MomentumOptions.com Pre-Market Update for 1/7/2020
Market Rebounds Off Opening Lows to Settle Higher
The market opened lower on Monday, extending Friday’s losses that had been triggered by escalating tensions between the U.S. and Iran, before rebounding to settle higher. Iran’s announcement that it was pulling out of the nuclear deal brokered by the Obama administration, alongside the passage by Iraq’s parliament of a nonbinding resolution to expel U.S. troops kept the major indexes on alert after setting lower lows.
The positive close appears to be pricing the likeliness that the threats will not lead to war, and thus it is likely that the current market moves will be short-term in nature. However, volatility remains slightly elevated after trading to its highest level of the new year while holding key resistance levels.
The Nasdaq rose 0.6% after trading to a late day high of 9,072 and closing a point below this level. Lower resistance at 9,050-9,100 was cleared and held with a close above the latter and the all-time high of 9,093 signaling momentum towards 9,200-9,250.
The S&P 500 rose 0.4% after closing on its session high of 3,246. Near-term and lower resistance at 3,225-3,250 was cleared and held with a close above the latter and the all-time high of 3,258 getting 3,275-3,300 in focus.
The Dow was up 0.2% after testing a late day high of 28,708. Current and lower resistance at 28,600-28,800 held for the 2nd-straight session with a close above the latter and the lifetime high of 28,872 signaling a run towards the 29,000 level.
The Russell 2000 edged up 0.1% while trading to an afternoon high of 1,664. Prior and lower resistance at 1,665-1,680 held with a close above the latter and the 52-week peak of 1,681 getting the 1,700 level back in focus.
Communication Services led sector strength after soaring 1.3% while Energy and Healthcare jumped 0.8% and 0.6%, respectively. Materials fell 0.4% and Financials slipped 0.1% and were the only sector laggards.
New York Fed John Williams said it was important for the Federal Reserve to stick to its 2% inflation target and achieve it even as low global interest rates will likely continue. Williams said there has been a process of going through the stages of grief about a low neutral rate and the factors are basically the hand the Fed has been dealt for the next five to 10 years.”
Williams added if inflation continues to underrun the Fed’s target levels like it has, the downward trend in inflation expectations will likely continue with inflation expectations falling well below target levels.
The iShares 20+ Year Treasury Bond ETF (TLT) fell for the first time in 3 sessions despite testing an intraday high of $139.71. Prior and lower resistance from early December at $139.50-$140 was cleared but held.
The tumble to $138.15 afterwards breached near-term and upper support at $138.50-$138 and a level that failed to held. A close below the latter and the 50-day moving average would signal additional weakness towards $137-$136.50.
The S&P 500 Volatility Index ($VIX) was down for the 3rd time in 4 sessions despite trading to an opening high of 16.39. Prior and lower resistance at 16.50-17 was challenged but held. A close above the latter would signal a possible retest towards 17.50-18 with the early December peak at 17.99.
The close below 15-14.50 and the 200-day moving average for the 2nd-straight session remains a slightly bullish signal. Current but slightly rising support is at 13.75-13.25. A close below 13 and the 50-day moving average would be a more bullish development for the market.
The Russell 2000 ETF (IWM) rebounded to test an intraday high of $165.54. Prior and lower resistance at $165.50-$166 was breached but held. Continued closes above the latter and the recent 52-week peak of $166.41 would be a renewed bullish signal for a run towards $168-$170. The all-time from late August 2018 is at $173.39.
Near-term support remains at $164-$163.50 following the opening backtest to $163.54. A close below the latter would signal additional towards $162.50-$162.
RSI has flatlined with support at 60. A close below this level would be a slightly bearish development and would signal additional weakness towards 55-50. Resistance is at 65-70.
The Real Estate Select Sector Spider (XLRE) closed up for the 2nd-straight session after trading to a high of $38.66. Near-term resistance at $38.75-$39 was challenged but held. A close above the latter would be an ongoing bullish signal with upside potential towards $39.25-$39.50.
Current support is at $38.25-$38 and a downward sloping 50-day moving average. A close below the latter would be a bearish development with additional downside risk towards $37.75-$37.50.
RSI is in an uptrend with key resistance at 60. A move above this level would signal additional strength towards 65-70 and mid-October highs. Support is at 55-50.
Virgin Galactic (SPCE, $11.38, down $0.43) could be giving us an entry price if shares can recover $11.50-$11.75. There are also a few other trades on my Watch List that could come before SPCE so continue to stay locked-and-loaded throughout the week. In the meantime, I have updated our current trades so let’s go check the tape.
Special Notice: If you did NOT receive a Text Alert yesterday for the DBX, please email me at Rick@MomentumOptionsTrading.com so I can get support to add you. We have been swamped to start the new year and I want to ensure everyone digits are up to date.
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.
Dropbox (DBX, $18.53, up $0.53)
DBX April 20 calls (DBX200417C00020000, $1.00, up $0.15)
Entry Price: $0.90 (1/6/2020)
Exit Target: $1.80
Stop Target: None
Action: Shares traded to a high of $18.61 with prior and lower resistance at $18.50-$18.75 getting cleared and holding. Current and rising support is at $18.25-$18.
If shares can stay in an uptrend and clear $19 and the 50-day moving average, this trade will easily pick up steam and likely give us a quick triple-digit return. Earnings aren’t due out until late February so there is no near-term headline risk unless the company gives early guidance ahead of reporting.
A 5%-10% up/ down stock move is likely to come on the announcement alone with current estimates at 14 cents a share on revenue north of $443 million for a quarter. The company has topped forecasts the last 4 quarter by 2 cents, 3 times, and by 4 cents in the other quarter.
The options don’t expire for another 101 days so the longer-term potential for a possible 200%-250% return could be in play. If shares can make a run towards $23 by mid-April, these call options would technically be $3 in-the-money. With the entry price at 90 cents, this would equate to return of 233%. If shares surge to $26, we will be pushing a 4 or 5-bagger.
A $90 investment would be worth $300 if you purchased 1 contract while a 10 contract trade would turn $900 in to $3,000. Of course, if shares revert to a downtrend and tumble back towards $16 in late February (on an earnings miss), these options will likely expire worthless. Given the outlook, I love the risk/ reward this trade offers.
Pfizer (PFE, $38.88, down $0.05)
PFE March 40 calls (PFE200320C00040000, $0.70, down $0.05)
Entry Price: $0.75 (1/2/2020)
Exit Target: $1.50
Stop Target: None
Action: Shares tapped a opening low of $38.70 with upper support at $38.75-$38.50 getting breached but holding for the 5th-straight session. The intraday rebound to $39 breached lower resistance at $39-$39.25 but a level that held into the close.
AT&T (T, $39.10, up $0.04)
T March 40 calls (T200320C00040000, $0.75, flat)
Entry Price: $0.70 (1/2/2020)
Exit Target: $1.40
Stop Target: None
Action: Shares were up for the 2nd-straight session after trading to an intraday high of $39.15. Lower resistance at $39.25-$39.50 held. Rising support is at $39-$38.75.
Limelight Networks (LLNW, $4.31, up $0.15)
LLNW January 3 calls (LLNW200117C00003000, $1.30, up $0.15)
Entry Price: $0.60 (9/11/2019)
Exit Target: $1.50-$2 (closed 1/3 @ $1.40 on 10/22)
Stop Target: 75 cents (Stop Limit)
Action: Shares surged to an intraday peak of $4.38 with fresh and lower resistance at $4.30-$4.40 getting cleared and holding. New support is at $4.20-$4.10 and the 50-day moving average.