MomentumOptions.com Pre-Market Update for 10/3/2019

Bears Stay Aggressive with Major MA’s in Play

8:00am (EST)

The market closed Wednesday’s session at its lowest levels since August as a weaker-than-expected report on private employers’ hiring stoked ongoing fears that economic growth is slowing. Technical indicators also played a major role in the overall weakness with the major indexes testing key support levels and round psychological numbers.

Volatility rose to its highest levels in a month and is confirming additional risk for the market with a number of major economic reports due out the rest of the week.

The S&P 500 stumbled 1.8% after tapping a 2nd half low of 2,874. Prior and upper support at 2,875-2,850 was breached but held with a move below the latter and the 200-day moving average signaling additional weakness towards 2,825-2,800.

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The Dow skidded 1.9% after tapping an intraday low of 25,974. Major support at the 26,000 level was breached but held with a close below 25,800 and the 200-day moving average opening up risk towards 25,600-25,400.

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The Nasdaq sank 1.6% following the midday backtest to 7,744. Late August and upper support at 7,750-7,700 held with a close below the latter and the 200-day moving average getting 7,650-7,600 in focus.

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The Russell 2000 gave back 1% following the intraday plunge to 1,469. Early September and lower support at 1,480-1,470 was stretched but held with a move below 1,465 getting the late August low at 1,450 in play. 

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There was no sector strength for the 2nd-straight session. Energy was the weakest sector after tanking 2.5% while Financials and Consumer Staples fell 2%.

European markets settled with heavy losses following disappointing economic news that showed the UK construction sector remains mired in a downturn.

UK’s FTSE 100 was down 3.2% and France’s CAC 40 was off 3.1%. Germany’s DAX 30 declined 2.8% while the Belgium20 and the Stoxx 600 were hammered with losses of 2.7%.

UK’s construction purchasing managers’ index dropped to 43.3 from 45 versus forecasts for an unchanged reading.

Asian markets closed lower following reports North Korea fired what seemed to be a submarine based ballistic missile, adding more geopolitical uncertainty to the global markets.

South Korea’s Kospi plummeted 2% and Australia’s S&P/ASX 200 lost 1.5%. Japan’s Nikkei declined 0.5% and Hong Kong’s Hang Seng slipped 0.2%. China’s Shanghai remained closed until next week for a holiday.

In economic news, MBA Mortgage Applications rebounded 8.1% following the prior week’s 10.1% drop. Strength was in the refi index which climbed 14.2% after diving 15.2% previously. The purchase index edged up 0.9% following the prior 3.1% slide. The 30-year fixed mortgage rate fell back below 4%, slipping to 3.99% after rising to 4.02% in the week before. It was at 4.96% a year ago. The 5-year ARM increased to 3.42% versus 3.39% previously.

The ADP Employment Report showed private payrolls increased 135,000 in September versus expectations for a print of 152,000. The service sector added 127,000 workers while education/health jobs were up 42,000. Trade/transport employment was up 28,000 and leisure was higher by 18,000. The goods sector added 8,000, with construction up 9,000 and manufacturing 2,000 higher. The 195,000 reading in August was revised down to 157,000.

In Fed news, Richmond Fed Thomas Barkin said his policy posture is very balanced and he is monitoring data on the economy and data on uncertainty. He said there is a lot of information to be seen before the next meeting at the end of October. He said analysts have taken out insurance with the rate cuts and he wants to see how things develop, adding business confidence is being affected by the various uncertainties. 

Barkin said getting inflation up to the 2% target is a challenge, and noted businesses are uncertain whether they can pass on prices. He doesn’t believe there’s a recession in the cards and repeated he has a balanced view on policy right now. He did say the markets are too focused on small policy moves and that he is monitoring confidence very closely to see if the uncertainties that have weighed on businesses are spilling over to the household sector.

New York Fed John Williams said the current outlook is more mixed but the economy is very strong. He said there is definitely a lot of uncertainties and risks out there and it is hard for officials to make sense of the impacts of uncertainties but financial conditions remain supportive for growth. 

Williams added it is clear that tariffs are being passed on to producer and consumer prices while reiterating the FOMC has a symmetric 2% inflation goal and he expects prices to increase modestly. He went on to say the yield curve is telling an important message on market sentiment while showing pessimism on the outlook. 

Williams also added low long term rates are largely reflecting global monetary policies while the turmoil in the repo market at the turn reflected lower reserves and higher payments.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 5th-straight session after reaching an intraday peak of $144.27. Lower resistance at $143.50-$144 was recovered with a close above the latter signaling additional strength towards $145.50-$146.

Rising support is at $143-$142.50 with backup help at $142-$141.50.

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The S&P 500 Volatility Index ($VIX) was up for the 4th time in 5 sessions after testing an midday peak of 21.46. Upper resistance from early September at 19.50-20 was breached and failed to hold. A close above the 20.50 level keeps upside risk towards 21.50-22 in play.

Rising support is at 19-18.50 followed by 17-16.50 and the 50/200-day moving averages. 

RSI is in an uptrend with resistance at 65-70 now in play. Support is at 60 with a move below this level signaling a retest of 55-50.

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The S&P 400 Mid Cap Index ($MID) fell for the 4th time in 5 sessions after trading to an intraday low of 1,861. Near-term and lower support from early September at 1,880-1,860 was breached but held on the close back below the 200-day moving average. A move below the latter would signal additional weakness towards 1,850-1,830 with the late August low at 1,825.

Lowered resistance is at 1,890-1,900 with more important hurdles at 1,910 and the 50-day moving average.

RSI remains in an downtrend with support at 35-30 and the latter representing the early August and late May low. Resistance is at 40-45.

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The Consumer Discretionary Select Spiders (XLY) fell out of a 7-session holding pattern following Wednesday’s plunge to $116.95 and 2nd-straight lower close. Fresh and upper support from late August at $117-$116.50 was stretched but held with the close below the 50-day moving average and breakdown out of the prior trading range being a bearish development. A move below the $116.50 level would signal additional risk towards $116-$115.50.

Lowered resistance is at $118.50-$119. Continued closes back above $120 and the 50-day moving average would be a slightly bullish signal selling pressure has possibly abated.

RSI is in a downtrend after failing support at 40. The close below this level reopened risk towards 35-30 with the latter serving as the early August low. Resistance is at 45-50 with the latter holding since mid-September.

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The current market action is signaling a test towards the August lows and today’s economic news and tomorrow’s jobs reports will set the tone on how the action plays out. Next week is also the start of 3Q earnings and the likelihood of continued volatility remains high. 

October has always been historic for major selloffs but in recent years it has been a bullish month. The rubber will certainly meet the road if the August lows are tested and from there, we will have to see if the buying the dip mentality still comes into play.

Despite the panic on Wall Street, we got some super sweet pin action yesterday as 1 of our current trades is now up triple-digits while 2 others are up high double-digits. I have made a number of adjustments with Exit Targets and Stop Limits so please adjust your trading accounts accordingly.

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, $8.61, down $0.29)

F November 9 puts (F191115P00009000, $0.70, up $0.30)

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

Exit Target: $0.80, raise to $1

Return: 75%

Stop Target: 55 cents (Stop Limit)

Action: Raise the Exit Target from 80 cents to $1. Set a Stop Limit at 55 cents to start protecting initial profits.

Shares tumbled to a low of $8.44 with fresh and upper support at $8.50-$8.40 getting breached but holding. Lowered resistance is at $8.70-$8.80.

There was HUGE volume in the F November 8 puts with over 46,000 contracts trading. They closed at 20 cents, up 7 cents.

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

AAL October 27 puts (AAL191018P00027000, $1.95, up $0.95)

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

Exit Target: $1.90, raise to $2.50

Return: 105%

Stop Target: $1.70 (Stop Limit)

Action: Raise the Exit Target from $1.90 to $2.50. Set a Stop Limit at $1.70 to start protecting initial profits.

Late August and prior support at $25-$24.75 was challenged but held on the backtest to $25.02. A close below the latter gets $24.50-$24.25 in the mix with the August lows reaching $24.32 and $24.23 in back-to-back sessions. Lowered resistance is at $25.75-$26.

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Pfizer (PFE, $34.70, down $0.73)

PFE November 35 puts (PFE191115P00035000, $1.50, up $0.45)

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

Exit Target: $1.90, raise to $2.50

Return: 58%

Stop Target: $1.25 (Stop Limit)

Action: Raise the Exit Target from $1.90 to $2.50. Set a Stop Limit at $1.25 to start protecting initial profits.

Shares tapped an intraday low of $34.65 on Wednesday with upper support at $34.75-$34.50 getting breached and failing to hold. A close below the latter reopens risk towards $34.25-$34 with the August low at $34.17. Lowered resistance is at $35-$35.25.

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Limelight Networks (LLNW, $2.89, down $0.09)

LLNW January 3 calls (LLNW200117C00003000, $0.40, down $0.05)

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

Exit Target: $1.50-$2

Return: -33%

Stop Target: None

Action: Upper support at $2.90-$2.80 failed to hold with the session low reaching $2.85. Lowered resistance is at $2.95-$3.05.

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