MomentumOptions.com Pre-Market Update for 10/2/2019

Small-Caps Get Smacked Following Disappointing Data  

8:00am (EST)

The market showed strength on Tuesday’s open but quickly reversed course following disappointing manufacturing data that showed the U.S./ China trade war hurt exports. The news followed disappointing economic news overseas and is only fanning long-standing fears of slowing global growth. 

Although U.S.-China trade talks are expected to resume next week, expectations are low for a near-term breakthroughs. Meanwhile, volatility closed back above key resistance levels and is once again signal a cautious tone for the overall market.

The Russell 2000 was down for the 9th time in 11 sessions after tanking 2% while tapping a late day low of 1,491. Prior and upper support from late August at 1,500-1,485 was breached and failed to hold on the close back below the 200-day moving average. There is risk towards 1,465-1,450 on a move below 1,485.

The S&P 500 sank 1.2% after tapping a 2nd half low of 2,938. Key support at 2,950 and the 50-day moving average was breached and failed to hold with downside potential towards 2,925-2,900 on continued weakness.

The Nasdaq fell for the 3rd time in 4 sessions after giving back 1.1% and testing an intraday low of 7,906. Near-term and upper support at 7,900-7,850 held on the 4th-straight close below the 50-day moving average. There is risk towards 7,750-7,700 and the 200-day moving average if 7,850 fails to hold.

The Dow dropped 1.3% after trading to a 1st half high of 27, 046 but failing to hold key resistance at the 27,000 level for the 7th-straight session. Prior and major support from late July and early September at 26,600 was breached and failed to hold on the tumble to 26,562 afterwards. There is risk towards 26,400-26,200 on a close below 25,550 and the 50-day moving average.

Industrials and Materials lead sector weakness after plummeting 2.4% while Energy sank 2.3%. There was no sector strength. 

In economic news, PMI Manufacturing Index rose to 51.1 in the final read for September, topping forecasts of 51, and the 50.3 print in August. The employment component improved to 50.9 versus the prior 50.1 and was the 2nd-straight month of expansion.

ISM Manufacturing Index dropped another 1.3 points to 47.8 in September, weaker than expectations for a print of 50, after falling 2.1 to 49.1 in August. This was the worst reading since June 2009. The employment component slipped to 46.3 from 47.4 and is the lowest since January 2016. New orders were little changed at 47.3 from 47.2. New export orders declined to 41 from 43.3. Imports increased to 48.1 from 46. Prices paid rose to 49.7 from 46. The only component not in contraction was supplier deliveries which dipped to 51.1 from 51.4.

Construction Spending inched up 0.1% in August, missing forecasts for a rise of 0.3%, and follows an unchanged reading in July. Residential spending increased 0.9% following the 0.6% July bounce. Nonresidential spending dipped another -0.4% versus -0.3%, and is a fifth consecutive negative print. Private spending was flat versus -0.5% and is the first non-negative print since March. Public spending was up 0.4% from 1.4%.

U.S. chain store sales surged 5.6% last week, after falling 1.8% in the prior week, and the biggest weekly gain since the 6.7% surge in the 1st week of February 2012. The 12-month pace also climbed to a 3.2% year-over-year pace, doubling the 1.4% previously. There was strength in consumer staples, especially in drugs, along with traditional grocery and discounters.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 4th-straight session after testing an intraday high of $143.91. Lower resistance at $143.50-$144 was cleared but held. Continued closes above the latter would be a bullish signal for additional strength towards $145.50-$146.

Support is at $141.50-$141. A close below the latter and the 50-day moving average would be a slightly bearish development with risk towards $140-$139.50. 

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The S&P 500 Volatility Index ($VIX) tested a low of 15.79 shortly after the opening bell with upper support at 15.50-15 holding for the 5th-straight session.

The spike to 18.62 afterwards and close back above the 50/200-day moving averages was a renewed bearish signal. Upper resistance at 17.50-18 failed to hold with a close above the 18.50 level keeping upside risk towards 19.50-20 in focus.

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The Russell 2000 ETF (IWM) closed in the red for the 3rd time in 4 sessions despite surging to a morning high of $153.35. Lower resistance from early September at $153.50-$154 was cleared but held.

Prior and upper support  from late August at $148.50-$148 was breached and failed to hold on the backtest to $148.05. A close below the latter would be an ongoing bearish development with near-term risk towards $147-$146.50.

RSI remains in a downtrend after failing support at 40. There is risk towards 35-30 on continued weakness with the former representing August lows and the latter representing the late May low. Resistance is at 45-50.

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The Dow Jones Transportation Average ($TRAN) settled lower despite testing an opening high of 10,484. Near-term and major resistance at 10,500 was challenged for the 4th time in 6 sessions but held.

The tumble to 10,082 afterwards and close below the 50/200-day moving averages was a bearish development. Fresh and upper support from late August at 10,100-10,000 was breached but held. A close below the latter would signal additional weakness towards 9,900-9,800.

RSI is in a downtrend with support at 40. A close below this level would signal additional weakness towards 35-30 with the latter representing the August low. Resistance is at 45-50.

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I could have another New Trade today so stay locked-and-loaded. In the meantime, I have updated our current trades.

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.

Ford (F, $8.90, down $0.26)

F November 9 puts (F191115P00009000, $0.40, up $0.07)

Entry Price: $0.40 (10/1/2019)

Exit Target: $0.80

Return: 0%

Stop Target: None

Action: Shares tested a low of $8.87 yesterday with early September and upper support at $9-$8.90 getting breached and failing to hold. There is risk towards $8.80-$8.70 and late August lows on a close below the latter.

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American Airlines Group (AAL, $26.80, down $0.17)

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 $26.75-$26.50 was breached but held on the pullback to $26.59. Lowered resistance is at $27-$27.25.

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Pfizer (PFE, $35.43, down $0.50)

PFE November 35 puts (PFE191115P00035000, $1.00, up $0.15)

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

Exit Target: $1.90

Return: 5%

Stop Target: None

Action: Shares closed on the session low of $35.43 on Tuesday with late August and upper support at $35.50-$35.25 getting breached and failing to hold. I would love to see a close below $35 today. Lowered resistance is at $36-$36.25.

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Limelight Networks (LLNW, $2.98, down $0.05)

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: Upper support at $3-$2.90 failed to hold on the close at the session low of $2.98. Resistance is at $3.05-$3.15

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