MomentumOptions.com Pre-Market Update for 12/30/2019

Bulls Take a Breather as Volatility Rises

8:00am (EST)

The market continued its end of year melt-up rally during the first half of Friday’s action while struggling to hold positive territory into the closing bell. The mixed finish was likely the result of year-end tax selling as settlement for stocks officially takes a few trading sessions.

The economic calendar is light over the next two trading sessions so headline risks are reduced into next Thursday and when participation, and volume, should begin to return to more normal levels. The upside pressure in volatility was a slightly bearish development and is signaling possible near-term tops could be forming in the major indexes. 

The Dow was higher for the 5th time in 6 sessions after edging up 0.1% and testing a record high of 28,701. Uncharted territory and lower resistance at 28,750-29,000 was challenged but also held on the 2nd-straight close above the 26,600 level.

The S&P 500 was up for the 2nd-straight session after rising a tenth-point, or 0.03%, with the intraday all-time high reaching 3,247. Current and lower resistance at 3,250-3,275 was challenged but held with a move above the latter getting 3,300 in play.

The Nasdaq slipped 0.2% to snap an 11-session winning streak despite tapping another lifetime high of 9,052. Fresh and lower resistance at 9,050-9,100 was cleared but held with a close back below 9,000-8,950 being a slightly cautious development to watch going forward.

The Russell 2000 lost 0.5% to extend its losing streak to 2-straight sessions with the late day low reaching 1,666. Current and upper support at 1,675-1,660 was breached and failed to hold with a close below the latter signaling additional risk towards 1,650.

For the week, the Nasdaq rose 0.9% while the Russell 2000 dipped 0.1%. The Dow added 0.7% and the S&P 500 was higher by 0.6%.

Consumer Staples and Real Estate led sector strength with gains of 0.4%. Energy and Materials paced sector weakness after falling 0.4%.

Over the past 5 trading sessions, the best performing sectors were Technology (1.3%) and Consumer Discretionary (1.2%). Utilities and Consumer Staples (-0.3%) were the only sectors laggards.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight with the session high tapping $137.63. Near-term and lower resistance from mid-November at $137.50-$138 was cleared but held. A close above the latter and the 50-day moving average would be an ongoing bullish signal with upside potential towards $139.50-$140.

Rising support is at $137-$136.50. A close below the $136 level would be a bearish development with downside risk towards $134.50-$134 and early November lows.

RSI is in an uptrend with resistance at 50. A move above this level would signal additional strength towards 65-70 and the latter holding since late August. Support is at 45-40 with the latter representing the monthly low.

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The S&P 500 Volatility Index ($VIX) closed higher for the 4th time in 5 sessions despite testing a low of 11.89 shortly after the opening bell. Current and lower support at 12.50-12 was breached but held for the 2nd-straight session.

The midday bounce to 13.72 afterwards and close above upper resistance at 12.75-13.25 and the 50-day moving average was a slightly bearish development. A close above 13.50, or a pop past 14, would be a serious concern for the market with upside risk towards 14.50-15 and the 200-day moving average. 

RSI is in an uptrend after clearing lower resistance at 50. Continued closes above this level would signal strength towards 55-60 with the monthly peak at 65. Support is at 45-40.

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The Spiders Dow Jones Industrial Average ETF (DIA) was up for the 2nd-straight session and for the 5th time in 6 after trading to an all-time intraday high of $286.85. Blue-sky and lower resistance at $287-$287.50 was challenged but held. A close above the latter would be an ongoing bullish signal with upside potential towards $288.50-$290, depending on momentum.

Near-term and rising support is at $285.50-$285. A close below the latter would signal a near-term top with additional weakness and backtest potential towards $283-$282.50.

RSI remains in an uptrend with key resistance just above 75 and the mid-November high. Continued closes above 80 would signal additional strength towards 85-90 and overbought levels from January 2018. Support is at 70 with a move below this level signaling additional weakness towards 65-60.

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The Materials Select Sector (XLB) had its 5-session winning streak snapped despite trading to a 52-week peak of $61.61. Multi-year and lower resistance from September 2018 at $61.50-$62 was cleared but held. Continued closes above the latter would be an ongoing bullish signal with upside potential towards $62.50-$63 and fresh all-time highs.

Near-term and upper support at $61-$60.50 held on the fade to $61.13 afterwards. A close below the latter reopens downside risk towards $60-$59.50 and the 50-day moving average.

RSI is showing signs of weakness after failing key resistance at 70 and the July high. Continued closes above this level would signal strength towards 75-80 and overbought levels from January 2018. Support is at 60 with a move below this level signaling a further backtest towards 55-50.

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The percentage of Nasdaq 100 stocks trading above the 50-day moving closed at at 88.34%, down 0.98%, with the intraday peak reaching 90.29%. Key resistance at 90% was breached but held for the 2nd-straight session. Continued closes above the 90% level would be an ongoing bullish signal for a run towards 92.5%-95% with the February overbought top tapping 93.20%, twice. Support is at 87.5%-85%. A move below the latter would signal additional weakness towards 82.5%-80%.

The percentage of S&P 500 stocks trading above the 200-day moving average average settled at 80.79%, down 0.20%, with the session and opening high reaching 81.58%. Current and lower resistance at 80%-82.5% was challenged but held with the January 2018 peak at 82.17%. A close above 82.5% would be an ongoing bullish signal with strength towards 85%-87.5% and overbought levels from July 2014. Near-term support remains at 77.5%-75% with last week’s low at 78.61%.

The 4Q season is roughly two weeks away from starting with the Financial sector up first. Total earnings for the S&P 500 index are expected to be down -3.6% in Q4 from the same period last year on 2.9% higher revenues. 

Next week is another shortened week with the first full week of January previewing a few companies reporting. However, the “official” start for major earnings announcements will begin on Tuesday, January 14th with many of the big banks reporting numbers throughout the week.

Given the current overbought conditions, there could be a consolidation period for the market into this time frame. From their, earnings results will either dictate another run towards record highs or a pullback towards the 50-day moving averages.

I have made adjustments to our INTC trade so let’s go check the tape.

Momentum Options Play List

Closed Momentum Options Trades for 2019: 46-12 (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.

Bausch Health Companies (BHC, $29.70, up $0.01)

BHC January 30 calls (BHC200117C00030000, $0.85, flat)

Entry Price: $0.95 (12/20/2019)

Exit Target: $1.90

Return: -11%

Stop Target: None

Action: Upper resistance at $29.75-$30 held on Friday’s peak. Support remains at $29.50-$29.25.

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Intel (INTC, $60.08, up $0.26)

INTC January 60 calls (INTC200117C00060000, $1.20, up $0.15)

Entry Price: $0.65 (12/20/2019)

Exit Target: $1.30, raise to $2.60

Return: 85%

Stop Target: 90 cents (Stop Limit on 2nd half), raise to $1 (Stop Limit on 1st half)

Action: Raise the Exit Target from $1.30 to $2.60. Raise the Stop Limit at 90 cents to $1 on half the trade and keep in place at 90 cents for the other half to further protect profits. This will give us some wiggle room going into the New Year and on a pullback if the stock fails to hold $60 today.

Shares traded to an all-time high of $60.48 on Friday with fresh and lower resistance at $60.25-$60.50 getting cleared and holding. A close above the latter could lead to additional strength towards $61.50-$62. Rising support is at $59.75-$59.50.

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Exxon Mobil (XOM, $69.89, down $0.24)

XOM January 70 calls (XOM200117C00070000, $1.15, down $0.10)

Entry Price: $1.20 (12/18/2019)

Exit Target: $2.40

Return: -4%

Stop Target: 60 cents

Action: Near-term and upper support at $70-$69.50 was breached and failed to hold on Friday’s fade to $69.88. Key resistance remains at $70.50.

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AT&T (T, $39.24, up $0.08)

T January 39 calls (T200117C00039000, $0.55, flat)

Entry Price: $0.52 (12/5/2019)

Exit Target: $1.05

Return: 6%

Stop Target: None

Action: Lower resistance at $39.25-$39.50 was tripped but held on the run to $39.36. Support remains at $39-$38.75.

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Pfizer (PFE, $39.32, down $0.06)

PFE January 40 calls (PFE200117C00040000, $0.35, flat)

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

Exit Target: $0.80

Return: -13%

Stop Target: None

Action: Upper support at $39.25-$39 held on Friday’s low. Resistance is at $39.50-$39.75.

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Viava Solutions (VIAV, $15.12, down $0.17)

VIAV January 16 calls (VIAV200117C00016000, $0.20, down $0.05)

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

Exit Target: $1.40

Return: -71%

Stop Target: None

Action: Fresh and upper support at $15-$14.75 held on the backtest to $15.09 and close below the 50-day moving average. Lowered resistance is at $15.25-$15.50. 

I will likely close this trade tomorrow unless shares can recover $15.50 by today’s close. Earnings aren’t due out until early February and shares will need to rally past $16 for this trade to make a comeback.

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Limelight Networks (LLNW, $4.10, down $0.15)

LLNW January 3 calls (LLNW200117C00003000, $1.10, down $0.05)

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

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

Return: 100%

Stop Target: 75 cents (Stop Limit)

Action: Upper support at $4.05-$4 was breached but held with Friday’s low kissing $4.02. Resistance is at $4.15-$4.20 and the 50-day moving average

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