and underscored that the Fed would be patient and flexible with respect to the policy path, and would adjust policy as conditions warranted. That helped unwind market misperceptions that the course of policy normalization was on auto pilot. He added the Fed would be patient in its approach. 

The comments, along with Powell’s view that the Phillips Curve linkages are weak (though not necessarily dead), have suggested there is not a lot of concern over runaway inflation that would force a more aggressive policy response.

Powell did note the various downside risks that are still in place, but for now sees a solid U.S. economy with muted inflation. He said he wouldn’t resign if requested to do so by President Trump and has received no direct communication from the president, while having no scheduled meetings with him either. 

On China, Powell noted consumers seem to be pulling back and there is some spillover weakness to other emerging Asian economies. He noted the conflicting market signals, saying policy is all about risk management and that there is no preset path to policy. 

The S&P 500 Volatility Index ($VIX) stayed deflated throughout the session while tapping a low of 21.19. Fresh support at 21-20.50 held on the close below the 50-day moving average. A move below 20 would signal additional market strength.

Lowered resistance is at 22-22.50.

RSI is in a downtrend with support at 40. A move below this level would signal additional weakness. Resistance is at 50.

The Spider S&P 500 ETF (SPY) was up for the 5th time in u sessions following the rebound to $253.11. Fresh and lower resistance at $253-$253.50 held with continued closes above $255 being a more bullish development.

Shaky support is at $250-$247.50. A move below back below the latter reopens risk towards $245.

RSI is back in an uptrend with resistance at 50. A move above this level would signal additional strength towards 55-60. Current support is at 45-40.

The iShares PHLX Semiconductor ETF (SOXX) was up for the 6th time in 7 sessions after testing a high of $155.96. Near-term resistance is at $156-$156.50 held. Continued closes above $157.50 would be a bullish setup for a possible push towards $160 and the 50-day moving average.

Rising support at $155.50-$155. A close below the latter would signal additional weakness towards $152.50-$152.

RSI is in a slight uptrend with resistance 50. A close above this level would signal additional strength. Support is at 40 with a move below this level signaling additional weakness.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed Friday at 25.24% with the session peak reaching 28.15. Lower resistance at 27.50%-30% was breached with a move above the latter signaling additional strength. Rising support is at 25%-23.50%.

The percentage of S&P 500 stocks trading above the 50-day moving average settled at 11.50% with the session high tapping 11.70%. Resistance is at 13.50%-15% with a close above the latter signaling additional strength. Support is at 10%-7.50%.

I mentioned that the small-caps were holding a key level of support and that the VIX made a lower low ahead of Friday’s action. These were very bullish clues for the snapback rally but some follow through needs to happen today. 

I also talked about prior February support levels that were holding as near-term resistance for the major indexes. The key numbers I’m watching are Dow 23,500; S&P 2,550; Nasdaq 6,800; and Russell 1,425. 

If the bulls can clear and hold these levels for multiple sessions, then a continued rally could take shape over the next few weeks. The aforementioned targets are also less than 1% away from triggering aside from the small-caps.

With the portfolio light, we will be in great shape to play a continued breakout should this be the case, or we can prepare for more downside weakness. The whipsaw action is enticing to trade but we want to make sure we are on the right side of the next major trend.

 

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, $19.31, up $0.73)

IMAX February 18 puts (IMAX190215P00018000, $0.50, down $0.15)

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

Exit Target: $1.20

Return: -17%

Stop Target: None

Action: New resistance is at $19.50-$19.75 following Friday’s push to $19.52. Rising support is at $19-$18.75.