MomentumOptions.com Pre-Market Update for 1/16/2020

Bulls Trip Another Round of All-Time Highs / Profit Alert (SPCE)

8:00am (EST)

The market was showed strength from the start of trading ahead of the U.S. and China’s phase one trade deal official signing ceremony, which took place midday. Although some tariffs will remain in place, the threat of further escalation is out of the picture for now. 

White House economic adviser Kudlow said negotiations on Phase Two are expected to begin as soon as the Phase One signatures are complete. Against the backdrop of trade optimism, the big banks continued their earnings procession with two of the largest in the nation reporting solid quarterly results.

The Russell 2000 soared 0.8% following the session run to 1,688 and fresh 52-week peak. Near-term and lower resistance at 1,685-1,700 was cleared but held by less than 3 points.

The Dow was up 0.3% after trading to an intraday all-time high of 29,127. Near-term and lower resistance at 29,000-29,200 was cleared and held with a close above the latter leading to a possible trip towards 29,300-29,500.

The S&P 500 gained 0.2% following the midday push to 3,298. New and lower resistance at 3,300-3,325 was challenged but held for the 2nd-straight session.

The Nasdaq added 0.1% after tapping a first half all-time high of 9,298. Fresh and lower resistance at 9,300-9,350 was challenged but held on the 3rd-straight close above the 9,250 level.

Utilities led sector strength for the 2nd-straight session after zooming 0.6% while Healthcare and Real Estate  rose 0.9% and 0.8%, respectively. 

Energy and Financials paced sector laggards after sinking 0.7% and 0.6% while Consumer Discretionary fell 0.2% to round out the losers.

In economic news, MBA Mortgage Applications surged 30.2% last week, following a 13.5% bounce in the previous week, and the largest weekly gain since January 2015. Most of the strength was in the refi index, which zoomed 42.7% after the prior 24.6% gain. The purchase index was up 15.5% after a 3% gain previously. The 30-year mortgage rates fell to 3.87%, from 3.91%, and was at 4.74% a year ago. The 5-year ARM rose to 3.35% from 3.19%, and was at 4.08% last year.

Producer Price Index for December PPI gained 0.1% with the core also up 0.1%, below expectations of 0.2% gains for both, and follows respective readings of unchanged and -0.2% in November. The 12-month pace rose to 1.3% year-over-year from 1.1% previously, while the core slowed to 1.1% year-over-year from 1.3%. Goods prices were up 0.3%, with energy 1.5% firmer, while food prices dipped -0.2%. Services prices were flat.

Empire State Manufacturing Survey rose 1.5 points to 4.8 in January, better than expectations for a print of 3.6, after rising 0.8 ticks to 3.3 in December. The employment component fell to 9 from 10.4 while new orders climbed to 6.6. Prices paid doubled to 31.5 and the prices received index more than tripled to 14.4. The 6-month index dipped to 23.6 from 26.1, with employment inching up to 12.1. The future prices paid index rose to 43.8, with prices received little changed at 29.5. Capex slipped to 25.3 from 26.1.

The Fed’s Beige Book revealed overall the economy expanded modestly in the last six weeks of 2019. A couple of Districts, Dallas and Richmond, noted above-average growth, while Philly, St Louis, and KC reported below-average results. Employment was steady or rose modestly and labor markets remained tight. Most Districts reported labor shortages Consumer spending grew at a modest to moderate pace. A number of Districts reported job cuts or reduced hiring among manufacturers, and some in transportation and energy sectors. Wage growth remained modest or moderate. Holiday sales were reportedly solid with a note toward the growing importance of on-line shopping. Vehicle sales grew moderately while manufacturing was essentially flat, as was the case in the prior report. Business nonfinancial services activity was mixed but generally grew modestly. Home sales trends were varied. Prices continued to rise at a modest” pace, as did input costs. A few Districts said some businesses were passing along tariff costs to consumers, mostly in retail, but also construction. Some Districts also noted prices were expected to continue to rise in the months ahead.

Dallas Fed Robert Kaplan said he is not forecasting policy action, but added analysts will do what’s right. He said the Phase One trade deal is a positive as anything that curbs uncertainty will help investment, but also said business spending is still likely to be sluggish. He went on to say the job market is tight, and the consumer is solid but he is worried about the impact of the accommodative policy stance on asset.

Philly Fed Patrick Harker noted that the Fed’s liquidity injections have helped calm the funding markets while adding the Fed has learned that the financial system needs a larger amount of reserves than previously thought. He said the Fed is considering a Standing Repo Facility but it’s still in the discourse stage rather than decision stage. He said the economy is good, aside from uncertainty, and there’s no need to move on rates anytime soon.

San Francisco Mary Daly expects inflation will gradually rise to the 2% goal, and suspects it will get to that level on a sustained basis by 2021. She said the yield curve bears watching, but the lower neutral rate means the curve can be flatter than it has been in the past. 

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 4th time in 5 sessions after trading to a first half high of $139.76. Prior and lower resistance from earlier this month at $139.50-$140 was cleared and held. A close above the latter would signal additional strength towards $141-$141.50.

Rising support is at $139-$138.50 followed by $138-$137.50 and the 50-day moving average.

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The S&P 500 Volatility Index ($VIX) tested a low of 11.95 shortly after the opening bell with current and upper support at 12-11.50 getting breached but holding.

The rise to 12.83 afterwards cleared near-term resistance at 12.75-13.25 but a level that held. The 3rd-straight close below the 12.50 level remains a slightly bullish signal.

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The Invesco QQQ Trust (QQQ) closed higher for the 2nd time in 3 sessions after testing an intraday high of $221.20. Current and lower resistance at $221-$221.50 was cleared but held along with the all-time high at $221.21. Continued closes above the $221.50 level would be an ongoing bullish signal with upside potential towards $222.50-$223.

Near-term support is at $220-$219.50. A move below the later would signal a possible near-term top with backtest potential towards $218-$217.50.

RSI remains slightly elevated after clearing but failing to hold lower resistance at 75-80 with the latter representing the December high. The January 2018 overbought peak reached 85. Key support is at 70 with a close below this level signaling additional weakness towards 65-60.

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The iShares PHLX Semiconductor ETF (SOXX) had its 2-session winning streak snapped following the late day pullback to $253.11. Current and upper support at $253.50-$253 was breadhed but held. A close below the $252.50 level would signal a near-term top.

Near-term and lowered resistance is at $255-$255.50. A close above the $256 level would signal renewed strength and a possible retest towards $257.50-$258 with Tuesday’s all-time high at $259.04.

RSI is back in a downtrend with key support at 60. A move below this level would signal additional weakness towards 55-50 and early December lows. Resistance is at 65-70.

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We got some super sweet pin action yesterday and I have made a number of adjustments to our current trades. Please follow all instructions carefully and stay locked-and-loaded for a possible new trade today, depending on market conditions. I still think there is a little upside left before a possible February pullback and retest towards the 50-day moving averages for the major indexes.

We can continue to look for long positions but I have a number of overbought stocks that look ripe for profit taking. We will use put options to play the downside like we did with gold but we still need to be careful of the upcoming volatility.

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, $14.84, up $0.87)

SPCE March 14 calls (SPCE200320C00014000, $2.60, up $0.80)

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

Exit Target: $2.50 Limit Order (closed 1/3 on 1/13/2020 at $1.60)

Return: 238%

Stop Target: $1.60 (Stop Limit)

Action: Our $2.50 Limit Order on the remaining 2/3rd’s of the trade was triggered with the calls trading to a high of $3.

Shares surged to another new 52-week peak of $15.97 yesterday with fresh and lower resistance at $15.75-$16 getting cleared but holding. Rising support is at $14.50-$14.25. 

The chart remains bullish but overbought levels remain in play. I would like to reestablish a fresh position if shares pull back towards the $12.50-$12 level.

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Viavi Solutions (VIAV, $15.69, up $0.52)

VIAV March 16 calls (VIAV200320C00016000, $0.80, up $0.25)

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

Exit Target: $1.40

Return: 14%

Stop Target: None

Action: Shares tested a high of $15.74 on Wednesday with prior and lower resistance at $15.50-$15.75 getting cleared and holding. New support is at $15.25-$15 and the 50-day moving average.

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Dropbox (DBX, $18.31, up $0.31)

DBX April 20 calls (DBX200417C00020000, $0.90, up $0.20)

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

Exit Target: $1.80

Return: 0%

Stop Target: None

Action: Shares traded up to $18.86 with prior and lower resistance at $18.75-$19 getting cleared but holding. The options peaked at $1.15. Rising support is at $18.25-$18.

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Pfizer (PFE, $40.67, up $0.60)

PFE March 40 calls (PFE200320C00040000, $1.40, up $0.35)

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

Exit Target: $1.50

Return: 87%

Stop Target: 85 cents, raise to $x (Stop Limit)

Action: Raise the Stop Limit from 85 cents to $1x

Wednesday’s high kissed $40.87 with fresh and lower resistance at $40.75-$41 getting cleared but holding. A close above the latter would signal additional strength towards $41.50-$42. Rising support at $40.25-$40.

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Limelight Networks (LLNW, $4.87, up $0.38)

LLNW January 3 calls (LLNW200117C00003000, $1.90, up $0.40)

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

Exit Target: $2.50 Limit Order (closed 1/3 @ $1.40 on 10/22)

Return: 189%

Stop Target: $1.40, raise to $1.70 (Stop Limit)

Action: Set a Limit Order to close the remaining 2/3rd’s of the trade at $2.50. Raise the Stop Limit from $1.40 to $1.70. This options expire this Friday so I would like to be out of the trade today.

Shares surged to a 52-week and intraday high of $4.91 with new and lower resistance at $4.90-$5 holding into the close. Rising support is at $4.80-$4.70.

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