MomentumOptions.com Pre-Market Update for 1/6/2020

Geopolitical Concerns Resurface

8:00am (EST)

The market lost a little froth on Friday following heightened geopolitical events and the overnight airstrike that killed a key Iranian general. While building tensions in the Middle East could linger, as Iran promised harsh retaliation, the major indexes showed some resiliency after holding near-term support levels on the opening lows.

The losses took some fluff off the Santa Claus rally that officially ended with the major indexes showing gains over the 7-session trading period. However, the small-caps failed to rally into yearend and were down nearly 1% over the same time frame. A gain for the overall market is usually results in a bullish January but history is never a given to repeat. 

Volatility also surge to its highest level in 3 weeks but gave a slightly bullish signal after holding key resistance levels. Monday’s action, along with the upcoming 4Q earnings season, will go a long way in determining how the month unfolds. 

The Nasdaq gave back 0.8% with the low reaching 8,976 shortly after the opening bell. Prior and upper support at 9,000-8,950 was breached but held with a close below the latter getting 8,900-8,850 back in play.

The Dow also dropped 0.8% after testing a morning low of 28,500. Current support at 28,600-28,400 was split but held with a close below the latter signaling additional weakness towards 28,200-28,000.

The S&P 500 was down 0.7% after tapping a first half low of 3,222. Near-term and upper support at 3,225-3,200 was breached but held with a move below the latter getting the 3,175-3,150 area back in focus.

The Russell 2000 fell 0.5% following the opening pullback to 1,648. Upper support at 1,665-1,650 was breached and failed to hold with a close below the latter signaling a further backtest towards 1,640-1,625.

For the week, the Nasdaq nudged up 0.2% while the Russell 2000 declined 0.6%. The S&P 500 slipped 0.2% and the Dow was off 0.1%.

Real Estate and Utilities were the only sectors that showed strength after rising 0.7% and 0.2%, respectively. Materials sank 1.6% to lead sector laggards while Technology and Financials tumbled 1.1%.

Over the past 5 sessions, the best performing sectors were Technology (1.6%), Industrials (1.3%) and Financials (0.8%). Energy (-2.2%) and Materials (-1.1%) were the weakest sectors followed by Consumer Staples and Healthcare (-0.8%).

In economic news, Construction Spending rose 0.6% in November, topping expectations of 0.3%, and follows the 0.1% gain in October. Residential spending was up 1.8% compared to 0.7% previously. Nonresidential construction fell 0.3%, matching October’s loss. Private construction outlays were up 0.4% versus the prior 0.1% gain, and public spending was 0.9% higher after the 0.1% rise previously.

ISM Manufacturing Index declined to 47.2 in December from 48.1 in November and missing forecasts for a print of 49.1. The employment component dropped to 45.1 versus 46.6 previously. Production fell to 43.2 from 49.1. New orders were weaker at 46.8 from 47.2. New export orders edged lower to 47.3 versus 47.9 while Imports were slightly firmer at 48.8 from 48.3. Prices paid climbed to 51.7 from November’s 46.7 reading.

Baker-Hughes Rig Count reported the U.S. rig count was down 9 rigs to 796, with oil rigs off 7 to 670, gas rigs lower by 2 to 123, and miscellaneous rigs unchanged at 3. The U.S. Rig Count is down 279 rigs from last year’s count of 1,075, with oil rigs down 207, gas rigs off 75, and miscellaneous rigs up 3 to 3. The U.S. Offshore Rig Count is down 1 to 22 unchanged year-over-year.

The FOMC minutes to the December meeting did not have any big surprises, but were consistent with the Fed’s shift to a steady policy stance, as indicated in the report. The minutes said that officials view the current stance as appropriate. Recession risks had declined noticeably and inflation is generally expected to rise to the 2% target. However, a few officials were concerned about inflation running below that level. 

There were also concerns that low rates would spur excessive risk taking. The report also indicated trade tensions had been easing, recession risks had declined, and no-deal Brexit risks had lessened. The Fed also discussed it was studying a standing repo facility, as well as Treasury composition. Additionally, the Fed acknowledged overnight reserve RPR may have to increase, but repo operations could generally be reduced. However, some repos may be needed through the April tax season and that the IOER rates may need to move closer to the middle of the funds rate (1.625%).

The Fed said it would not reaffirm its current statement on longer run goals and monetary strategy at its next meeting later this month. The decision almost certainly suggests the central bank will adopt a new strategy later in 2020, probably around midyear.

Chicago Fed Charles Evans expects growth in the 2%-2.25% range this year. He believes the fundamentals are strong and the FOMC is well positioned for 2020 as the Fed’s setting remains accommodative. He added the economy can grow even with the weaker manufacturing sector with the 3.5% unemployment rate likely being sustained. He believes his outlook would lift inflation to the 2% target and he is not sure what the airstrike on Iran means for the outlook.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session after surging to a 1st half high of $139.16. Prior and lower resistance from early December at $139-$139.50 was cleared and held. A close above the latter would signal additional strength towards the $140-$140.50 area.

Near-term and fresh support is at $138.50-$138 and the 50-day moving average. A close below the latter would signal a false breakout with backtest potential towards $137-$136.50.

RSI is in a strong uptrend with lower resistance at 55-60 getting cleared and holding. A close above the latter and the late November peak would signal additional strength towards 65-70. New support is at the 50 level.

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The S&P 500 Volatility Index ($VIX) was up for the first time in 3 sessions after spiking to a midday high of 16.20. Upper resistance from early December at 15.50-16 was breached but held. The close below 15-14.50 and the 200-day moving average was a slightly bullish signal. 

New support is at 13.50-13 and the 50-day moving average.

RSI is trending higher with lower resistance at 55-60 getting challenged but holding. A close above 65 and the early December high would signal additional strength towards 70-75 and early August highs. Key support is at 50 with a close below 45 signaling additional weakness and would be a renewed bullish signal for the market.

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The Invesco QQQ Trust (QQQ) was down for the 3rd time in 5 sessions following the opening pullback to $213.28. Previous and upper support at $213.50-$213 was breached but held. A move below the $212.50 level would signal a possible near-term top with additional risk towards $211-$210.50.

Lowered resistance is at $214.50-$215. Continued closes above the $215.50 level would be a renewed bullish signal with upside potential towards $217-$217.50 with the current all-time high peak at $216.16.

RSI is back in a downtrend failing to hold key support at 70. This keeps downside risk towards 65-60 in play over the near-term. Resistance is at 75-80 with the latter representing the late December top.

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The Technology Select Sector Spiders (XLK) had its 2-session winning streak snapped following the morning pullback to $92.02. Prior and upper support at $92-$91.50 was challenged but held. A close below $91.50 reopens risk towards $90-$89.50 with the latter representing key support from mid-December.

Lowered resistance at $92.50-$93. A close above the latter and last Tuesday’s record high at $93.39 would be an ongoing bullish signal with upside potential towards $94.50-$95.

RSI is back in a slight downtrend after failing to hold support at 70. Continued closes below this level keeps 65-60 in play. Resistance is at 75-80 and last week’s peak and overbought levels on a move back above 70.

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The percentage of Nasdaq 100 stocks trading above the 50-day moving closed at at 72.67%, down 4.16%, with the morning bottom reaching 70.89%. Upper support at 72.50%-70% was tripped but held. A move below the latter would signal additional weakness towards 67.5%-65% and levels from mid-December. Lowered resistance is at 75% with Friday’s high at 75.04%. Continued closes above 75.5% would be a slightly bullish signal for a retest towards 77.5%-80% with the latter representing recent overbought levels.

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 low tapping 79.40%. Near-term and upper support at 80%-77.5% was breached but held with the low at 78.21% in back-to-back sessions to start last week. A close below 77.5% would be an ongoing bearish development with weakness towards 75%-72.5% and mid-December levels.

Current and overbought resistance remains at 82.5% with last Thursday’s peak at 81.98%.

There were market pundits predicting a much nastier session on Friday with some catcalls predicting 1,000 point drop in the blue-chips ahead of the opening bell. The low on the Dow was -368. No major technical damage was done but buckle up, today could be a fun ride to play the pivot, or the start of that 1,000 point whack. Stay locked-and-loaded as I have a number of setups on my Watch List. The top of my list is Virgin Galactic (SPCE, $11.81, up $0.02)

Shares tapped a high of $11.90 on Friday with lower resistance at $12-$12.25 getting challenged but holding. A close above the latter could lead to a major breakout. Support is at $11.50-$11.25.

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Momentum Options Play List

Closed Momentum Options Trades for 2020: 0-0 (0%). 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, $38.93, down $0.21)

PFE March 40 calls (PFE200320C00040000, $0.75, down $0.05)

Entry Price: $0.75 (1/2/2020)

Exit Target: $1.50

Return: 0%

Stop Target: None

Action: Shares traded to a low of $38.67 with upper support at $38.75-$38.50 getting breached but holding. Resistance is at $39.25-$39.50.

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AT&T (T, $39.06, up $0.20)

T March 40 calls (T200320C00040000, $0.75, up $0.05)

Entry Price: $0.70 (1/2/2020)

Exit Target: $1.40

Return: 7%

Stop Target: None

Action: Friday’s peak reached $39.20 with lower resistance at $39-$39.25 getting cleared and holding. Current support is at $38.75-$38.50.

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Limelight Networks (LLNW, $4.16, down $0.02)

LLNW January 3 calls (LLNW200117C00003000, $1.15, flat)

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

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

Return: 103%

Stop Target: 75 cents (Stop Limit)

Action: Upper support at $4.10-$4.05 held on the session low. Resistance remains at $4.15-$4.20 and the 50-day moving average holding. 

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