MomentumOptions.com Pre-Market Update for 10/10/2019
Bulls Recover Near-Term Resistance Levels on Mild Rebound
The market showed strength throughout Wednesday on reports China is open to a partial trade deal despite the recent blacklisting of Chinese companies. However, some of the stipulations were no more tariffs being imposed by the Trump administration, including duties scheduled this month and in December.
While nothing is certain, the positive chatter comes ahead of the upcoming 13th round of negotiations between top U.S. and Chinese officials. The major indexes made a run at near-term resistance levels but remain in a sideways trading range and trapped between their 50/200-day moving averages.
The Nasdaq rose 1% after tapping a midday high of 7,930. Current and lower resistance at 7,900-7,950 was cleared and held with a close above the latter getting 8,000 and the 50-day moving average back in play.
The S&P 500 was up 0.9% following the intraday push to 2,929. Prior and lower resistance at 2,900-2,925 was cleared and held with more important hurdles at 2,950 and the 50-day moving average.
The Dow gained 0.7% after trading to a 2nd half high of 26,424. Near-term and lower resistance at 26,400-26,600 and the 50-day moving average was challenged but held with a close above the 26,800 level being a more bullish signal selling pressure has abated.
The Russell 2000 advanced 0.5% following the opening pop to 1,484. Prior and lower resistance at 1,475-1,490 was recovered with a close above the 1,500 level getting at 1,510-1,525 and the 50/200-day moving averages back in focus.
Technology was the strongest sector after soaring 1.5% while Materials and Financials jumped 1.1% and 0.9%, respectively. There were no sector laggards.
In economic news, MBA Mortgage Applications rose 5.2%, after jumping 8.1% the prior week, with the index up 69.3% year-over-year. Strength on the week was in the refinancing index which increased another 9.8% after the 14.2% prior bounce. The purchase index declined -0.9%, erasing the 0.9% gain in the prior week. Refinancings comprised 60.4% of the applications, with an average loan size of $327,300. The 30-year fixed rate mortgage rate dropped to 3.9%, versus 3.99% previously. The 5-year ARM slid to 3.25% from 3.42%.
Jolts reported job openings dropped 123,000 to 7,051,000 in August after falling 74,000 to 7,174,000 in July. Expectations were at 7,186,000. The rate dipped back to 4.4% from 4.5%. Hirings declined 199k,000 to 5,779,000 following the 262,000 July climb to 5,978,000. The rate fell to 3.8% from 3.9%. Quitters slid 142,000 to 3,526,000 after rising 206,000 to 3,668,000 previously. The rate slumped to 2.3% versus 2.4%.
Wholesale Trade Inventories rose 0.2% in August versus forecasts for a rise of 0.4%, with sales unchanged. July’s 0.2% inventory gain was not revised, while the 0.3% increase in sales was bumped down to 0.2%. The inventory-sales ratio was steady at the cycle high of 1.36 for a 4th-straight month.
As far as the release of the FOMC Minutes, the report reflected the split seen in the policy stance at the mid-September meeting that resulted in 3 dissents. There was a divide over how to communicate the future path, and several members suggested the end of easing should be clarified. The general view of policymakers was a positive outlook. Many members, however, thought that low inflation justified the rate cut last month, alongside the risks from trade and global weakness.
Several Fed members suggested adopting an inflation range, although many saw only modest benefit from inflation make-up strategies. Meanwhile, a few officials worried that the market was pricing too much easing, and several wanted the statement to have more clarity on when the easing would likely end.
The iShares 20+ Year Treasury Bond ETF (TLT) fell for the 2nd time in 3 sessions and remains in a 5-day trading range following the intraday pullback to $143.80. Near-term and upper support is at $144-$143.50 was breached but held. A close below the latter would signal a breakdown out of the range with risk towards $142.50-$142 and the 50-day moving average.
Lowered resistance is at $144.50-$145 with additional hurdles at $145.50-$146 and the latter representing the top of the current trading range.
The S&P 500 Volatility Index ($VIX) traded below the 20 level throughout the session with the low tapping 17.77. Lower support at 18-17.50 and the 50-day moving average were challenged, but held, with more important recovery levels at 16.50-16 and the 200-day moving average.
Near-term resistance was lowered to 19.50-20 but is hard to trust at this point. A move back above the 20.50 level reopens risk towards 21.50 and the monthly highs at 21.44 and 21.46.
The Wilshire 5000 Composite Index ($WLSH) snapped a 2-session slide after trading to an intraday high of 29,853. Lower resistance is at 29,750- 30,000 was cleared and held. Continued closes above the latter a downward sloping 50-day moving would be more bullish signals for additional strength.
Current support is at 29,500-29,250. A close below the latter and the 200-day moving average would signal additional weakness towards the 29,000 level with the August intraday low at 28,938.
RSI is back in an uptrend with resistance at 45-50. A close above 50 would be a bullish signal for additional strength towards 55-60 and the latter representing the September highs. Support is at 40-35 and the latter representing the monthly low.
The Energy Select Sector Spider (XLE) snapped a 2-session slide after surging to a high of $56.72. Near-term and lower resistance at $56.50-$57 was cleared but held. A close above the $57.50 level would be a more bullish signal for a retest towards $58-$58.50 and the 50-day moving average.
Current support is at $56-$55.50. A close below the latter and the monthly low at $55.64 would be a renewed bearish development with backtest potential towards the $55 level and August lows.
RSI is in an uptrend with resistance at 40. A close above this level would be a slightly bullish signal for additional strength towards 45-50. Support is at 35-30 with risk towards the 25 area and the early August lows on a move below the latter.
The market continues to trade between the July highs and August lows with the charts looking bearish. The major indexes remain trapped between downward sloping 50-day moving averages and up trending 200-day moving averages. A lot will have to change to improve the technical outlook but a positive trade outcome with China along with a decent 3Q earnings season and rosy outlook for 4Q could brighten the picture.
The ongoing political impeachment chatter has been more of a headache than a hassle as a lower trend usually develops due to the uncertainty of what won’t get done for the economy and the American people. Making money in a down market is no different than profiting in bull markets, except that different strategies are used. However, the whipsaw action has been frustrating as it requires daily monitoring of the market and your current positions.
Trends are easier to trade and at at some point the current choppiness could lead to full blown panic mode if the August lows come back into play. Of course, the VIX will give us a good indication on how the dust might settle once the current state of affairs play out. A close above the 21.50 level, or a recovery below the 15.50-15 area, will be a clear signal on how the rest of 2019 plays out.
Momentum Options Play List
Closed Momentum Options Trades for 2019: 33-11 (75%). 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.
Intel (INTC, $50.48, up $0.76)
INTC November 52.50 calls (INTC191115C00052500, $1.15, up $0.20)
Entry Price: $1.32 (10/7/2019)
Exit Target: $2.65
Stop Target: 65 cents (Stop Limit)
Action: Shares tested a low of $49.61 with prior and upper support at $49.50-$49. Lowered resistance is at $50-$50.25.
Ford (F, $8.58, up $0.02)
F November 9 puts (F191115P00009000, $0.70, down $0.05)
Entry Price: $0.40 (10/1/2019)
Exit Target: $1
Stop Target: 55 cents (Stop Limit)
Action: Shares tapped a high of $8.64 with lower resistance at $8.60-$8.70 getting breached but holding. Support is at $8.50-$8.40.
Limelight Networks (LLNW, $2.96, up $0.08)
LLNW January 3 calls (LLNW200117C00003000, $0.40, flat)
Entry Price: $0.60 (9/11/2019)
Exit Target: $1.50-$2
Stop Target: None
Action: Lower resistance at $3-$3.10 held on Wednesday’s run to $2.99. Support is at $2.90-$2.80.