MomentumOptions.com Pre-Market Update for 10/1/2019

Bulls Get Monthly Win but Third Quarter Mixed

8:00am (EST)

The market showed strength throughout Monday’s session after Treasury Secretary Steve Mnuchin denied a report over the weekend that the Trump administration was looking to restrict China’s access to U.S. markets. This was the catalyst for Friday’s pullback that included chatter of delisting China stocks on U.S. indexes.

White House adviser Peter Navarro also reiterated Mnuchin’s message ahead of the open with the gains wrapping up a positive month for the major indexes. Volatility eased while closing below major support levels and giving an indication upcoming 3Q earnings will play more of a role in market direction than politics.

The Nasdaq jumped 0.8% after trading to a midday high of 8,012. Prior and lower support at 8,000-8,050 was cleared but held by less than a point. A close above the latter and the 50-day moving average would be a more bullish signal for a retest towards 8,100-8,150.

The S&P 500 climbed 0.5% following the intraday run to 2,983. Lower resistance at 2,975-3,000 was cleared and held by over a point with continued closes above the latter keeping 3,025 and fresh all-time highs in play. 

The Dow added 0.4% after reaching an intraday peak of 26,998. Near-term and lower resistance at 27,000-27,250 held with a move above the latter getting the July all-time high at 27,398 in focus.

The Russell 2000 nudged up 0.2% following the 2nd half trip to 1,530. Prior and lower resistance at 1,525-1,540 was cleared but held by a couple points with continued closes above 1,550 signaling a near-term bottom.

For the month of September, the Dow jumped 2%, the S&P 500 soared 1.7% and the Nasdaq added 0.5%. For the quarter, the Dow and the S&P 500 both rallied 1.2%, while the Nasdaq fell 0.1%. The Russell 2000 was up 1.9% for September but lost 2.2% for the 3rd quarter.

Technology led sector strength after rallying 1.1% while Consumer Discretionary, Healthcare and Materials rose 0.9%. Energy and Financials were the only sector laggards after falling 0.7% and 0.2%, respectively.

In economic news, Chicago Fed National Activity Index declined 3.3 points to 47.1, weaker than expectations of 50.4, and follows the 6 bounce to 50.4 in August. It also represented the 3rd time this year the monthly index has dropped below 50. The 3-month moving average slid to 47.3 versus 48.2.

Dallas Fed Manufacturing Survey dipped 1.2 points to 1.5 in September, topping forecasts for a print of 1. The employment component climbed to 18.8, more than tripling the August’s 5.5 reading and is the best since last October. The workweek rose to 5.7 from 4, though wages fell to 17.4 from 27.3. New orders dipped to 7.1 versus 9.3. The prices paid index jumped to 20.3 from 9.8, with prices received at 1 from -2.6. The 6-month general activity index slumped to -6.8 versus 1.4, with the future employment gauge at 15.9 from 22.9. New orders were at 23.9 from 23.7, while prices paid rose to 20 from 11.8, and prices received at 11.5 from 9.1.

In Fed news, Chicago Fed Charles Evans said that he was “open-minded” when asked about the right level for interest rates in the U.S., but suggested more cuts could be needed if economic headwinds increase.

Evans still upbeat on the fundamentals for the U.S. despite headwinds that the economy is facing by saying the Fed has reduced the federal funds target by 50 basis points and that he thinks that has helped move them into an accommodative stance. However, he added that could be a moving target if headwinds are increasing and the Fed has to do more.

The iShares 20+ Year Treasury Bond ETF (TLT) has been in a 6-session trading range with Monday’s low tapping $141.84 shortly after the open. Upper support at $142-$141.50 was breached but held. A close below the latter would be a slightly bearish signal with risk towards $141-$140.50 and the 50-day moving average. 

Lower resistance at $143-$143.50 was cleared and held on the late day trip to $143.09. Continued closes above the $144 level would be a more bullish signal for a retests towards $145.50-$146.

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The S&P 500 Volatility Index ($VIX) tested an opening high of 17.35 before spending the rest of the session in the red. Lower resistance at 17.50-18 held with a close above these levels keeping upside risk towards 19.50-20 in play.

The late day fade to 16.22 and close back below the 50/200-day moving averages was a slightly bullish signal. Fresh support is at 15.50-15 with continued closes below the latter signaling additional strength in the market.

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The Invesco QQQ Trust (QQQ) snapped a 2-session slide after trading to an intraday high $189.11. Near-term and lower resistance at $189.50-$190 held with the close back above the 50-day moving average being a slightly bullish signal. Continued closes above $192 would be a more bullish development for higher highs with upside potential towards $193.50-$194.

Current support is at $188-$187.50. A move below the latter would be a slightly bearish signal for a further pullback towards $186.50-$186.

RSI is back in an uptrend with resistance at 50. There is upside potential towards 55-60 on a close above this level with the latter representing the monthly peak. Support is at 45-40.

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The Consumer Staples Select Spiders (XLP) was up for the 5th time in 6 sessions following the intraday push to $61.69 and fresh all-time high. Prior and lower resistance from earlier this month at $61.50-$62 was cleared but held. A close above the latter would be an ongoing bullish signal with blue-sky territory towards $63-$63.50.

Current and rising support at $61.25-$60.75. A close below the $60.50 level would be a slightly bearish signal with downside risk towards $60 and the 50-day moving average.

RSI remains in an uptrend from mid-month after clearing resistance at 60. Continued closes above this level would signal additional strength towards 65-70 and the latter representing the July high. Support is at 55-50 with the latter level holding since mid-August.

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I still like AT&T (T) with shares looking poised to clear $38 and a level I would like to see hold for a few session. However, a dividend payment of 51 cents will be paid next week and will affect shares ex-dividend. There are weekly T options available to trade but volume is lighter and makes the bid/ask prices a tad tougher to get into. 

There was heavy volume in the T October 38.50 calls (T191018C00038500, $0.18, up $0.04) as nearly 1,400 contracts traded and are on my Watch List. While tempting, I may wait u til after the dividend and target November or December call options.

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I’m also looking at Boston Scientific (BSX) following last Friday’s 5% plunge and intraday drop below $40. Shares are no man’s land with a close back above $41.50 being bullish, or another dip below $40 leading to a further backtest. Stay tuned as I’m looking at both calls and puts based on this resistance and support levels.

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And finally, a death cross is close to forming in Ford (F) and we could use the F November 9 puts (F19111815P00009000, $0.37, down $0.04) if shares fall below $9 and the 200-day moving average.

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These are some of the trades I’m targeting and there are 5-8 other stocks that look like good option trades. We just have to wait for the signals to trigger in some of these names and for the market to give us clues on how October unfolds. In the meantime, I have updated our current trades so let’s go check the tape.

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.

American Airlines Group (AAL, $26.97, down $0.04)

AAL October 27 puts (AAL191018P00027000, $1.00, flat)

Entry Price: $0.95 (9/26/2019)

Exit Target: $1.90

Return: 5%

Stop Target: None

Action: Upper support at $27-$26.75 was breached and failed to hold following the intraday fade to $26.82. Resistance is at $27.25-$27.50.

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Pfizer (PFE, $35.93, down $0.29)

PFE November 35 puts (PFE191115P00035000, $0.85, up $0.05)

Entry Price: $0.95 (9/26/2019)

Exit Target: $1.90

Return: -11%

Stop Target: None

Action: Shares traded to a low of $35.92 with upper support at $36-$35.75 getting breached and failing to hold. Resistance is at $36.25-$36.50.

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Limelight Networks (LLNW, $3.03, up $0.02)

LLNW January 3 calls (LLNW200117C00003000, $0.45, flat)

Entry Price: $0.60 (9/11/2019)

Exit Target: $1.50-$2

Return: -25%

Stop Target: None

Action: Monday’s peak reached $3.04 with lower resistance at $3.05-$3.15 holding. Support is at $3-$2.90.

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