MomentumOptions.com Pre-Market Update for 1/9/2019
Bulls Eyeing 50-Day Moving Averages
The market showed strength for a 3rd-straight session as U.S. and China trade talks resumed for a second day. Comments from both sides have expressed cautious optimism that a deal can be reached ahead of the March 1st deadline.
Reports say both sides are making progress on narrowing the differences on trade issues, especially on purchases of U.S. goods and services and widening access to China’s markets. Although the two sides are likely far from striking a deal, the developments remain bullish for market sentiment.
The Russell 2000 jumped 1.5% after closing at its session high of 1,426. Major support from November at 1,425 was cleared and held with continued closes above this level leading to a possible run towards 1,450-1,465 and the 50-day moving average that is showing signs of leveling out.
The Nasdaq advanced 1.1% following the intraday push to 6,909 while closing 3 points below the 6,900 level. Fresh and lower resistance at 6,900-6,950 was breached but held with a move above the latter getting 7,000-7,050 and the 50-day moving average in play.
The S&P 500 gained 1% after tapping a session high of 2,579 while closing above the 2,550 level for the first time since mid-December. Continued closes above this level keeps 2,575-2,600 on the radar with additional hurdles at 2,625-2,650 and the 50-day moving average.
The Dow rose 1.1% following the morning test to 23,864. Fresh and lower resistance at 23,800-24,000 was breached but held with a close above the latter getting 24,250-24,500 and the 50-day moving average in focus.
Real Estate and Communication Services led sector strength with both adding 1.7%. Industrials and Utilities were up 1.4% and 1.3%, respectively.
The were no sector laggards.
The S&P 500 Volatility Index ($VIX) closed lower for the 8th time in the past 9 sessions despite trading to a morning high of 22.03. Resistance at 22-22.50 held for the 2nd-straight session with a move, or close, above 23 being a slightly bearish signal.
The late session trip to 20.09 was the 7th-straight lower low with the close below lower support at 21-20.50 being a continuing bullish signal. A close below 20-19.50 and early December support would signal additional market strength.
The Russell 2000 ETF (IWM) was up for the 8th time in the past 9 sessions while extending its winning streak to 3-straight after tapping an intraday high of $141.79.
Fresh and lower resistance at $141.50-$142 was cleared and held with more important hurdles at $142-$142.50 and prior support from early to mid-December. Continued closes above the latter would be a bullish development for a run towards $144.50-$145 and the 50-day moving average.
Near-term support is at $140-$139.50. A close below $137.50 would be slightly bearish and signal a possible near-term top.
RSI has is approaching late November resistance at 55 with a move above this level leading towards a run at 60 and nearly the August peak. Support is at 50-45.
The rebound that started right after Christmas has been impressive and there still appears to be some upside ahead of the major start of 4Q earnings season. I have been mentioning how the small-caps have been outperforming the large caps over the past week. This is usually a sign of bullish confidence.
A pullback in the dollar is also helping the small-caps and while lifting oil and other commodity prices. However, and as I expected, Gold may have topped out at the $1,300 level last Friday and why we haven’t reentered a crowded sector that I was previously bullish on in December.
While I don’t feel comfortable shorting GLD or buying put options, I would like to see a close below the $1,280 level with a further backtest towards $1,260-$1,250 and the 200-day moving average. The 50-day moving average remains in a nice uptrend and is on track to clear the latter and would form a golden cross. This is typically a bullish signal for higher highs.
If this pattern plays out, we could be back in GLD with February or March call options. For now, GLD is a no touch.
All of the aforementioned trends, however, are short-term in nature and not enough to reverse technical damage done to the various markets since the beginning of the fourth quarter. A complete v-shape recovery will get the major indexes at the 50-day MA’s and from there, we shall see.
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.
Please remember, all “Exit Targets” and “Stop Targets” are targets. You should not have any “Stops” entered to close any trades or “Limit Orders” in your brokerage account unless I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the Daily updates.
Energy Select Spiders (XLE, $61.23, up $0.47)
XLE February 64 calls (XLE190215C00064000, $1.05, up $0.10)
Entry Price: $1.15 (1/8/2019)
Exit Target: $2.30
Stop Target: None
Action: Open Interest in these options is approaching nearly 30,000 contracts and is signaling traders are expecting higher highs by mid-February.
The Energy Select Sector Spider (XLE) was up for the 3rd-straight session with the intraday high reaching $61.75. Fresh and lower resistance at $61.50-$62 was challenged but held.
The $62 level represents major support from mid-December. Continued closes back above this level would be a slightly bullish development for a push towards $63-$63.50 and the 50-day moving average.
Current support is at $61-$60.50 with a close below $60 signaling a possible near-term top.
RSI is back in a slight uptrend after clearing and holding major resistance from November at 50. This level will now try and hold as support. Continued closes above 55 would signal additional momentum towards 60-70 and September and October peaks.
CVS Health (CVS, $68.53, down $0.08)
CVS February 72.50 calls (CVS190215C00072500, $1.00, down $0.05)
Entry Price: $1.20 (1/8/2019)
Exit Target: $2.40
Stop Target: None
Action: Shares made a run to $69.74 with resistance at $69.50-$70 getting split. Continued closes above the latter would be a bullish signal for higher highs. The late day fade to $67.26 keeps support at $67-$66.50 in play.
New Age Beverages (NBEV, $5.51, up $0.04)
NBEV February 6 calls (NBEV190215C00006000, $0.50, up $0.05)
Entry Price: $0.50 (1/7/2019)
Exit Target: $1.00
Stop Target: None
Action: Resistance at $5.75-$5.80 held with Tuesday’s top reaching $5.60. Support is at $5.30-$5.25.
Shares have been in a tight trading range since mid-December with RSI flatlining over the same time period. Usually the longer the time-frame, the bigger the breakout, or breakdown, will be. The higher lows and higher highs have been a bullish signal for a possible breakout.
Consumer Staples Select Spiders (XLP, $51.66, up $0.47)
XLP February 53 calls (XLP190215C00053000, $0.55, up $0.07)
Entry Price: $0.52 (1/7/2019)
Exit Target: $1.05
Stop Target: None
Action: Resistance is at $51.50-$52. Support is at $51-$50.50.
Imax (IMAX, $20.00, up $0.34)
IMAX February 18 puts (IMAX190215P00018000, $0.30, down $0.15)
Entry Price: $0.60 (1/3/2019)
Exit Target: $1.20
Stop Target: None
Action: Fresh and lower resistance at $20-$20.25 held with yesterday’s high tapping $20.46. Rising support is at $19.50-$19.25.
Shares are signaling overbought levels with resistance at 70 approaching. There could be risk to $21 in IMAX before an eventual downtrend possibly resumes.