MomentumOptions.com Pre-Market Update for 9/26/2019
Bulls Rebound, Recover Prior Resistance Levels
The market rebounded on Wednesday despite some weakness on the open and the official announcement of an impeachment inquiry against President Trump. The major indexes showed steady momentum afterwards and into the close following the release of the transcripts of the call between Trump and Ukraine’s President Volodymy Zelensky.
While the chances of an actual impeachment are small, the drama over the phone call will likely dominate Washington and thus limit work on any significant legislation. Despite the turmoil, the overall market gains held into the close with the major indexes pushing prior resistance levels.
The Russell 2000 rallied 1.1% following the opening run to 1,552. Prior and upper resistance at 1,535-1,550 was cleared and held with more important hurdles at 1,560-1,575.
The Nasdaq also added 1.1% after testing a morning high of 8,095. Previous and lower resistance at 8,100-8,150 was challenged but held on the close back above the 50-day moving average.
The Dow rose 0.6% after trading to a 1st half high of 27,016. Near-term and lower resistance at 26,800-27,000 was cleared and held with continued closes back above the latter keeping 27,250-27,500 in play.
The S&P 500 was also up 0.6% following the push to 2,989 ahead of the closing bell. Prior and lower resistance at 2,975-3,000 was cleared and held with a move above the latter getting 3,025 and all-time highs back in focus.
Technology and Communication Services paced sector strength after jumping 1.2% while Consumer Discretionary rose 0.9%. Healthcare was the weakest sector after sliding 0.5% while Real Estate and Utilities edged down 0.1%.
In economic news, MBA Mortgage Applications dropped 10.1% versus a 0.1% dip in the prior week. Refinancings paced the decline, falling 15.2% on the week, while the purchase index slid 3.1% lower. The 30-year fixed mortgage rate edged back above 4% last week and inched up further to 4.02% in the most recent week, but well below the 4.97% rate from a year ago. The 5-year adjustable fell to 3.39% from 3.54%.
New Home Sales rebounded 7.1% to a 713,000 pace in August, better than expectations of 662,000, and follows the 8.6% drop to 666,000 for July. Regionally, it was the strength in sales in the South and West that paced the monthly gain, while sales slowed slightly in the Midwest and Northeast. The months’ supply of homes fell to 5.5 from 5.9. The median sales price jumped 7.5% to $328,400 after dipping 0.3% to $305,400 in June and represents a 2.2% year-over-year pace.
In Fed news, St. Louis Fed James Bullard said his argument for more stimulus is all about risk management, especially since inflation is below target. He said prudent risk management would be to take account of the downside risks, including the ongoing trade war, the slowing in global economy and manufacturing.
Bullard went on to say that overall the Committee has made major changes in 2019, going from expected rate hikes, to patient, to easing. He attributes some of the strength in the economy to the Fed’s accommodative policies but added trade is the biggest issue confronting the economy and it will take time to reach an agreement.
Bullard believes the Chinese might have incentive to delay until after the 2020 elections. While trade has impacted the U.S., he added it has had a more chilling effect globally, and that could come back and bite the U.S. economy.
As far as U.S. yields, Bullard said they are influenced by global rates, though the shape of the U.S. curve is sending a signal that the markets are less sanguine on growth than is the FOMC. As of today, he said he would vote for another 25 basis point cut before the end of the year though he doesn’t want to pre-judge the Committee’s decision. He said the biggest threat is that analysts fall into a negative rate environment as in Japan or Europe.
The iShares 20+ Year Treasury Bond ETF (TLT) fell for just the 2nd time in 8 sessions following the late day pullback to $141.14. Upper support at $141.50-$141 was breached and failed to hold. A close below the latter would signal additional weakness towards $140-$139.50 and the 50-day moving average.
Lowered resistance is at $143.50-$144 with additional hurdles at $145.50-$146 on a close above the latter.
The S&P 500 Volatility Index ($VIX) surged to a high of 18.45 shortly after the open with mid-August resistance at 17.50-18 getting stretched but holding. A close above 17.50 would be an ongoing bearish development with upside risk towards 19.50-20.
Support at 16.25-16.75 and the 50/200-day moving averages were recovered on the afternoon fade to 15.69 and close below the former. Continued closes back below 15-14.50 would be a more bullish signal volatility has eased.
One troubling signal is the golden cross that is on the verge of forming with the 50-day moving average on track to clear the 200-day moving average. This technical setup usually leads to higher highs and would confirm lower lows in the market as the VIX rises.
The Spiders Dow Jones Industrial Average ETF (DIA) rebounded to close higher for the 2nd time in 3 sessions after reaching an intraday peak of $270.13. Near-term and lower resistance at $269.50-$270 was cleared and held. Continued closes above the latter would be a renewed bullish signal for a retest towards $272-$272.50.
Current support is at $268-$267.50. A close below the latter would be a fresh bearish signal with risk towards $266.50-$266.
RSI is back in a slight uptrend with resistance at 60-65 and the latter representing the monthly peak. Support is at 50 with downside potential towards 45-40 on a move below this level and the latter representing the mid-August low.
The Technology Select Sector Spiders (XLK) closed higher despite testing a morning low of $78.89. Upper support from earlier this month at $79.25-$78.75 and the 50-day moving average was breached but held. A move below the $78.50 level would be a fresh sell signal with additional risk towards $77.50-$77.
Lower resistance at $80.50-$81 was recovered on the late day run to $80.90. Continued closes above $82 would be a more bullish development for additional strength towards $82.50-$83 with the all-time peak currently at $82.78.
RSI has been holding support at 50. A move below this level would signal additional weakness towards 45-40. Resistance at 55-60 with a close above the latter getting 65-70 and July highs in play.
Today’s earnings announcements:
Before the open: Accenture (ACN), Actuant (ATU), Carnival (CCL), Conagra Brands (CAG), FactSet Research Systems (FDS), Rite Aid (RAD)
After the close: Applied Genetic Technologies (AGTC), CalAmp (CAMP), Dynagas (DLNG), Micron Technology (MU), Net 1 UEPS Technologies (UEPS), Progress Software (PRGS), Vail Resorts (MTN)
The bulls continue to show resiliency following yesterday’s comeback but the choppy trading will likely continue into 3Q earnings season and early October. Corporate earnings should provide the next near-term catalyst for a possible trend (up or down) while the China trade news unfolds and when delegates from both sides will be meeting at the White House.
As far as New Trades, I’m slightly bearish of AAL and PFE. If I take action today, I will send out a Text Alert and an email. Given the current environment, staying light in our positions and mostly in cash seems like a good strategy. However, adding a put option or two should provide some insurance on lower market lows.
Momentum Options Play List
Closed Momentum Options Trades for 2019: 32-11 (74%). 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.
Advanced Micro Devices (AMD, $29.54, up $0.02)
AMD October 32 calls (AMD191018C00032000, $0.60, flat)
Entry Price: $0.80 (9/23/2019)
Exit Target: $1.60
Stop Target: None
Action: Lower support from early August at $28.75-$28.50 held on yesterday’s drop to $28.55 before the slightly higher close. Resistance is at $29.75-$30.
Fox (FOXA, $32.01, up $0.42)
FOXA October 35 calls (FOXA191018C00035000, $0.20, flat)
Entry Price: $0.70 (9/11/2019)
Exit Target: $1.40
Stop Target: None
Action: Upper support at $31.50-$31.25 held for the 2nd-straight session on the opening fade $31.56. Lower resistance at $32-$32.25 was recovered on the rebound to $32.18.
Limelight Networks (LLNW, $3.14, up $0.04)
LLNW January 3 calls (LLNW200117C00003000, $0.55, flat)
Entry Price: $0.60 (9/11/2019)
Exit Target: $1.50-$2
Stop Target: None
Action: Upper support at $3.10-$3 held on the fade to $3.05 yesterday. Resistance is at $3.15-$3.25.