MomentumOptions.com Pre-Market Update for 11/1/2019
Trade Concerns Sidetrack Bulls
The market was weak throughout Thursday’s session following reports that Chinese officials are warning that they won’t budge on some issues that have been pushed by the U.S. and that they remain concerned about President Trump’s impulsiveness, casting doubt on the potential to reach a long term trade deal.
Meanwhile, President Trump tweeted that China and the USA are working on selecting a new site for the signing of their phase one agreement, which he identified as about 60% of total deal. The new location will be announced soon and President Xi and President Trump will do signing, according to the tweet.
The Russell 2000 tumbled 0.7% with the midday low tapping 1,552. Current and upper support at 1,565-1,550 was breached and failed to hold with a close below the latter leading to a possible retest towards 1,540-1,525 and the 200-day moving average.
The Dow declined 0.5% after trading to a session low of 26,918. Near-term and upper support at 27,000-26,750 was breached but held with a close below the latter and the 50-day moving average being a bearish development.
The S&P 500 was lower by 0.3% after testing an intraday low of 3,023. Current and upper support at 3,025-3,000 was breached but held with a close below the latter reopening downside risk towards 2,975-2,950 and the 50-day moving average.
The Nasdaq fell 0.1% to remain in a 4-session trading range following the pullback to 8,248. Upper support at 8,250-8,200 was breached but held with a close below the latter getting 8,100-8,050 and the 50-day moving average back in play.
Utilities and Communication Services were the only sectors that showed strength after rising 0.6% and 0.3%, respectively. Materials and Industrials were the weakest sectors after losing 1.1% while Consumer Discretionary and Financials were off 0.5%.
In economic news, Challenger Job-Cut Report announced layoffs increased 8,700 to 50,300 in October after tumbling 11,900 to 41,600 in September. Announced layoffs were down -33.5% year-over-year, following a -24.8% rate in September. Announced hirings declined -268,900 to 190,800 following the 434,800 surge to 459,700 in September. The retail sector paced the action ahead of the holiday season, rising 171,300 versus 299,200 previously.
Initial Jobless Claims rose 5,000 to 218,000, matching forecasts, and recovering the 5,000 drop to 213,000 in the prior week. The 4-week moving average slid to 214,750 from 215,250 previously. Continuing claims increased 7,000 to 1,690,000, after slipping an unchanged print at 1,683,000 the previous week.
Personal Income rose 0.3% in September, with spending up 0.2%. The 0.4% increase in August income was revised up to 0.5%, with the 0.1% August spending gain bumped up to 0.2%. Compensation edged up 0.1% versus 0.5% previously. The wage and salary component was flat after the prior 0.6% gain. Disposable income was 0.3% higher after a 0.6% gain. The savings rate rose to 8.3% from 8.1%. The PCE chain price index was unchanged for a second straight month, while the core rate was flat as well after a prior 0.1% gain. On a 12-month basis, the headline index slipped to a 1.3% year-over-clip from 1.4%, with the core rate dipping to 1.7% year-over-yer versus 1.8%.
Employment Cost Index increased 0.7% in Q3, matching expectations, after the 0.6% gain in Q2. Q3 wages and salaries were up 0.9% following a 0.7% rise in Q2. Benefits increased 0.6% versus an 0.5% expansion. On a 12-month basis, the ECI posted a 2.8% year-over-year growth rate from 2.7% previously.
Chicago PMI dropped 3.9 points to 43.2 in October, weaker than expectations of 48.3, after sliding 3.3 ticks to 47.1 in September from August’s 50.4. This is the lowest reading since Dec 2015. The index was at 59.4 a year ago. The 3-month moving average dropped to 46.9 from 47.3 and was at 52.2 in June.
The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight sessions after surging to an intraday high of $141.68. Prior and lower resistance at $141.50-$142 was challenged but held. Continued closes above the latter and the 50-day moving average would be an ongoing bullish signal for continued strength towards $143.50-$144.
Rising support is at $140.50-$140.
The S&P 500 Volatility Index ($VIX) was up for the 3rd time in 4 sessions with Thursday’s high reaching 13.95. Major resistance at 13.50 was breached but held for the 5th-straight session with risk towards 14.50-15 on a close above this level.
Support remains at 13-12.50.
The Russell 2000 ETF (IWM) was down for the 2nd-straight session following the intraday pulback to $154.24. Upper support at $154.50-$154 was breached but held. A close below the latter would be a slightly bearish signal with backtest potential towards $152-$151.50 and the 200/50-day moving averages.
Current resistance is at $156.50-$157. Continued closes above the $157.50 level would be a more bullish development for a retest towards $158-$158.50 and mid-September hurdles.
RSI is in a downtrend with support at 55-50. A close below the latter would signal additional weakness towards 45-40 with the latter representing the monthly low. Resistance is at 60-65.
The Spider S&P Retail ETF (XRT) extended its losing streak to 3-straight session after tapping an intraday low of $42.83. Upper support at $43-$42.75 was tripped but held. A close below the latter and the 50-day moving average reopens downside risk towards $40.25-$40 and the 200-day moving average..
Lowered resistance is at $43.50-$43.75. Continued closes back above the the $44 level would signal selling pressure has abated.
RSI remains in a downtrend with support at 50. A close above below this level would signal additional weakness towards 45-40. Resistance is at 55-60.
I mentioned earlier in the week the first half of November is historically bearish for the market and why I’ve been a tad hesitant to start fresh bullish trades.
Today will be an important session to see if near-term support levels hold to determine how our next batch of trades might play out. Despite the run to all-time highs by the S&P 500, the Dow and Nasdaq have failed to show follow through but are holding near-term support levels.
We have closed 8-straight winners since mid-August and new subscribers can check the 2019 portfolio on the website to see the results, including the 433% Cypress Semiconductor winner and the 300% return using AT&T call options. We closed 3 bearish trades earlier this month with gains of 89% in American Airlines put options, 32% in Pfizer and 38% in Ford. This week we closed bullish trades in Mylan and the iShares MSCI Emerging Markets Fund for wins of 17% and 13%.
I wanted to point this out because I have used both call and put options to play a still choppy but very bullish market. I have been targeting fresh December and January plays as the regular November options expire 2 weeks from today. However, these options are ideal for earnings trades so I will be busy over the weekend doing research and homework.
Speaking of earnings, we got some nice pin action with VIAV yesterday and LLNW also did us good with a 100+% return. However, I don’t like taking too many earnings trades because a lot has to go right and they are typically all or nothing trades. I have been following both aforementioned companies for years and had a good feeling about both trades but please realize trading earnings is more riskier than trend or chart trading.
If you don’t hear from me by 3:30pm (EST) have a great and safe weekend and we will get back at it Monday morning.
Momentum Options Play List
Closed Momentum Options Trades for 2019: 38-11 (78%). 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, $15.96, up $1.07)
VIAV December 16 calls (VIAV191220C00016000, $0.65, up $0.20)
Entry Price: $0.50 (10/21/2019)
Exit Target: $1.00
Stop Target: 52 cents (Stop Limit)
VIAV January 16 calls (VIAV200117C00016000, $0.80, up $0.20)
Entry Price: $0.65 (10/21/2019)
Exit Target: $1.30
Stop Target: 67 cents (Stop Limit)
Action: Set initial Stop Limits at 52 cents and 67 cents to start protecting profits and to avoid losses.
Fresh and lower resistance is at $16-$16.25 following the run to $15.98 and 52-week peak. New support is at $15.50-$15.25.
Limelight Networks (LLNW, $4.22, down $0.06)
LLNW January 3 calls (LLNW200117C00003000, $1.20, down $0.10)
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: Upper support at $4.20-$4.10 held on the tumble to $4.08 yesterday. Resistance remains at $4.30-$4.40