MomentumOptions.com Pre-Market Update for 11/21/2019

Bears Push Near-Term Support Levels

8:00am (EST)

The market slumped on Tuesday following news China is threatening retaliation following the Senate’s passage of a bill expressing support for Hong Kong’s autonomy. The House will vote on the measure, which could complicate trade talks with China, and weighed on market sentiment.

Mixed numbers from the Retail sector was also a drag as the 3Q earnings season continues to wind down. The major indexes easily held the first wave of support levels although volatility spiked to its highest level of the month but was able to hold a key level of resistance.

The Nasdaq was down for the 1st time in 4 sessions after giving back 0.5% while trading to an intraday low of 8,468. Fresh and upper support at 8,450-8,400 was challenged but held with a close below the latter opening up risk towards 8,350-8,300.

The Russell 2000 was lower by 0.4% following the 2nd half pullback to 1,581. Current and upper support at 1,585-1,570 was breached but held with risk towards 1,560-1,545 and the 50-day moving average on a move below the latter.

The S&P 500 was down for the 2nd-straight session after falling 0.4% and testing an intraday low of 3,091. Near-term and upper support at 3,100-3,075 was tripped but held with a close below the latter getting 3,050-3,025 and the 50-day moving average in focus.

The Dow also declined 0.4% while bottoming at a late day low of 27,675. New and upper support at 27,750-27,500 was breached but held with a close below the latter opening up risk towards 27,250-27,000 and the 50-day moving average.

Energy and Utilities paced sector leaders after rising 1.1% and 0.6%, respectively. Materials and Industrials were the leading laggards after sinking 1.3% and 0.7%, respectively.

MBA Mortgage Applications fell -2.2% last week, after surging 9.6% in the prior week, and is higher by 62.9% on a 12-month basis. The weakness was in the refi index which dropped -7.7% following the prior 12.9% increase. The purchase index was up 6.7%, extending the 5.1% gain from the prior week. Mortgage rates dipped back below 4% again, sliding to 3.99% from 4.03% previously. The 5-year ARM rose to 3.51% from the prior 3.40%. Refinancings made up 59.5% of mortgage applications.

The FOMC Minutes from the October 29th, 30th meeting said Fed officials saw rates as well calibrated following the easing. Most members believed rates would be appropriate after the cut unless there was a material change in the outlook, as described by Chair Powell in his press conference. 

Many Fed officials saw downside risks as elevated, and that the rate cut was justified by low inflation, with several worried expectations could slide further. A couple of participants thought the Committee should reinforce its postmeeting statement with additional communications indicating that another reduction in rates was unlikely in the near-term unless incoming information was consistent with a significant slowdown in the pace of economic activity.

Fed Governor Lael Brainard noted the Fed has taken out insurance against risks of a trade conflict, and that she has seen some slowing in growth, but as expected. She said the consumer remains resilient and feels good about job prospects as more people are coming into the labor market. 

Brainard noted the Committee has made a pretty substantial adjustment in the path of rates. She said there has been some improvement in residential investment and wants to monitor and wait for a little bit while she assesses how the outlook is adjusting. 

Brainard is worried about financial imbalances rising, including a grab for yield, as well as rising business debt and narrow credit spreads which have tended to amplify downward shocks. She wants to use macro-prudential tools to address those areas, not monetary policy.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight sessions after closing on its session high of $140.60. Fresh and lower resistance at $140.50-$141 was cleared and held. A close above the latter would signal additional momentum towards $142-$142.50.

Rising support is now at $140-$139.50 following the close back above the 50-day moving average.

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The S&P 500 Volatility Index ($VIX) was up for the 3-straight session after zooming to a morning peak of 14.17. Key resistance at 13.50 was breached but held with backup help at 14.50-15 and the 50/200-day moving averages.

Current support remains at 12.50-12 on the close below 13.50 and a level that has been holding since late October, or 19-straight sessions. 

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The Russell 2000 ETF (IWM) continued its whipsaw action following the intraday pullback to $157.26. Current and upper support at $157.50-$157 was breached but held. A close below the latter and the monthly low at $157.19 would be a slightly bearish signal with backtest potential towards $156-$155.50.

Current resistance is at $159.50-$160. Continued closes above the latter would be a renewed bullish development for a retest towards $161-$161.50 and fresh 52-week highs.

RSI is in a slight downtrend with support at 60. A close below this level would signal additional weakness towards 55-50 with the latter representing mid-October support. Resistance is at 65-70 with the latter representing the monthly peak.

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The Consumer Discretionary Select Spiders (XLY) was down for the 2nd-straight session following the backtest to $119.60. Prior and upper support from late October at $120-$119.50 was breached but held. A close below the $119 level would signal additional weakness towards $117.50-$117 and the 200-day moving average.

Near-term and lowered resistance is at $120.50-$121 following the 2nd-straight close below the 50-day moving average.

RSI is in a downtrend with support at 40. A close below this level reopens risk towards 35-30 with the latter serving as the early August low. Resistance is at 45-50.

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Today’s earnings announcements:

Before the open: Amtech Systems (ASYS), BJ’s Wholesale Club (BJ), Entera Bio (ENTX), Golden Ocean Group (GOGL), Höegh LNG Partners (HMLP), Macy’s (M), Ship Finance International (SFL)

After the close: American Software (AMSWA), BellRing Brands (BRBR), Delta Apparel Company (DLA), Gap (GPS), i3 Verticals (IIIV), Intuit (INTU), Matthews International (MATW), Nordstrom (JWN), Ooma (OOMA), Post Holdings (POST), Pure Storage (PSTG), Ross Stores (ROST), Splunk (SPLK), Williams-Sonoma (WSM)

The current action is hinting at weakness ahead for the major indexes as overbought conditions remain in play. A consolidation period would make since with next week’s being limited due to the holiday. Afterwards, the U.S./ China news will dominate the headlines until mid-December with the next major uptrend, or downtrend will likely come afterwards. 

The best, and quickest, clue in gauging market direction remains the VIX although there are other numerous factors I use to stay a step ahead of Wall Street. The portfolio is light and a consolidation phase will give us an opportunity to map out our next batch of trades that will take us into January.

I do have some put option trades I’m looking at in case the market damage gets worse so stay locked-and-loaded.

Momentum Options Play List

Closed Momentum Options Trades for 2019: 43-12 (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.

Boston Scientific (BSX, $42.61, down $0.02)

BSX January 43 calls (BSX200117C00043000, $1.50, flat)

Entry Price: $1.20 (11/14/2019)

Exit Target: $2.40

Return: 25%

Stop Target: $1.25 (Stop Limit)

Action: Tuesday’s peak reached $42.84 with lower resistance at $42.75-$43.25 getting cleared but holding. Support is at $42.50-$42.

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Viava Solutions (VIAV, $15.47, down $0.25)

VIAV January 16 calls (VIAV200117C00016000, $0.50, down $0.10)

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

Exit Target: $1.40

Return: -28%

Stop Target: None

Action: Shares traded down to $15.38 with upper support at $15.50-$15.25 getting breached and failing to hold. Resistance remains at $15.75-$16.

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Limelight Networks (LLNW, $4.58, up $0.13)

LLNW January 3 calls (LLNW200117C00003000, $1.55, up $0.05)

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

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

Return: 142%

Stop Target: $1.10, raise to $1.20 (Stop Limit)

Action: Raise the Stop lImit from $1.10 to $1.20 on the remaining 2/3rd’s of the trade.

hares zoomed to a high of $4.72 with prior and lower resistance at $4.60-$4.70 getting cleared but holding. Rising support is at $4.40-$4.30.

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