MomentumOptions.com Pre-Market Update for 10/17/2019

Small-Caps Settle Higher in Sluggish Session

8:00am (EST)

The market was in a holding pattern on Wednesday following the latest round of earnings reports and slightly weaker-than-expected economic news. The major indexes traded in tight ranges before closing mostly lower with the small-caps showing strength. 

The slack session was a slightly bullish signal as Financials and the Transports closed higher and are important sectors that will need to lead the next leg higher for the market. Volatility rose slightly but is still giving a bullish reading after holding near-term resistance levels.

The Russell 2000 gained 0.1% after testing an intraday high of 1,529 while closing above its 50-day moving average for the 2nd-straight session. Lower resistance at 1,530-1,345 and the 200-day moving average was challenged but held with a close above the latter signaling additional strength towards 1,560-1,575.

The Nasdaq fell 0.3% after trading in the red throughout the session while bottoming at 8,103. Upper support at 8,100-8,050 held with a close below the latter getting 8,000 and the 50-day moving average back in play.

The S&P 500 traded in a 12-point range before slipping 0.2% and failing key resistance at the 3,000 level by 3 points. Upper support at 2,975-2,950 held on the opening fade to 2,985 with a move below the latter and the 50-day moving average at 2,941 opening up risk towards 2,925-2,900.

The Dow was lower by 0.1% following the intraday pullback to 26,943. Upper support at 27,000-26,800 was breached but held by a 2 points below with a close below the latter leading to a possible retest towards 26,600-26,400 and the 50-day moving average.

Consumer Discretionary paced sector leaders after rising 0.4% while Materials, Utilities, and Communications nudged up 0.2%. Energy and Technology were the leading sector laggards with declines of 1.4% and 0.7%, respectively.

In economic news, MBA Mortgage Applications rose 0.5% following prior week gains of 0.5% and 8.1%. Refinancings continued to propel the index, increasing another 3.6% from the previous 9.8% and 14.2% surges. The purchase rate declined 4.1% following the prior 0.9% slip. The 30-year fixed mortgage rate edged up to 3.92% from 3.9% previously, but has been below 4% for 3-straight weeks.

Retail Sales for September fell 0.3%, with the ex-autos component down 0.1%. Expectations were for a rise of 0.2% for both. The 0.4% increase in the August headline was revised high to 0.6%, while the prior flat ex-auto reading was bumped up to 0.2%. Sales excluding autos, gas, and building materials were 0.1% higher versus a prior 0.3% gain. Auto sales declined 0.9% after the prior 1.9% jump. Gas station sales were 0.7% lower from -1.3%. Building materials dropped 1% after climbing 2.3%. Clothing rebounded 1.3% from -0.7%. General merchandise sales dipped 0.3% from -0.2%, with department store sales down 1.4%. Nonstore retailers sales slipped 0.3% from 1.2%.

Business Inventories were unchanged in August, matching forecasts, with sales up 0.2% and just below expectations for a rise of 0.3%. The 0.4% increase in July inventories was revised to 0.3%, with the 0.3% sales gain bumped down to 0.2%. Inventories are up 4.2% year-over-year, with sales up 1.1%. The inventory-sales ratio steady at 1.40, where it’s been since May. 

NAHB Housing Market Index rose 3 points to 71 in October, topping expectations of 68, after rising 1 point to 68 in September. The current single family sales index improved to 78 from 75. The future sales index climbed to 76 from 70. The index of prospective buyer traffic rose to 54 from 50.

Atlantic Fed Business Inflation Expectations for October was up 1.8% year-over-year.

The Fed’s Beige Book reported the expansion was at a slight to modest pace, a little tepid versus the prior outlook that merely said activity expanded at a modest pace. The conditions were mixed, with Districts representing the Southern and Western regions generally more upbeat than the Midwest and Great Plains. Household spending was solid on balance. Retail sales increased modestly, and nonauto sales were up modestly and light vehicle sales generally robust. Manufacturing continued to ege lower, with some comments saying persistent trade tensions and slower global growth weighed on activity. Freight shipments had stabilized after declining in the prior reporting period while activity in nonfinancial services increased solidly. Nonresidential construction increased at a slightly slower yet still modest pace. Ag conditions deteriorated further due to the impacts of adverse weather, weak commodity prices and trade disruptions. Employment rose modestly and there was ongoing tightness in labor market conditions. Wages rose moderately. Prices increased modestly, with both retailers and manufacturers noting rising input costs, and often for items subject to the new tariffs. Retailers had relatively more success in passing on costs to customers.

The iShares 20+ Year Treasury Bond ETF (TLT) closed slightly higher despite the intraday pullback to $139.35. Prior and upper support at $139.50-$139 was breached but held with backup help at $138.50-$138.

Lowered resistance is at $140.50-$141 with more important hurdles remaining at $142.50-$143 and a 50-day moving average that is starting to level out.

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The S&P 500 Volatility Index ($VIX) snapped a 5-session losing streak after tapping a high of 14.26 shortly after the opening bell. Fresh and lower resistance at 14.50-15 easily held with a close back above the latter being a bearish development for the market.

Major support remains at 13.50 followed by 13-12.50 on a close below this level. 

RSI has flatlined with support at 40. A move below this level would signal additional weakness towards 35 and the July low. Resistance is at 45-50 with the latter representing prior support from earlier this month. A close above the 50 level would be a bearish signal for the market.

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The Spiders Dow Jones Industrial Average ETF (DIA) settled slightly in the red after trading in a tight $1.16 range and testing a morning morning low of $269.40. Upper support at $269.50-$269 was breached but held with backup help at $268-$267.50. A close below the latter would be a bearish signal and represents the gap higher from last week’s breakout.

Current resistance is at $271-$271.50. A close above the latter would signal renewed momentum with fresh hurdles at $272.50-$273 and the September all-time highs.

RSI is flatlining with support at 55-50. A move below the latter would be a bearish signal for a retest towards 45-40. Resistance is at 60 and the September peak with a close above this level signaling additional strength towards 65-70 and July highs.

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The Industrials Select Sector Spider (XLI) settled in the red for just the 2nd time in the past 6 sessions following the intraday run to $77.62.  Lower resistance at $77.50-$78 was breached but held. Continued closes above the latter and prior resistance from late September would be an ongoing bullish signal for a run towards $79-$79.50 and fresh 52-week peaks.

Current support is at $77-$76.50. A close below the latter would be a slightly bearish signal with risk towards $76-$75.50 and an up trending 50-day moving average.

RSI is has leveled out with support at 55-50. A move below the latter would signal additional weakness towards 45-40. Resistance is at 60. Continued closes above this level would signal additional strength towards 65-70 with the latter representing the late April peak.

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There were mixed earnings after last night’s closing bell that will weigh on Tech and the blue-chips in both bullish and bearish ways. The technical outlook remains bullish for the overall market with earnings likely the key factor on fresh all-time highs or another near-term top.

Momentum Options Play List

Closed Momentum Options Trades for 2019: 35-11 (76%). 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.

AT&T (T, $37.79, down $0.11)

T November 39 calls (T191115C00039000, $0.65, flat)

Entry Price: $0.65 (10/15/2019)

Exit Target: $1.30

Return: 0%

Stop Target: None

Action: Upper support at $37.75-$37.50 was tripped but held on the backtest to $37.69 yesterday. Resistance is at $38-$38.25.

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Mylan (MYL, $18.74, down $0.09)

MYL November 20 calls (MYL191115C00020000, $0.80, flat)

Entry Price: $0.80 (10/15/2019)

Exit Target: $1.60

Return: 0%

Stop Target: None

Action: Shares tested a low of $18.62 with upper support at $18.75-$18.50 getting breached and failing to hold by a penny. Resistance remains at $19-$19.25.

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Limelight Networks (LLNW, $3.12, down $0.06)

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: Shares were up 14% in after-hours action and above the $3.50 level.

After the bell, the company reported earnings of a penny a share, matching estimates while Q3 revenue came in at $51.3 million versus forecasts for $49.9 million. It was the highest 3Q revenue ever and the 2nd highest revenue in any quarter for Limelight Networks. 

The company also set a new record for traffic in the quarter, continuing the rapid growth they demonstrated throughout the year. More importantly, the CEO said the results were driven by accelerating investments in infrastructure while significantly growing capacity, and still maintaining fiscal discipline by controlling expenses.

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