MomentumOptions.com Pre-Market Update for 12/18/2019
Bulls Rally for a 5th-Straight Session/ Profit Alert (BSX)/ New Trade (XOM)
The market showed strength for the 5th-straight session following solid economic news from the housing sector that beat estimates and added to the growing optimism about the economy. The improved outlook has gone a long way in supporting the rally in risk appetite, especially as U.S./ China trade negotiations and Brexit uncertainties have simmered for now.
The Russell 2000 climbed 0.5% with the closing high reaching 1,657. Key resistance at 1,650 was cleared and held with fresh hurdles now at 1,660-1,675 and the 52-week peak at 1,658.
The Nasdaq was up 0.1% after trading to an intraday high of 8,831. Current and lower resistance at 8,825-8,875 was challenged but held for the 2nd-straight session with a close above the latter and Monday’s all-time peak at 8,833 getting 8,900-8,950 in focus.
The Dow gained 0.1% with the intraday record high reaching 28,337. Lower resistance at 28,200-28,400 was cleared and held with a close above the latter keeping upside potential towards 28,600-28,800 in play.
The S&P 500 nudged up a point, or 0.03%, following the first half run to 3,198 and fresh record high. Current and lower resistance at 3,200-3,225 was challenged but held for the 2nd-straight session with a close above the former signaling additional upside potential towards 3,225-3,250.
Financials and Consumer Discretionary showed the most sector strength after rising 0.5% and 0.4%, respectively. Real Estate was the leading sector laggard after falling 1.1% while Technology and Consumer Staples were off 0.2%.
In economic news, Housing Starts for November rose 3.2% to 1,365,000, much stronger than forecasts of 1,340,000, and follows October’s print of 1,323,000. November building permits were up 1.4% to 1,482,000 following October’s 5% rebound to 1,461,000. Single family starts increased 2.4% after rising 1.6% previously. Multi-family starts improved another 4.9% versus the 11.8% gain previously. Starts under construction were up 1% after inching up 0.2% in October. Housing completions declined -6.6% versus the 12.7% jump previously.
Industrial Production rebounded 1.1% in November, after dropping -0.9% in October, while topping forecasts for a rise of 0.9%. Capacity utilization rose to 77.3% from 76.6% previously. Manufacturing production climbed 1.1%, bouncing back from the -0.7% decline in October. Motor vehicles parts production surged 12.4% versus the prior -6% decline. Excluding vehicles/parts, production was up 0.3%, erasing the prior -0.3% decline. Utilities rose 2.9% from -2.4% while mining slid -0.2% from -0.8%.
Jolts report job openings rose 235,000 to 7,267,000 in October, topping estimates of 7,013,000, and follows the -269,000 drop in September to 7,032,000. This was the 19th-straight month that job openings have topped 7 million. The rate improved to 4.6% from 4.4%, with the historic top at 4.8% from July 2018. Hirings declined -187,000 to 5,764,000 after rising 67,000 to 5,951,000. The hire rate dipped to 3.8% from 3.9%. Quitters increased 41,000 to 3,512,000 recovering from the -130,000 September decline to 3,471,000. The rate was steady at 2.3%.
Chain store sales rose another 2.2% last week, after bouncing 3.2% in the prior week. However, sales slowed to a 1.4% year-over-year clip on the week, versus the prior 3.1% rate. Sales are still on track for a solid holiday season despite the 6 fewer shopping days between Thanksgiving and Christmas this year.
Atlanta Fed’s GDPNow raised forecasts for Q4 growth at 2.3%, up from 2%. Behind the revision was the strength in housing starts and industrial production.
In Fed news, Boston Fed Eric Rosengren said he is willing to be patient on monetary policy and believes that policy will be on hold for a fairly materiel period of time. He hopes 2020 will be a boring year for monetary policy. He is optimistic on the economy but added that there are still a number of headwinds, and the global economy still faces downside risks.
Rosengren doubts the U.S. will fall into recession next year but he went along with the decision to maintain an unchanged rate stance. He thinks the neutral rates should be about 2.5%, which means the current rate is well below that. He also expects that inflation will test the 2% target rate next year and added there is no need to lower rates further, given his outlook.
New York Fed John Kaplan indicated policy is on hold in 2020 unless there is a material change in the outlook. Interestingly, he said he has already baked into his outlook a weak manufacturing sector but analysts suspect he could be pleasantly surprised by manufacturing growth. He has been worried that weak capex and manufacturing would seep into other parts of the economy, though analysts haven’t seen that yet, he admitted.
Kaplan does expect a solid consumer given the tight job market, which he doesn’t believe will dissipate. There isn’t much slack, he added. He did indicate he would support a shift in policy strategy, one that targets average inflation. He is tolerate of some overshoot of inflation under that scenario, which suggests a rate hike is a long way off.
The iShares 20+ Year Treasury Bond ETF (TLT) showed continued weakness after falling for the 2nd-straight session and 3rd time in 4 with the midday low tapping $137.21. Current and upper support at $137.50-$137 was breached but held. A close below $136.50 would signal additional weakness towards $135-$134.50.
Lowered resistance is at $138-$138.50. A close above the $139 level and the 50-day moving average would be a more bullish signal of a near-term bottom.
The S&P 500 Volatility Index ($VIX) snapped a 5 session slide despite testing an intraday low of 11.90. Current and upper support at 12-11.50 was breached but held for the 2nd-straight session.
Lower resistance at 12.50-13 was challenged but held on the rebound to 12.47 afterwards. A close above the former would signal additional strength towards 13.50-14 and the 50-day moving average.
The Spider S&P 500 ETF (SPY) extended its winning streak to 5-straight sessions following the 2nd-half run to $320.25 and 4th-straight all-time intraday high. Uncharted and lower resistance at $320-$320.50 was cleared but held. A move above the former would be an ongoing bullish development with upside potential towards $321.50-$323, depending on momentum.
New support is at $319-$318.50. A close below the latter would signal a possible backtest towards $317.50-$317.
RSI is showing signs of flatlining with resistance at 75 and the November high. A close above this level would signal additional strength towards 80 and January 2018 overbought levels. Support is at 65-60 with risk towards 55-50 on a move back below 60.
The Health Care Select Sector Spider (XLV) fell for the 2nd time in 3 sessions with the intraday low tapping $101.72. Current and upper support at $101.50-$101 easily held. A close below the latter would likely signal a possible near-term top with additional selling pressure towards $100-$99.50.
Blue-sky resistance remains at $102-$102.50 with Monday’s all-time high at $102.34. Continued closes above the $102.50 level would be an ongoing bullish signal for a run towards $103.50-$105.
RSI is back in a slight downtrend after failing resistance at 80 and the late November high. A move above this level would signal additional strength towards 85 but overbought levels from August 2018. Support is at 75-70 with a move below the former signal additional weakness towards 65-60.
I have updated our current trades and have a New Trade I want to get into this morning. We were also stopped out of BSX yesterday but could be back in the name real soon.
Momentum Options Play List
Closed Momentum Options Trades for 2019: 45-12 (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.
Exxon Mobil (XOM, $69.68, down $0.32)
Buy to Open XOM January 70 calls (XOM200117C00070000, $1.20, down $0.10)
Action: I like these call options at current levels and you can use a Limit Order up to $1.35 to get the best fills. These are the regular XOM January 70 calls that expire on January 17th, 2020.
Boston Scientific (BSX, $44.75, down $0.45)
BSX January 45 calls (BSX200117C00045000, $0.90, down $0.30)
Entry Price: $0.75 (12/11/2019)
Exit Target: $1.50
Stop Target: 90 cents (Stop Limit)
Action: The Stop Limit at 90 cents tripped on Tuesday’s pullback to $44.49 in the stock.
AT&T (T, $38.50, down $0.09)
T January 39 calls (T200117C00039000, $0.40, down $0.05)
Entry Price: $0.52 (12/5/2019)
Exit Target: $1.05
Stop Target: None
Action: Upper support at $38.50-$38.25 was tripped but held on the backtest to $38.45 yesterday. Resistance is at $38.75-$39.
Pfizer (PFE, $38.90, down $0.24)
PFE January 40 calls (PFE200117C00040000, $0.30, down $0.05)
Entry Price: $0.40 (11/25/2019)
Exit Target: $0.80
Stop Target: None
Action: Upper support at $39-$38.75 was breached and failed to hold on the pullback to $38.84. Resistance is at $39.25-$39.50.
Viava Solutions (VIAV, $14.90, down $0.13)
VIAV January 16 calls (VIAV200117C00016000, $0.20, flat)
Entry Price: $0.70 (11/7/2019)
Exit Target: $1.40
Stop Target: None
Action: Shares kissed a low of $14.72 with upper support at $14.75-$14.50 getting breached but holding. Resistance is at $15-$15.25 and the 50-day moving average.
Limelight Networks (LLNW, $3.94, down $0.01)
LLNW January 3 calls (LLNW200117C00003000, $1.05, flat)
Entry Price: $0.60 (9/11/2019)
Exit Target: $1.50-$2 (closed 1/3 @ $1.40 on 10/22)
Stop Target: $1 (Stop Limit)
Action: Shares kissed $4.01 with lower resistance at $4-$4.10 and the 50-day moving average holding. Support remains at $3.90-$3.80.