MomentumOptions.com Pre-Market Update for 11/11/2019

Bulls Tap Another Round of Closing Highs 

8:00am (EST)

The market was sluggish on Friday’s open following disappointing economic news and ongoing trade developments concerning rolling back American tariffs on Chinese imports. President Trump said the U.S. hasn’t agreed to a rollback of tariffs on China as negotiations between the two countries continues. 

Trump added that while China wants a partial reversal of tariffs, he has not agreed to roll them back yet. Despite the negative headlines, a late day rally lifted the major indexes into positive territory and fresh lifetime closing highs to end the week.

The Nasdaq rose 0.5% after closing on its high of 8,475. Current and lower resistance at 8,500-8,550 held with the prior session all-time high at 8,483.

The Russell 2000 climbed 0.3% with the session peak falling just shy of 1,599 into the closing bell. Near-term and lower resistance at 1,600-1,615 was challenged but held for the 5th-straight session.

The S&P 500 added 0.3% after trading in a 20-point range while closing at the session high of 3,093. New and lower resistance at 3,100-3,125 was challenged for the 2nd-straight session with the current all-time high at 3,097.

The Dow edged out a 6-point win, or 0.02%, after testing an opening high of 27,694. Fresh and lower resistance at 27,750-28,000 easily held with Thursday’s all-time intraday peak at 27,774.

The Nasdaq advanced 1% for its 6th-straight weekly win while Dow was up for the 3rd-straight week after gaining 1.2%. The S&P 500 was higher by 0.8% to extend its winning streak to 5-straight weeks and the Russell 2000 rose 0.6%.

Healthcare and Technology were the strongest sectors on Friday after rising 0.7% and 0.6%, respectively. Energy and Utilities were the weakest sectors after giving back 0.4%.

For the week, the best performing sectors were Financials and Industrials (4%) followed by Energy and Technology (2.4%). Real Estate (-3.8%), Utilities (-3.5%), and Consumer Staples (-0.6%) paced sector laggards.

In economic news, Consumer Sentiment inched up 0.2 points to 95.7 in November, a little shy of expectations of 96, after rising 2.3 points to 95.5 in October. Strength was in the expectations component which rose to 85.9 following October’s 0.8 point gain to 84.2. The current conditions index declined to 110.9 after rising 4.7 points to 113.2 in October. The 12-month inflation index was steady at 2.5% for the 2nd-straight month while the 5-year gauge rose to 2.4% versus October’s 2.3%, reading, which was a record low.

Wholesale Trade Inventories for September were down -0.4% versus estimates for a decline of -0.3% for the month.

Baker-Hughes reported the U.S. Rig Count was down 5 rigs to 817, with oil rigs declining 7 to 684, gas rigs unchanged at 130, and miscellaneous rigs up 2 to 3. The U.S. Rig Count is down 264 rigs from last year’s count of 1,081, with oil rigs down 202, gas rigs down 65, and miscellaneous rigs up 3 to 3. The U.S. Offshore Rig Count was up 1 to 23 and is up 2 rigs year-over-year. 

The iShares 20+ Year Treasury Bond ETF (TLT) fell for the 2nd-straight session and 5 of the past 6 with the intraday low tapping $134.78. Current and upper support at $134.50-$134 easily held. A close below the latter would signal additional risk towards $132.50-$132 and late July lows.

Near-term and lowered resistance is at $135.50-$136 with additional hurdles at $137.50-$138.

RSI has been in a downtrend but is showing signs of leveling out after holding support at 35. A close below this level could lead to continued weakness towards 30-25 and levels from October 2018.

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The S&P 500 Volatility Index ($VIX) tested a high of 13.05 on the market’s opening weakness with near-term and lower resistance at 13-13.50 getting breached but holding. The 13.50 level has been holding for 11-straight sessions with a close back above 13.50-14 being a bearish development and a cautious signal for the market.

Upper and major support at 12.50-12 was finally cleared and held for the first time since late July with the session low reaching the latter. A close below 12 would signal additional weakness towards the 11.50 area with the late July low at 11.69.

The death cross that officially formed last week with the 50-day moving average falling below the 200-day moving average was a bullish signal for the market. This is typically a bearish signal for lower lows and the 11.50 area will need to be cleared and held to keep this pattern in play.

RSI has been in a tight range since mid-October and this is typically a sign of a major breakout, or breakdown, forthcoming – the longer it plays out. A move below current support at 35 and the July low just below this level could signal additional weakness towards 30 and a level last seen in March 2016. This would be bullish for the market with the VIX likely pushing 10.50-10 but also signaling oversold levels.

An RSI close above 45 would be a cautious signal for the market, with the VIX probably back above 13.50, and strength towards 50. Continued closes above the 50 level would be an ongoing bearish development for the market with upside strength towards 55-60.

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The Invesco QQQ Trust (QQQ) was up for the 4th time in 5 sessions after reaching an intraday peak of $201.25. Fresh and lower at resistance at $201-$201.50 was cleared and held. Continued closes above the latter and Thursday’s all-time high at $201.72 would be an ongoing bullish signal with upside potential towards $202.50-$203.

Current support is at $200-$199.50. A close below the $198 level would be a slightly bearish development and signal a possible near-term top with additional risk towards the $196-$194 area.

RSI has been pushing resistance at 70 and the mid-July peak. A move above this level would signal additional upside potential towards 75-80 with the latter representing the April peak. Support is at 65-60.

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The Financial Select Sector Spiders (XLF) had its 5-session winning streak snapped following the intraday pullback to $29.64. Near-term and upper support at $29.75-$29.50 was breached but held. A close below the latter would be a slightly bearish development with downside risk towards $29.25-$29.

Fresh resistance is at $30-$30.25 with the prior session and all-time intraday high reaching $30.03. There is blue-sky territory towards $30.75-$31 on a move above the latter.

RSI has been in an uptrend but could be peaking after holding lower resistance at 75-80 with the latter representing the January 2018 peak. Support is at 70 with a move below this level signal a continued backtest towards the 65-60 area.

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The percentage of S&P 500 stocks trading above the 200-day moving average closed at at 72.16%, down 0.4%, with the intraday low reaching 71.57%. Upper support at 72.5%-70% was breached and failed to hold. A move below the latter would signal additional weakness towards 67.5%-65% with the late October low at 65.34%. Resistance is at 72.5%-75% with Thursday’s high and the monthly peak reaching 75.54%. The latter also represents the mid-September and late July high. A close above the 75% level would be a bullish development with potential momentum towards 77.5%-80% and January 2018 highs.

The percentage of Nasdaq 100 stocks trading above the 50-day moving average settled at 70.29%, up 2.97% and session high. Current and lower resistance at 70%-72.5% was cleared and held. A close above the latter would be an ongoing bullish signal with strength towards 77.5%-80% and the monthly peak at 78.64. Near-term support is at 67.5%-65%. A close below the latter would be a slightly bearish signal for additional weakness towards 62.5%-60% with the late October low at 60.19%.

The Q3 earnings season is 80% complete with results from 403 of the S&P 500 members having reported numbers. Total earnings are down -1.7% from the same period last year on 4% higher revenues, with 73% beating EPS estimates and 58.1% beating revenue estimates.

For the Tech sector, Q3 results from 84.3% of the sector’s total market cap in the S&P 500 index have been announced. Total earnings for these Tech companies are down -6.6% on 3.1% higher revenues, with 82.6% ahead of EPS estimates and 67.4% beating revenue estimates. This is a weaker performance from the group than the first half of the year.

All results for the Finance sector are in the books. Earnings were up 3% on 9.3% higher revenues, with 72.2% beating EPS estimates and 70.1% topping revenue estimates. This is a notably better performance than the first half of the year.

For Q3 as a whole, combining the results from the 403 index members that have come out with estimates for the still-to-come companies, total S&P 500 earnings are expected to be down -2.4% on 4.1% higher revenues.

Q3 earnings growth is expected to be negative for a number of sectors, with double-digit declines for Energy (-35.1%) and Basic Materials (-28.6%). Meanwhile, Tech sector earnings are expected to be down -7.9%. Excluding the Technology sector, total Q3 earnings would only be down by -0.2%.

Sectors with positive earnings growth in Q3 include Business Services (13.2%), Transportation (8.2%), Utilities (9.3%), Medical (6.7%), Finance (3%) and Construction (5.1%). Q3 earnings for the index would be down -3.7% on an ex-Finance basis.

For the small-cap S&P 600 index, Q3 results from 419 companies, or nearly 70% of the index’s total membership, have been reported. Total earnings are down -18.2% from the same period last year on 0.9% higher revenues, with 66.1% topping EPS estimates and 56.6% ahead of revenue estimates.

Looking at Q3 as a whole for the small-cap index, total Q3 earnings are expected to be down -22.4% from the same period last year on 2.9% higher revenues. This would follow declines of -12.6% and -18% in 2019 Q2 and Q1, respectively.

Total 2019 earnings or aggregate net income for the S&P 500 index are expected to be down -1.3% on 2.2% higher revenues, which would follow the 23% earnings growth on 9.2% higher revenues in 2018. Growth is expected to resume in 2020, with earnings growth of 8.5% on 4.7% higher revenues. 

Today’s earnings announcements:

Before the open: Amicus Therapeutics (FOLD), BioLineRx (BLRX), Compugen (CGEN), GrowGeneration (GRWG), Nine Energy Service (NINE), ObsEva (OBSV), Postal Realty Trust (PSTL), Qurate Retail (QRTEA)

After the close: Asure Software (ASUR), Cumulus Media (CMLS), DXC Technology Company (DXC), FibroGen (FGEN), Grocery Outlet (GO), HudBay Minerals (HBM), ICU Medical (ICUI), Kingstone Companies (KINS), Perceptron (PRCP), Tencent Music Entertainment (TME), UGI (UGI)

The current action remains bullish but overbought readings are coming into play. However, a melt up rally could continue as some of the aforementioned RSI levels indicate. The bulls have been in cruise control since late September and will stay aggressive as long as the VIX holds 13.50.

A consolidation pattern could come into play for the overall market as the trade developments between the U.S continue to unfold. The major indexes are roughly 3%-4% above their 50-day moving averages and at higher levels on the run to previous all-time highs in late July. This is another signal of overbought conditions.

A pullback of 3%-4% over the next 3-4 weeks would be healthy for the market but would likely spook the talking heads and make new investors nervous. The good news is the signs will be evident on when to lighten up bullish positions, and perhaps, get aggressive with bearish setups. 

Our 13-trade winning streak was snapped on Friday following TiVo’s 9% plunge. I had a feeling shares would move double-digits but un uneasy feeling going into Friday’s open. The damage wasn’t too bad as I used longer-term options to offset the impact and our New Trades held up well with CSCO’s 15-cent pop offsetting half of the 30cent loss in TIVO.

I could have a New Trade in AT&T (T) today so stay locked-and-loaded. Shares are slightly overbought as RSI is pushing 70

Momentum Options Play List

Closed Momentum Options Trades for 2019: 40-11 (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.

Cisco Systems (CSCO, 48.83, up $0.41)

CSCO January 50 calls (CSCO200117C00050000, $1.35, up $0.15)

Entry Price: $1.20 (11/7/2019)

Exit Target: $2.40

Return: 13%

Stop Target: 60 cents, raise to $1.20 (Stop Limit)

Action: Raise the Stop Target from 60 cents to $1.20 and make it a Stop lImit.

Friday’s high reached $48.85 with lower resistance at $49-$49.25 getting challenged for the 2nd-straight session but holding. Rising support is at $48.25-$48. 

Earnings are due out November 13th.

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Viava Solutions (VIAV, $15.88, up $0.05)

VIAV January 16 calls (VIAV200117C00016000, $0.70, flat)

Entry Price: $0.70 (11/7/2019)

Exit Target: $1.40

Return: 0%

Stop Target: None

Action: Lower resistance at $16-$16.25 held on the run to $15.90. Support is at $15.75-$15.50. 

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Tivo (TIVO, $7.52, down $0.75)

TIVO January 9 calls (TIVO200117C00009000, $0.20, down $0.30)

Entry Price: $0.50 (11/5/2019)

Exit Target: $1.00

Return: -60%

Stop Target: None

Action: Close the trade at current levels to save the remaining premium.

Earnings were a big letdown and while I liked the technical setup going into the announcement, I should have done more homework on the company and got this one wrong. I do like the company as a takeover target due to its intellectual properties but a rebound towards $8.50-$9 is unlikely by mid-January.

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Limelight Networks (LLNW, $4.25, down $0.07)

LLNW January 3 calls (LLNW200117C00003000, $1.25, down $0.05)

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

Exit Target: $1.50-$2 (closed 1/3 @ $1.40 on 10/22)

Return: 117%

Stop Target: $1.10 (Stop Limit)

Action: Shares have been in a 14-session trading range with Friday’s low tapping $4.20. Support at $4.25-$4.15 was split but held. Resistance remains at $4.30-$4.40.

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