MomentumOptions.com Pre-Market Update for 12/31/2019

Volatility Signaling Near-Term Trouble/ Profit Alerts (INTC, T)/ Trade Alerts (BHC, XOM, PFE, VIAV)

8:00am (EST)

The market settled lower across the board for the first time in 15 sessions despite news from White House trade adviser Peter Navarro that the U.S./ China Phase One trade deal would likely be signed next week. China’s Vice-Premier Liu He has accepted an invitation to lead a delegation to the U.S. this upcoming weekend. Once here, Liu is expected to sign the phase one trade deal that was recently negotiated to deescalate the U.S./ China trade war.

The pullback breached near-term support levels but no major technical damage was down. However, the rise in volatility remains a concern and is signaling additional weakness in the market heading into the last trading day of the year, and possibly into early January.

The Nasdaq was down for the 2nd-straight session after giving back 0.7% while testing a low of 8,909. New and upper support at 8,900-8,850 was challenged but held with a close below the latter getting 8,800-8,750 back in focus.

The S&P 500 fell 0.6% after testing a first half low of 3,216. Near-term and upper support at 3,225-3,200 was breached and failed to hold with a move below the latter signaling additional weakness towards 3,175-3,150.

The Dow also declined 0.6% after trading to an intraday low of 28,428. Current and upper support at 28,600-28,400 was breached and failed to hold with a close below the latter signaling additional risk towards 28,200-28,000.

The Russell 2000 slipped 0.3% to extend its losing streak to 3-straight sessions following the opening backtest to 1,658. Current and upper support at 1,665-1,650 was breached but failed to hold by less than a point with a close below the latter signaling a further backtest towards 1,640-1,625.

Energy was the only sector to show strength after advancing 0.4%. Communication Services sank 1% to lead sector weakness while Consumer Discretionary and Technology were down 0.6%.

In economic news, Dallas Fed Manufacturing Survey Index fell -1.9 points to -3.2 in December after rising 3.8 points to -1.3 in November. Forecasts were for a print of 1. The employment component rose to 6.2 from 0.9 previously, with wages at 14.6 versus the prior 21.1. New orders rose to 1.6 from -3. Prices paid were 14.5 versus 17.8, with prices received at 0.7 from 1.9. The 6-month general business activity index was 6.4 from 7.3, with the employment gauge at 17.8 from 20.6. The future new orders index was 32.6 from 28.7, while the price paid index was 14.1 from 25.9, and prices received at 10.2 from 7.5. The capex index was 20.1 after dropping -13.1 points to 9.8 in November.

Pending Home Sales Index rebounded 1.2% to 108.5 in November following the -1.3% decline in October to 107.2. The index is up 5.6% year-over-year, versus the 4.4% clip previously.

December Chicago PMI improved 2.6 points to 48.9 after bouncing 3.1 points to 46.3 in November.

Wholesale Inventories were flat for the month versus forecasts for a rise of 0.2%.

Retail Inventories for November Retail were also flat versus forecasts for a decline of -0.7%.

November International Trade in Goods Balance checked in at -$63.2 billion versus estimates of -$69.5 billion.

Market Sentiment

The iShares 20+ Year Treasury Bond ETF (TLT) had its 3-session winning streak snapped following the plunge to $135.66 shortly after the opening bell. Crucial and upper support at $136-$135.50 was breached but held. A close below the latter would be a very bearish signal with downside risk towards $134.50-$134 and early November lows.

Near-term and lowered resistance is at $137-$137.50. A close above the $138 level and the 50-day moving average would be a slightly bullish signal of a near-term bottom.

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Volatility Index

The S&P 500 Volatility Index ($VIX) closed higher for the 2nd-straight session and for 5th time in 6 after spiking to an intraday high of 15.14. Prior and upper resistance from the start of the month at 14.50-15 and the 200-day moving average was breached but held. A close above the latter would be an ongoing bearish development with upside risk towards 16-16.50.

Current and rising support is at 14.50-14. A close back below the 13.50 level and the 50-day moving average would be a more bullish signal volatility is settling back down.

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Market Analysis

The Spider S&P 500 ETF (SPY) was down for the 2nd-straight session after trading to an intraday low of $320.55. Current and upper support at $320.50-$320 was challenged but held. A close below the latter would signal a possible backtest towards $319-$318.50 and levels from the prior gap higher 6 trading sessions ago. 

Lowered resistance is now at $321.50-$322. A close back above the $322.50 level would be a renewed bullish development with upside potential towards $323.50-$324 and fresh all-time highs.

RSI has peaked after failing resistance at 80 last Friday and overbought levels from January 2018. Key support at 70 failed to hold on Monday’s weakness with risk towards 65-60 on continued closes below this level.

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Sector 

The Financial Select Sector Spiders (XLF) was down for the 2nd-straight session and remains in a 10-session trading range despite tapping a fresh all-time high of $30.95 on the open. Near-term and lower resistance at $31-$31.25 was challenged but held. A close above the latter would be a bullish signal with upside potential towards $31.75-$32.

Current support is at $30.75-$30.50. A close below the latter would signal a breakdown out of the current range with additional risk towards $30-$29.75 and the 50-day moving average.

RSI is in a downtrend with key support at 60. A move below this level would signal a continued backtest towards 55-50 with the latter representing the monthly low. Resistance is at 65-70.

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Yesterday’s pullback was something we were prepared for and today will be an important clue on how the rest of the week unfolds. Wall Street is still away on vacation, for the most part, and the light volume could have a continued impact until next week and when things return to normal.

I want to take some time this morning to thank everyone for making 2019 another profitable year for MomentumOptions.com, our 11th-straight. As we look into 2020, I hope you remain on board for another year of exciting trades. I can almost bet next year will be very volatile, with wild price swings, and as traders, this is exactly what we want to see. 

On that note, I have a number of updates today 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, $29.44, down $0.26)

BHC January 30 calls (BHC200117C00030000, $0.70, down $0.15)

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

Exit Target: $1.90

Return: -25%

Stop Target: None

Action: Close the trade today to save the remaining premium. 

It appears shares could continue to fade towards the 50-day moving average, especially if $29 fails to hold. I still like the stock but these options will expire 2 weeks from this Friday. We can use the March options once the dust has settled and shares are back in an uptrend.

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Intel (INTC, $59.62, down $0.46)

INTC January 60 calls (INTC200117C00060000, $0.90, down $0.30)

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

Exit Target: $2.60

Return: 48%

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

Action: Both Stop Limits tripped yesterday after the options tested a low of 84 cents. While disappointed I couldn’t get us more out of this trade, we can get back in when shares clear and hold the $60 level for a few sessions.

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Exxon Mobil (XOM, $69.48, down $0.41)

XOM January 70 calls (XOM200117C00070000, $0.95, down $0.20)

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

Exit Target: $2.40

Return: -21%

Stop Target: 60 cents

Action: Close the trade today to save the remaining premium. 

We will likely be back in this name when shares can clear and hold $70.75-$71.

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AT&T (T, $39.04, down $0.20)

T January 39 calls (T200117C00039000, $0.55, down $0.10)

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

Exit Target: $1.05

Return: 6%

Stop Target: None

Action: Close the trade today for a scratch.

We will likely get back into T with March or April calls once shares can clear and hold the $39.50 level.

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Pfizer (PFE, $38.91, down $0.41)

PFE January 40 calls (PFE200117C00040000, $0.20, down $0.15)

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

Exit Target: $0.80

Return: -50%

Stop Target: None

Action: Close the trade today to save the remaining premium.

I still believe shares will make a surge higher towards $41 and fill the prior gap lower from late July just above this level. I have February and March calls on the radar to get back in PFE once shares can clear and hold $39.75.

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Viava Solutions (VIAV, $15.14, up $0.02)

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

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

Exit Target: $1.40

Return: -71%

Stop Target: None

Action: Close the trade today to save the remaining premium.

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Limelight Networks (LLNW, $4.06, down $0.04)

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: Lower support at $4.05-$4 was breached but held on Monday’s fade to $3.99. Resistance remains at $4.15-$4.20 and the 50-day moving average

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