MomentumOptions.com Pre-Market Update for 12/5/2019

Bulls Get First December Win

8:00am (EST)

The market snapped 3-session losing streaks on Wednesday following renewed hopes the U.S. and China are moving closer to agreeing on the amount of tariffs that would be rolled back in a phase one trade deal. People familiar with the talks said that President Donald Trump’s previous comments downplaying the urgency of a deal shouldn’t be understood to mean the talks were stalling. 

The on again, off again, trade news helped settle near-term nervousness with the major indexes holding the majority of their gains while pushing prior resistance levels. Volatility simmered after closing below a key level of support but remains at a cautious level.

The Russell 2000 added 0.7% following the opening run to 1,618. Near-term and lower resistance at 1,615-1,625 was cleared but held with a close above the latter getting 1,635-1,650 and last week’s 52-week peak at 1,634 back in focus.

The S&P 500 was up 0.6% with the intraday peak reaching 3,119. Key resistance at 3,125 held with a close above this level leading to a retest towards 3,150-3,175 with the recent all-time record high at 3,154.

The Dow gained 0.5% after testing an intraday high of 27,727. Prior and lower resistance at 27,800-28,000 was challenged but held with continued closes above the latter being a more bullish signal for a retest towards 28,200-28,400 and fresh all-time highs.

The Nasdaq also rose 0.5% with the high reaching 8,584 shortly after the opening bell. Near-term and lower resistance at 8,550-8,600 was recovered with a close above the latter signaling upside towards 8,650-8,700 with last Wednesday’s all-time top at 8,705.

Energy and Healthcare paced sectors leaders after rallying 0.9% while Consumer Discretionary advanced 0.7%. There were no sector laggards.

In economic news, MBA Mortgage Applications slumped 9.2% last week to wrap up a choppy November, and follows the 1.5% gain in the prior week. All of the weakness was in refinancings, where the index plunged -15.6% versus a prior 4.2% gain. The purchase index edged up 0.9% after slipping -1.2% previously. On a 12-month basis, applications are up 10.4% year-over-year while refinancings are 61.2% higher, while the purchase index is -24.1% year-over-year lower. The 30-year fixed mortgage rate was steady at 3.97%, and has been below 4% for the 3-straight months. The rate was at 5.08% a year ago. The 5-year ARM fell to 3.28% versus 3.42%, and was at 4.33% last year.

ADP Employment Report checked in at 67,000 for November, versus forecasts of 156,000, and follows a revised 121,000 October gain. This was a huge disappointment as weakness was in the goods producing sector saw an -18,000 drop. The service sector added 85,000.

PMI Services Index for November rose 1 point to 51.6, matching forecasts, and up from October’s print of 50.6. The employment component improved to 50.5 from 47.5. The composite index increased 1.1 points to 53 from 50.9 in October. Employment rose to 50.9 from 48.1 previously.

ISM Non-Manufacturing Index fell 0.8 ticks to 53.9 in November, below estimates for a reading of 54.5, after rising 2.1 ticks to 54.7 in October. The employment subindex rose 1.8 points to 55.5 for November versus 53.7 the previous month. New orders increased 1.5 points to 57.1 from 55.6. New export orders improved to 52 from 50 while imports fell to 45 from 48.5. Prices paid bounced to 58.5 from 56.6.

The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 4th time in 5 sessions after tapping an intraday low of $139.21. Near-term and upper support at $139.50-$139 and the 50-day moving average were breached but held. A close below the latter reopens downside risk towards $138-$137.50.

Lowered resistance is at $140-$140.50. Continued closes above the former would signal another push towards $141.50-$142.

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The S&P 500 Volatility Index ($VIX) had its 4-session wining streak snapped on the intraday pullback 14.12. Fresh and upper support at 14-13.50 held on the close just above the 50-day moving average. Continued closes below the former would be an ongoing bullish signal for the market with more important levels to recover at 12.50-12. 

Resistance is 15-15.50 on the close back below the 200-day moving average with back help at 17.50-18 on another move past 15.50.

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The Spider Small-Cap 600 ETF (SLY) snapped a 3-session losing streak after trading to a high of $70.39. Near-term and lower resistance at $70-$70.50 was cleared and held. A close above the latter would signal ongoing strength and a retest towards $71-$71.50 with last week’s 52-week peak at $71.22.

Current support is at $69.50-$69. A close below the latter would be a renewed bearish development with risk towards $68.50-$68 and the 50-day moving average.

RSI is back in an uptrend with lower resistance at 55-60. A close above the latter would be a more bullish signal for a return run towards 65-70. Support is at 50 with risk towards 45-40 on a close back below this level and the latter representing the October low.

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The Financial Select Sector Spiders (XLF) was up for the first time in 4 sessions following the intraday rally to $29.90. Near-term and lower resistance at $30-$30.25 was challenged but held. There is upside potential towards $30.75-$31 and all-time highs from 2007 on continued closes above $30.25 and Monday’s 52-week high of $30.26.

Near-term support is at $29.50-$29.25. A close below the latter would be a renewed bearish signal with additional risk towards $29-$28.75 and the 50-day moving average.

RSI is back in a slight uptrend with resistance at 60. A close above this level would signal a return of strength with upside and retest potential towards 65-70. Support is at 55-50 with a move below the former, and a level that has been holding since mid-October, signaling a continued backtest towards the 45-40 area.

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Today’s earnings announcements:

Before the open: Build-A-Bear Workshop (BBW), Canadian Imperial Bank (CM), Dollar General (DG), Duluth Holdings (DLTH), Express (EXPR), GMS (GMS), Hovnanian Enterprises (HOV), J.Jill (JILL), Kirkland’s (KIRK), Kroger (KR), Methode Electronics (MEI), Michaels Companies (MIK), Patterson Companies (PDCO), SecureWorks (SCWX), TD Bank Group (TD), Tiffany & Co. (TIF)

After the close: American Outdoor Brands (AOBC), Cloudera (CLDR), Cooper Companies (COO), CrowdStrike (CRWD), DocuSign (DOCU), Domo (DOMO), Guidewire Software (GWRE), Medallia (MDLA), Okta (OKTA), PagerDuty (PD), Science Applications (SAIC), Ulta Beauty (ULTA), Yext (YEXT), Zoom Video Communications (ZM), Zumiez (ZUMZ)

The technical picture improved, slightly, as the Russell 2000, S&P 500 and the Nasdaq recovered their 20-day moving averages on Wednesday. The Dow is about 178 points away and will need to show some follow thru today with the blue-chips also needing to clear and close above the 20-day MA.

The island reversals that were created on the charts were bullish signals and occur when a downside gap is followed shortly by an upside gap. This usually signals a short-term bottom. 

I would also like to see the VIX clear and hold is 50-day MA. Wednesday’s pullback and close below the 15 level was a good indication possible near-term selling pressure has abated.

These would all be bullish signals to start nibbling on call options and why I was hesitant to start fresh bearish positions yesterday. However, I think this type of choppy and volatile trading could continue into mid-month so we still need to be slightly cautious. 

AT&T (T) is showing signs of bottoming and there is some research I’m wrapping up so stayed tuned. As usual, if I take action, I will send out an email and Text Alert.

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, $38.14, up $0.09)

PFE January 40 calls (PFE200117C00040000, $0.30, flat)

Entry Price: $0.40 (11/25/2019)

Exit Target: $0.80

Return: -25%

Stop Target: None

Action: Lower resistance at $38.25-$38.50 was cleared by a penny on the intraday high but failed to hold. Support is at $38-$37.75.

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Viava Solutions (VIAV, $14.57, down $0.01)

VIAV January 16 calls (VIAV200117C00016000, $0.20, flat)

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

Exit Target: $1.40

Return: -68%

Stop Target: None

Action: Wednesday’s low tapped $14.52 with upper support at $14.50-$14.25 holding. Resistance remains at $14.75-$15 and the 50-day moving average.

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Limelight Networks (LLNW, $4.25, up $0.06)

LLNW January 3 calls (LLNW200117C00003000, $1.20, flat)

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 (Stop Limit)

Action: Shares tested a high of $4.26 with lower resistance at $4.25-$4.35 getting cleared and holding. Support is at $4.20-$4.10.

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