MomentumOptions.com Pre-Market Update for 10/30/2019
Markets Tentative Ahead of Fed’s Decision on Interest Rates/ Profit Alert (EEM)
The market was sluggish throughout the first half of Tuesday’s action as the major indexes danced on both side of the ledger and within tight ranges. Much of the nervousness comes ahead of the Fed’s decision on interest rates Wednesday afternoon with Wall Street in a wait-and-see-mode heading into the event.
Second half weakness ensued following news the U.S. and China’s phase one trade deal may not be signed at the APEC meeting in November as more time may be needed. The report added if the deal is not signed it is not a signal that talks have fallen apart, but simply that more time is required.
The mostly lower close held near-term support and resistance levels although volatility was slightly up for the 2nd-straight session. The VIX index continues to give excellent market clues and should be monitored closely during and after the Fed minutes are released.
The Nasdaq had it 4-session winning streak snapped after falling 0.6% while trading to an intraday low of 8,275. Near-term and upper support at 8,300-8,250 was breached and failed to hold with a close below the latter reopening risk towards 8,200-8,150.
The S&P 500 slipped 0.1% to end a 4-session winning streak, as well, after tapping a fresh all-time high of 3,047 shortly after the opening bell. New and lower resistance at 3,050-3,075 was challenged for the 2nd-straight session with upside potential towards 3,100-3,125 on a close above the latter.
The Dow dipped 0.1% despite trading to a morning high of 27,165 while holding the 27,000 level for the 2nd-straight session. Lower resistance at 27,200-27,400 was challenged but also held for the 2nd-straight session with a close above the latter and the all-time high at 27,398 getting 27,600-27,800 in focus.
The Russell 2000 was higher by 0.3% following the midday run 1,581. Lower resistance at 1,585-1,600 was challenged but held with a close above the latter and the late July high at 1,599 being an ongoing bullish signal.
Healthcare and Materials were the strongest sectors after rising 1.4% and 0.6%, respectively, while Energy advanced 0.4%. Communications Services and Technology paced sector laggards with losses of 0.9% while Consumer Discretionary was lower by 0.6%.
S&P Corelogic Case-Shiller home price index edged up 0.04% to 218.14 in August, after rising 0.16% to 218.05 in July. The 12-month pace was steady at 2.03% year-over-year versus 2% for August. The August 10-City index was unchanged at 230.83 following the 0.07% gain in July. Nineteen of the 20 cities surveyed posted 12-month gains, led by Phoenix at 6.29% year-over-year. Home prices in San Francisco posted a -0.06% decline year-over-year.
Consumer Sentiment fell -0.4 points to 125.9 in October versus estimates for a print of 128.8, and below September’s reading of 126.3. All of the weakness was in the expectations index which slipped to 94.9 in October from 96.8 in September. The present situation component rose to 172.3 after falling to 170.6. The labor market index bounced back to 35.1 following the slid to 33.5 in September. The 12-month inflation index was steady at 4.8%.
Pending Home Sales for September rose 1.5% to 108.7 in September, missing forecasts for a rise of 0.7%. However, the index is up 6.3% year-over-year with the annual gain the largest in 4 years.
U.S. chain store sales dropped 3.8%, after climbing 3.1% previously. The 12-month pace tumbled to a 1.9% year-over-year rate from 2.7% in the prior week. The report noted a shift toward discretionary spending at department stores and apparel-specialty stores in the latest week, and a good sign for the consumer.
The iShares 20+ Year Treasury Bond ETF (TLT) rebounded from the prior session’s plunge to reach a peak of $137.74. Near-term and lower resistance at $137.50-$138 was cleared but failed to hold. Continued closes back above the $138.50 level would be a more bullish signal for a retest towards $139.50-$140.
Current support remains at $137-$136.50. A close below the latter and the September low at $136.54 would be an ongoing bearish signal with additional weakness towards $134.50-$134 and prior support levels from early August.
The S&P 500 Volatility Index ($VIX) showed strength for the 2nd-straight session with the high reaching 13.52 shortly after the open. Major resistance at the 13.50 level was breached but held with stretch up to 14.50-15 and a close above the latter being a cautious signal.
Near-term support remains at 13-12.50. Continued closes below the latter would be a renewed bullish signal for the market with further backtest potential towards 12-11.50.
The Wilshire 5000 Composite Index ($WLSH) fell for the 1st time in 5 sessions despite trading to an intraday high of 31,078. Prior and lower resistance from mid-July at 31,100-31,200 was challenged but held. A close above the latter and the all-time high of 31,168 would signal additional strength towards 31,300-31,400.
Current and upper support at 30,900-30,800 was split on the fade to 30,952 afterwards. A close below the latter would be a slightly bearish development and signal a possible near-term top with additional weakness towards 30,700-30,600.
RSI has leveled out with resistance at 65. A close above this level would signal additional strength towards 70 and the high throughout the first half of July. Support is at 60 with a move below this level signaling weakness towards 55-50.
The Spiders S&P Homebuilders ETF (XHB) was down for the 2nd-straight session after peaking at $45.87 intraday. Near-term and lower resistance from last week at $46-$46.50 was challenged but held. Continued closes above the latter would be a renewed bullish signal for additional strength towards $47-$47.50 with last Friday’s 52-week and all-time high at $46.48.
Current and upper support at $45.50-$45 tried to hold but failed on the late day fade to $45.38. A close below the latter would signal a near-term top with additional weakness towards $44.50-$44.
RSI is back in a downtrend following the close below,upper support at 65-60. A move below the latter would signal additional weakness towards 55-50 with the latter representing the monthly low. Resistance is at 70-75 on a recovery of the 65 level and the latter representing last week’s peak.
The 2-day FOMC meeting is underway and the decision will be announced Wednesday at 2pm (EST) with a 25 basis point rate cut all but certain. The big question mark is what is said about the future course of policy. Wall Street doesn’t expect anything explicit on guidance and whether this will be the end of its rate moves. Most of the talking heads believe Fed Chairman Jay Powell will indicate this is another insurance action as the various factors that underpinned the July and September reductions are still in place, including uncertainties over trade and Brexit, softer growth abroad, concerns over spillover to the U.S., and low inflation.
The statement should reiterate that policy is not on a preset course and that the Fed will act as appropriate to sustain the expansion. This could leave the FOMC’s future course up to interpretation. The market seems to have lowered its outlook for more accommodation beyond Wednesday’s cut and chances for another easing have fallen below 50-50. Also, the Fed may address the conditions in the money markets and could announce it’s going to implement a permanent repo facility.
Before the open: Anixter International (AXE), Brinker International (EAT),
CME Group (CME), Crocs (CROX), Dine Brands Global (DIN), Garmin (GRMN), General Electric (GE), iRadimed (IRMD), L3Harris Technologies (LHX),
Littelfuse (LFUS), Molson Coors Brewing (TAP), Oshkosh (OSK), Royal Caribbean Cruises (RCL), Sony (SNE), Tupperware (TUP), Wingstop (WING), Yum Brands (YUM)
After the close: 3D Systems (DDD), Apple (AAPL), Cardtronics (CATM), Cirrus Logic (CRUS), Ducommun (DCO), Equinix (EQIX), Etsy (ETSY), Facebook (FB), Hub Group (HUBG), LendingTree (TREE), Lyft (LYFT), Mellanox Technologies (MLNX), MGM Resorts International (MGM), NuVasive (NUVA), Quidel (QDEL), Rogers (ROG), SkyWest (SKYW), Starbucks (SBUX),
Timken (TKR), Trimble Navigation (TRMB), Twilio (TWLO), Viavi Solutions (VIAV), Western Digital (WDC), Zynga (ZNGA)
I have updated our current trades, including a Profit Alert for EEM, so let’s go check the tape. Stay locked-and-loaded in the afternoon in case I take action on New Trades.
Momentum Options Play List
Closed Momentum Options Trades for 2019: 36-11 (77%). 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.
Viavi Solutions (VIAV, $14.69, down $0.16)
VIAV December 16 calls (VIAV191220C00016000, $0.40, down $0.05)
Entry Price: $0.50 (10/21/2019)
Exit Target: $1.00
Stop Target: None
VIAV January 16 calls (VIAV200117C00016000, $0.55, down $0.05)
Entry Price: $0.65 (10/21/2019)
Exit Target: $1.30
Stop Target: None
Action: Current and upper support at $14.75-$14..50 was breached and failed to hold following Tuesday’s pullback to $14.67. Resistance remains at $15-$15.25.
Earnings are due out after today’s close and I’m expecting shares to move 5%-10%.
iShares MSCI Emerging Markets Fund (EEM, $42.73, down $0.22)
EEM November 43 calls (EEM191115C00043000, $0.40, down $0.15)
Entry Price: $0.35 (10/17/2019)
Exit Target: 0.70 (Limit Order on half)
Stop Target: 40 cents (Stop Limit)
Action: The Stop Limit at 40 cents tripped with the low reaching 39 cents.
While disappointed shares couldn’t keep momentum, we can get back in on a move back above $43 with December or January call options.
Mylan (MYL, $19.59, up $0.62)
MYL November 20 calls (MYL191115C00020000, $1.00, up $0.30)
Entry Price: $0.80 (10/15/2019)
Exit Target: $1.60 (Limit Order)
Stop Target: 90 cents (Stop Limit)
Action: Set a Limit Order to close the trade at $1.60. Set an initial Stop Limit at 90 cents to start protecting profits.
Tuesday’s high tapped $19.70 with fresh and lower resistance at $19.50-$19.75 and the 50-day moving average getting cleared and holding. New support is at $19.25-$19.
Earnings are due November 5th.
Limelight Networks (LLNW, $4.24, up $0.02)
LLNW January 3 calls (LLNW200117C00003000, $1.30, flat)
Entry Price: $0.60 (9/11/2019)
Exit Target: $1.50-$2 (closed 1/3 @ $1.40 on 10/22)
Stop Target: $1.10 (Stop Limit)
Action: Lower resistance at $4.30-$4.40 held on yesterday’s peak. Support remains at $4.20-$4.10 with shares currently in a 6-session trading range.