MomentumOptions.com Pre-Market Update for 1/13/2020

Bulls Get Weekly Win as Dow Trips 29,000/ Profit Alerts (GLD, T)

8:00am (EST)

The market showed strength throughout the first half of Friday’s action despite a jobs report that was a tad disappointing, but not troublesome, as the data still showed strong momentum in the labor market. The major indexes tripped another round of all-time highs before fading later in the day and into the closing bell.

The pullback wasn’t too surprising as traders took profits ahead of the weekend and the upcoming start of the 4Q earnings season. Volatility settled slightly higher but is still giving a bullish reading heading into next week as sentiment on trade deals, particularly with China, continues to keep the major indexes near record levels.

The Dow was down 0.5% despite testing a lifetime high of 29,009 shortly after the opening bell. Current and upper resistance at 28,800-29,000 was cleared but held on the 2nd-straight close above the former.

The Russell 2000 dropped 0.4% after trading in negative territory for much of the session while topping out at 1,666 and failing to hold the 1,665 level for the 6th-straight session. Upper support at 1,650-1,635 held on the afternoon fade to 1,654.

The Nasdaq gave back 0.3% after trading in a 71-point range while testing an intraday all-time high of 9,235. Upper resistance at 9,200-9,250 was challenged but held before the backtest to 9,164 and close below the former.

The S&P 500 fell 0.3%, as well, with the record high reaching 3,282 within the first 30 minutes of trading. Fresh and lower resistance at 3,275-3,300 was cleared but held before the fade to 3,260 afterwards and close above the 3,250 level. 

The Nasdaq was up for the 5th-straight week after surging 1.8% while the Russell 2000 was down for the 2nd-straight week after slipping 0.2%. The S&P 500 showed strength for the 5th time in 6 weeks after jumping 0.9% while the Dow was up for the 4th time in 5 weeks after gaining 0.7%. 

Real Estate and Utilities paced sector leaders after rising 1% and 0.3%, respectively, while Healthcare nudged up 0.03% to round out the winners. Industrials and Financials were down 0.7% to pace sector laggards.

Over the past 5 sessions, the best performing sectors were Communication Services (2.1%), Technology (1.3%) and Utilities (0.7%). Materials (-1.5%) and Energy (-0.7%) were the weakest sectors.

In economic news, Nonfarm payrolls increased 145,000 in December, after a gain of 256,000 in November, while missing forecasts for a gain of 180,000. The unemployment rate was steady at 3.5%. The labor force rose 209,000 after a revised 54,000 gain, and household employment was up 267,000 following an -8,000 decline previously. Average hourly earnings edged up 0.1%, after a 0.3% gain previously. Earnings slowed to a 2.9% year-over-year pace versus 3.1% while hours worked were unchanged at 34.3.

Wholesale Trade Inventories dipped -0.1% in November with sales surging 1.5%. The former is a little weaker than expectations for a flat reading, while the latter topped forecasts. The inventory-sales ratio dropped to 1.35 from 1.37 and is the lowest since April.

Baker-Hughes reported the U.S. rig count was down 15 rigs from last week to 781, with oil rigs lower by 11 to 659, gas rigs off 4 to 119, and miscellaneous rigs unchanged at 3. The U.S. Rig Count is down 294 rigs from last year’s count of 1,075, with oil rigs declining 214, gas rigs falling 83, and miscellaneous rigs up 3 to 3. The U.S. Offshore Rig Count is down 1 to 21 unchanged year-over-year.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session following the intraday trip to $138.47. Prior and lower resistance at $138.50-$139 was challenged but held on the close back above the 50-day moving average. A close above $139.50-$140 would signal a possible near-term bottom.

Current and rising support is at $138-$137.50. A close below the $137 level would signal a false breakout with backtest potential towards $136.50-$136.

RSI is back in an uptrend with key resistance at 55 holding. A move above this level would signal additional strength towards 60-65 and highs from November and October. Support is at 50-45.

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The S&P 500 Volatility Index ($VIX) snapped a 4-session slide despite testing a low of 12.09 an hour after the open. Near-term and upper support at 12-11.50 was pushed but held on the 2nd-straight close just above the 12.50 level.

Lower resistance at 13-13.50 held on the late day bubble to 12.87 with the latter holding for the 3rd-straight session. A close above 13.50 would signal a possible retest towards 14.50-15 and the 200-day moving average.

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The Spider S&P 500 ETF (SPY) had its 2-session winning streak snapped despite trading to an all-time peak of $327.46. Uncharted territory and lower resistance at $327.50-$328 was challenged but held. A close above the latter would be an ongoing bullish development with upside potential towards $329.50-$330.

Current support at $325.50-$325 was split on the fade to $325.20 afterwards. A close below the latter would signal a possible backtest towards $322.50-$322. A close below the $320 level would be a bearish development going forward and signal a possible near-term top.

RSI is back in a downtrend after failing upper resistance at 75-70 on the close below the latter. Key support is 65, and the low for the month, with risk towards 60 and the mid-December bottom on a move below this level.

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The Consumer Discretionary Select Spiders (XLY) also fell for the first time in 3 sessions after failing key resistance at $127.50 with the prior session all-time high reaching $127.49. A close above the $127.50 level would be a bullish signal for additional strength towards the $128.50-$130, depending on momentum.

Current support is at $126-$125.50 following the late day pullback to $126.21. A close below the $125 level would be a slightly bearish development with downside risk towards $124-$123.50.

RSI may have peak after closing below lower resistance at 70-65. Key support is at 60 with a move below this level signaling additional weakness towards 55-50 and levels from mid-December.

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The percentage of Nasdaq 100 stocks trading above the 50-day moving closed at at 80.58% on Friday, down 1.94%, with the late session low tapping 80.27%. Upper support at 80%-77.50% held. A move below the latter would signal additional weakness towards 75%-72.5% and levels from mid-December. Lowered but overbought resistance is at 82.5%-85%.

The percentage of S&P 500 stocks trading above the 200-day moving average average settled at 78.21%, down 0.40%, with the session reaching 78.01%. Near-term and upper support at 77.50%-75% held with last week’s low at 77.42%. A close below the 75% level would be an ongoing bearish development with weakness towards 72.5%-70% and early December levels.

Current and slightly overbought resistance is at 80%-82.5% with last week’s peak at 80.79%.

The Q4 earnings season is underway with a handful of results from the S&P 500 members already in the books. Total earnings for the 19 index members that have reported are down -19.1% from the year-earlier level on 2.5% higher revenues, with 78.9% beating EPS estimates and 68.4% topping revenue estimates.

While Q4 earnings growth is below what we have seen for this group of companies in other recent periods, revenue growth was only modestly below what this same group achieved in the preceding period. The proportion of these companies beating EPS and revenue estimates was within the historical range, though revenue beats were on the lower side.

The market did not see much earnings growth in the first three quarters of 2019, primarily reflecting tough comparisons to the prior year, and this trend is expected to continue in the last quarter of 2019 as well.

Energy sector earnings are expected to be down -42.1% from the same period last year on -4.6% lower revenues. Excluding the Energy sector, total earnings for the index would be down only -1%.

Sectors with weak growth in Q4, besides Energy, include Autos (-56.5%), Basic Materials (-23.1%), Aerospace (-18.5%), Industrial Products (-5%), Retails (-6.8%), Tech (-4.4%), and Transportation (-4.8%). Sectors with positive earnings growth in Q4 include Utilities (17.9%), Business Services (9.6%), Finance (7.5%), and Medical (3.5%).

The Finance sector is expected to post 7.5% earnings growth on 6.3% revenue growth and is a big help to the aggregate growth picture for the S&P 500 index. Excluding the Finance sector, total Q4 earnings for the rest of the S&P 500 index would be down -6.3%.

The Finance sector’s favorable growth picture in Q4 is solely because of easy comparisons in the insurance industry, with earnings for the industry expected to be up 36.4%. Excluding the Insurance industry, the Finance sector’s Q4 earnings growth drops to -7.6%. 

For the small-cap S&P 600 index, total Q4 earnings are expected to be down -3.7% from the same period last year on 0.7% higher revenues, with strong growth in the Finance sector helping offset the Energy sector drag. Excluding the Finance sector, S&P 600 earnings would be down -22.3% in Q4.

Overall, total 2019 earnings for the S&P 500 index are expected to be down -1.7% on 2.7% higher revenues, which would follow the 23.2% earnings growth on 9.2% higher revenues in 2018. Growth is expected to resume in 2020, with earnings growth of 7.9% on 4% higher revenues.

The market appears to have accepted the deceleration in growth in the hope that growth resumes from this year. The key issue will be if expectations remain stable or start coming down as the market moves through the remainder of the year. 

Analysts have not made any significant revisions to their estimates in response to the ongoing trade dispute, likely in the hope that the issue will eventually get resolved. This, coupled with the ongoing economic weakness in Europe, China and elsewhere likely represent downside risks to the growth outlook. 

I have a couple of Profit Alerts following Friday’s weakness but names we will likely be back into at some point.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 2-0 (100%). 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.

Virgin Galactic (SPCE, $12.83, up $0.79)

SPCE March 14 calls (SPCE200320C00014000, $0.75, up $0.10)

Entry Price: $0.65 (1/10/2020)

Exit Target: $1.30

Return: 15%

Stop Target: None

Action: Shares surged to a 52-week high of $13 on Friday with fresh and lower resistance at $13-$13.25 holding. Continued closes above the latter could lead to a run towards $14-$15. Rising support is at $12.50-$12.25.

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Viavi Solutions (VIAV, $15.12, down $0.22)

VIAV March 16 calls (VIAV200320C00016000, $0.55, down $0.10)

Entry Price: $0.70 (1/8/2020)

Exit Target: $1.40

Return: -21%

Stop Target: None

Action: Friday’s low tapped $14.99 with prior and upper support at $15-$14.75 getting breached but holding. Lowered resistance is at $15.25-$15.50 and the 50-day moving average.

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Spider Gold Shares (GLD, $146.91, up $0.88)

GLD February 145 puts (GLD0221P00145000, $1.15, down $0.45)

Entry Price: $1.00 (1/7/2020)

Exit Target: $2.00 (Limit Order)

Return: 35%

Stop Target: $1.35 (Stop Limit)

Action: The Stop Limit at $1.35 tripped after shares closed the week on a high note. While disappointed we didn’t make more on the trade, I will keep GLD on my Watch Lust for a possible reentry point.

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Dropbox (DBX, $17.82, down $0.55)

DBX April 20 calls (DBX200417C00020000, $0.70, down $0.20)

Entry Price: $0.90 (1/6/2020)

Exit Target: $1.80

Return: -22%

Stop Target: None

Action: Shares tested a low of $17.56 following an analyst downgrade. Prior and upper support from late December at $17.50-$17.25 was challenged but held. Lowered resistance is at $18-$18.25.

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Pfizer (PFE, $39.49, up $0.60)

PFE March 40 calls (PFE200320C00040000, $0.85, up $0.20)

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

Exit Target: $1.50

Return: 13%

Stop Target: None

Action: Shares traded up to $39.62 with fresh and lower resistance at $39.50-$39.75 getting cleared but holding by a penny. A close above the latter could lead to short-covering towards $40.50-$41 and levels from late July. Rising support is at $39.25-$39. 

The 50-day moving average remains on track to clear the 200-day moving average to form a golden cross. This is typically a bullish technical signal for higher highs. If $39.75 is cleared, I could piggy-back this trade with February calls.

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AT&T (T, $38.57, down $0.23)

T March 40 calls (T200320C00040000, $0.70, down $0.10)

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

Exit Target: $1.40

Return: 3%

Stop Target: 72 cents (Stop Limit)

Action: The Stop Limit at 72 cents tripped on Friday’s fade to $38.57. A 51-cent dividend was paid late last week to cause the pause in momentum and the weakness in the stock.

We will likely be back in T once shares can regain the $39 level.

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Limelight Networks (LLNW, $4.52, unchanged)

LLNW January 3 calls (LLNW200117C00003000, $1.50, flat)

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

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

Return: 144%

Stop Target: $1.15, raise to $1.40 (Stop Limit)

Action: Raise the Stop Limit from $1.15 to $1.40. These options expire this Friday and we will lock-in at least a 133% return. I would like to see one more surge to fresh 52-week peaks north of $4.72 from late November ahead of Friday’s close.

Shares traded to a high of $4.62 with prior and lower resistance from late November at $4.60-$4.70 getting breached but holding. Current support is at $4.40-$4.30.

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