MomentumOptions.com Pre-Market Update for 11/25/2019
Bears Get Overdue Weekly Win/ Profit Alert (BSX)/ New Trade (PFE)
The market closed higher on Friday as optimism over trade relations with China returned after President Trump said a trade agreement between the two sides is potentially very close. The back-and-forth rhetoric came after China had said earlier that it sought to work out an initial deal with the U.S. following reports that an agreement could be delayed into 2020.
The gains weren’t enough to offset weekly losses for the major indexes as multi-week winning streaks came to an end. However, the weekly pullback was a healthy sign of a much needed consolidation period as slightly overbought levels remain in play.
The Dow was up 0.4% after testing an intraday high of 27,898. Prior and lower resistance at 27,800-28,000 was cleared and held with continued closes above the latter and the all-time high at 28,090 leading to blue-sky territory towards 28,250-28,500.
The Russell 2000 traded in a 10-point range while advancing 0.3% with the morning high reaching 1,591. Near-term and lower resistance at 1,585-1,600 was recovered with a close above the latter getting 1,615-1,625 and the 52-week peak from May at 1,618 in play.
The S&P 500 nudged up 0.2% after trading in a 13-point range while trading up to 3,112. Key resistance at 3,125 easily held with a close above this level and the all-time high of 3,127 getting 3,150-3,175 in focus.
The Nasdaq also added 0.2% following opening pop to 8,535. Near-term and lower resistance at 8,550-8,600 was challenged but held with a close above the latter and last Tuesday’s all-time high of 8,589 signaling strength towards 8,650-8,700.
For the week, the Russell 2000 dropped 0.6% while the Dow was down 0.5% to end a 4-week winning streak. The Nasdaq and S&P 500 fell 0.3% to snap 7-week and 6-week winning streaks, respectively.
Financials and Consumer Discretionary were the strongest sectors on Friday after advancing 0.7%. Real Estate and Energy were down 0.6% and 0.3%, respectively, and were the weakest sectors.
For the week, the best performing sectors were Healthcare (2.6%), Communication Services (0.9%) and Energy (0.7%). Materials (-2%), Consumer Discretionary (-1.4%) and Industrials (-0.6%) were the leading sector laggards.
In economic news, PMI Composite Flash rose 0.9 points to 52.2 in November after rising 0.2 ticks to 51.3 in October. The employment component rose to 52.3 from 51.3 previously and is the best since March with new orders also improving to the highest since April. The services index rebounded 1 point to 51.6 following the -0.3 point dip to 50.6 in October. The composite also bounced 1 point to 51.9 after slipping -0.1 ticks to 50.9 in October. The employment component rose to 50.6 from October’s 48.1, the highest since July, and reverses the contraction trend. The data continues to reveal the sharp contrast between the U.S. economy, especially manufacturing, and the rest of the world.
Consumer Sentiment rose 1.3 points to 96.8 in the final print, after the 2.3 point increase to 95.5 in October. Strength was in the expectations component which rose 3.1 ticks to 87.3 after edging up 0.8 ticks to 84.2 in October. The final current conditions index fell 1.6 points to 111.6 after jumping 4.7 points to 113.2 in October. The 12-month inflation gauge was steady at 2.5% while the 5-year index rose to 2.5% from October’s 2.3%.
Baker-Hughes reported the U.S. rig count was down 3 rigs to 803, with oil rigs down 3 to 671, gas rigs unchanged at 129, and miscellaneous rigs also unchanged at 3. The U.S. Rig Count is down 276 rigs from last year’s count of 1,079, with oil rigs down 214, gas rigs down 65, and miscellaneous rigs up 3 to 3. The U.S. Offshore Rig Count is unchanged at 22 and down 3 rigs year-over-year.
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 4th time in 5 sessions after trading to an intraday high of $140.28. Current and lower resistance at $140-$140.50 was cleared and held on the close back above the 50-day moving average. Continued closes above the latter would be a bullish signal for a run towards $141.50-$142.
Near-term support is at $139.50-$139. A close below $139 would be a slightly bearish signal with downside risk towards $138-$137.50.
RSI has flatlined with resistance at 60-65 and the later representing the October high. Support is at 50-45.
The S&P 500 Volatility Index ($VIX) kissed a high of 13.25 shortly after the open with key resistance at 13.50 easily holding for the 21st-straight session. There is risk towards 14.50-15 and the 50/200-day moving averages on a close above 13.50.
The late day fade to 12.33 cleared upper support at 12.50-12. A close below the latter gets 11.50 and the late July low at 11.69 back in focus.
RSI is back in a downtrend with support at 40 and the monthly low. Continued closes below this level would signal additional weakness towards 35-30 and early July lows. Resistance is at 45 with a close above 50 being a clear signal for additional strength towards 55-60.
The Spider Small-Cap 600 ETF (SLY) snapped a 2-session slide after trading to a high of $69.21. Current and lower resistance at $69-$69.50 was cleared and held. A close above the $70 level would signal a return of momentum with upside potentials towards $70.50-$71 and this month’s 52-week high of $70.78.
Near-term support is at $68.50-$68 with the latter representing key support from mid-October and early September. A close below $68 and the 50-day moving average would be bearish development with downside risk towards $67.50-$67 and the 200-day moving average.
RSI is in a slight uptrend after recovering the 50 level with resistance at 55-60. Support is at 45-40 on a close back below 50 with the latter representing the October low.
The Spiders S&P Homebuilders ETF (XHB) seesawed for the 7th-straight
session after peaking at $45.31 intraday. Near-term and lower resistance at $45.25-$45.50 was cleared but held by a penny. Continued closes above the latter would be a slightly bullish signal for retest towards the $46 area.
Current support is at $45-$44.75. A close below the latter would signal additional weakness towards $44.50-$44 and the 50-day moving average.
RSI is holding key support from early October at 50. Another move below this level would signal possible weakness towards 45-40 with the latter representing the early August low. Resistance is at 55-60 on continued closes above the 50 level.
The percentage of S&P 500 stocks trading above the 200-day moving average closed at 72.31% on Friday, up 2.93%, with the intraday high reaching 72.76%. Lower resistance at 72.50%-75% was tripped but held. A close above the latter and the monthly peak at 75.54% would be a bullish development with potential momentum towards 77.5%-80% and December 2017 overbought level. Support is at 70%-67.5%. A move below the latter and the monthly low at 68.78% would signal additional weakness towards 67.5%-65%.
The percentage of Nasdaq 100 stocks trading above the 50-day moving average settled at 66.13%, up 1.72%, with the high tap 67.39%. Current and lower resistance at 65%-67.5% was cleared and held. A close above the latter would be a renewed bullish signal with strength towards 70%-72.5% and the monthly peak at 73.46%. Near-term support is at 62.5%-60%. A close below the latter would be a bearish signal for additional weakness towards 57.5%-55%.
The 3Q earnings season is rapidly coming to a close with results from 477 of the S&P 500 members, or 95% of the index’s total membership, in the books. Total earnings are down -1.2% from the same period last year on 4.3% higher revenues, with 73% beating EPS estimates and 57.7% topping revenue estimates.
Looking at Q3 as a whole, combining the actual results from the 477 index members with estimates for the still-to-come companies, total earnings is expected to be down -1.7% from the same period last year on 4.2% higher revenues.
The Retail sector as a whole was the latest group to report with Q3 results from 32 of the 38 retailers in the S&P 500 index. Total earnings for these companies are up 1.2% on 9.5% higher revenues, with 65.6% topping EPS estimates and 53.1% beating revenue estimates.
Despite last week’s market pullback, we closed 3 winning trades for decent profits, but more importantly, avoided losses while running the Track Record to nearly an 80% win rate. I warned a slight pullback, or consolidation phase, was likely in the cards given the overbought conditions in the major indexes and overall stock prices. However, I’ve also mentioned the overbought conditions that were apparent in January 2018 so there is the chance for higher highs into yearend.
The major indexes are roughly 3%-4% above their 50-day moving averages so an orderly, but subtle, pullback to these levels over the next few weeks and into December would be a healthy signal. This would give the market a week or so to prepare for the ongoing U.S./ China spat with the December 15th tariff deadline in focus.
Good news or bad news on that issue will likely set the next major trend into the New Year. With a shortened week, option premiums will take a hit with the market closed on Thursday and only a half session on Friday. I’ve done a lot of homework for bullish and bearish trades with January and March setups but I don’t want to get too aggressive this week given the premium drag.
With that said, I do have 1 New Trade I want to get into as there was heavy volume in the Pfizer (PFE) contracts on Friday.
Momentum Options Play List
Closed Momentum Options Trades for 2019: 44-12 (79%). 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.
Pfizer (PFE, $38.33, up $0.59)
Buy to Open PFE January 40 calls (PFE200117C00040000, $0.38, up $0.14)
Action: I like these call options at current levels and you can use a Limit Order up to 50 cents to get the best fills. These are the regular PFE January 40 calls that expire on January 17th, 2020. If the options open above 50 cents, do not take the trade.
These options traded over 2,000 contracts on Friday with the Jan 39’s tripping 1,000 contracts. There were nearly 500 apiece in the Jan 41’s and 42’s.
Boston Scientific (BSX, $41.85, down $0.51)
BSX January 43 calls (BSX200117C00043000, $1.05, down $0.30)
Entry Price: $1.20 (11/14/2019)
Exit Target: $2.40
Stop Target: $1.25 (Stop Limit)
Action: The Stop Limit at $1.25 tripped on the pullback to $41.65. While disappointing we didn’t make a bigger profit, we can revisit the stock once shares recover the $42.50 level.
Viava Solutions (VIAV, $14.92, down $0.24)
VIAV January 16 calls (VIAV200117C00016000, $0.35, down $0.05)
Entry Price: $0.70 (11/7/2019)
Exit Target: $1.40
Stop Target: None
Action: Shares have been in a 5-session slide with Friday’s low reaching $14.90. Prior and upper support at $15-$14.75 and the 50-day moving average was breached and failed to hold. Lowered resistance is at $15.25-$15.50.
Limelight Networks (LLNW, $4.21, down $0.09)
LLNW January 3 calls (LLNW200117C00003000, $1.30, down $0.05)
Entry Price: $0.60 (9/11/2019)
Exit Target: $1.50-$2 (closed 1/3 @ $1.40 on 10/22)
Stop Target: $1.20 (Stop Limit)
Action: Prior and upper support at $4.20-$4.10 held on Friday’s fade to the former. Lowered resistance is at $4.30-$4.20.