MomentumOptions.com Pre-Market Update for 1/17/2020

Market Takes A Breather/ Trade Alerts (PFE, VIAV, LLNW)

8:00am (EST)

The market extended the January rally as a risk-on tone continues in the market amid a mostly upbeat run of corporate earnings results along with the inking of the U.S./ China trade agreement. Despite overbought conditions, all-time highs were reached with volatility closing at its lowest level for 2020.

The Russell 2000 zoomed 1.4% after trading to a fresh 52-week intraday high of 1,706. New and lower resistance at 1,700-1,715 was cleared and held with a close above the latter getting 1,725-1,740 in focus.

The Nasdaq surged 1.1% following the first half push to 9,339 and 7th-straight record high. Near-term and lower resistance at 9,300-9,350 was breached and held with upside potential towards 9,450-9,500 on continued momentum.

The Dow was higher by 0.9% after testing a late day all-time high of 29,300. Blue-sky and lower resistance at 29,200-29,400 was cleared and held with a close above the latter getting 29,500-29,700 in play.

The S&P 500 rose 0.8% with the lifetime high tapping 3,317 ahead of the close. Uncharted and lower resistance at 3,300-3,325 was breached and held with potential towards 3,350-3,375 on a move above the latter.

Technology and Industrials led sector strength after soaring 1.3% and 1%, respectively, while Real Estate, Financials and Consumer Discretionary advanced 0.9%. There were no sector laggards.

In economic news, Initial Jobless Claims fell -10,000 to 204,000 after dropping -9,000 to 214,000 in the prior week. The 4-week moving average dropped to 216,250 from 224,000. Continuing claims declined -37,000 to 1,767,000 after climbing 76,000 to 1,804,000 previously.

Import Prices increased 0.3% in December with Export Prices falling -0.2%. The 0.2% increase in November was revised to 0.1%, while the 0.2% export gain was not revised. On a 12-month basis, import prices are up 0.5% year-over-year while export prices are down -0.7%. For imports, petroleum prices jumped 2.1%. Excluding petroleum, import prices were 0.2% firmer. Agricultural export prices slipped -0.1%, and were also down -0.1% excluding ag.

Philadelphia Fed Business Outlook Survey for January checked in at 17 versus forecasts for a print of 3. The employment component rose to 19.3 from 16.8. New orders improved to 18.2 from 11.1. Prices paid rose to 22.1 and prices received edged up to 14.7. The 6-month outlook component climbed to 38.4 from 34.8, though the future employment measure dipped to 24.3 from 27.4. New orders popped up to 41.9 from 33.6, while prices paid fell to 41.9 from 46.0, while prices received dropped to 34 from 45.1.

Retail Sales for December rose 0.3%, and increased 0.7% excluding autos. The 0.2% gain in headline November sales was revised up to 0.3%, with the 0.1% core gain bumped down to unchanged. Also, October’s 0.4% sales rebound was nudged to 0.3% while the 0.3% core bounce was revised lower to 0.2%. On a 12-month basis, sales are up 6.0% year-over-year and 6.5% excluding autos. Sales excluding autos, gas, and building materials increased 0.4%. Strength was in gas station sales (2.8%), clothing (1.6%), and building materials (1.4%), while vehicle sales dropped -1.3%. Department store sales declined -0.8%.

NAHB housing market index dipped -1 point to 75 in January, after jumping 5 points to 76 in December. The single family index fell 3 ticks to 81 from 84 previously. The future sales index was unchanged at 79. The index of prospective buyer traffic rose 1 tick to 58 from 57. The housing sector is benefiting from low mortgage rates, a strong labor market, and low inventories.

Business Inventories slipped -0.2% in November after rising 0.1% in October. Business sales climbed 0.7%, the strongest since March, after falling -0.2% in November. The inventory-sales ratio dipped to 1.39 from 1.40, the lowest since April.

The iShares 20+ Year Treasury Bond ETF (TLT) had its 2-session winning streak following the pullback to $138.74. Current and upper support at $139-$138.50 was breached but held. A close below the latter reopens risk towards by $138-$137.50 and the 50-day moving average.

Resistance remains at $139.50-$140.

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The S&P 500 Volatility Index ($VIX) settled lower for the first time in 3 session after bottoming at 11.78. Current and upper support at 12-11.50 was breached but held.

Near-term and lower resistance is at 12.50-13 and the 50-day moving average following the 4th-straight close below the former. A close above the 13.50 level would be a slightly bearish signal.

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The Russell 2000 ETF (IWM) extended its winning streak to 4-straight sessions following the intraday run to $169.87 and fresh 52-week peak. Prior and lower resistance from August 2018 at $169.50-$170 was cleared and held. Continued closes above the latter would be an ongoing bullish signal for a run towards $171.50-$172. The all-time from late August 2018 is at $173.39.

Current and rising support is at $168.50-$168. A close below the $167.50 level would signal a possible near-term top with additional weakness towards $166.50-$166.

RSI remains in an uptrend after clearing key resistance at 75 and the oversold peak from late December. Continued closes above this level could lead to a run towards 80-85 and the highs from late September/ early October 2017. Support is at 70. A close below this level would be a slightly bearish development and with additional weakness towards 65-60.

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The Spider S&P Retail ETF (XRT) was higher for the 3rd time in 4 sessions after topping out at $46.13. Near-term and lower resistance at $46-$46.25 was cleared but held. Continued closes above the latter would signal additional strength towards $46.75-$47. The late December 2018 is at $47.13 with the all-time high at $52.20 from August 2018.

Current and rising support at $45.75-$45.50. A close below $45.25 would be a slightly bearish signal with backtest potential towards $45-$44.75 and the 50-day moving average.

RSI rebounded after challenging key resistance at 60. Continued closes above this level would signal additional strength towards 65-70 with the latter representing the October peak. Support is at 55-50.

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The market is closed on Monday so there could be some profit taking ahead of the 3-day weekend. I have made a number of adjustments to our current trades so let’s go check the tape.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 3-0 (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.

Viavi Solutions (VIAV, $15.88, up $0.19)

VIAV March 16 calls (VIAV200320C00016000, $0.90, up $0.10)

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

Exit Target: $1.40

Return: 29%

Stop Target: 75 cents (Stop Limit)

Action: Set an initial Stop Limit at 75 cents to protect profits and to avoid a loss.

Shares surged to a high of $16.10 with prior and lower resistance at $16-$16.25 getting cleared but holding. New support is at $15.75-$15.50.

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Dropbox (DBX, $18.00, down $0.31)

DBX April 20 calls (DBX200417C00020000, $0.80, down $0.10)

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

Exit Target: $1.80

Return: -11%

Stop Target: None

Action: Prior and upper support at $18-$17.75 was tripped but held on the backtest to $17.92 yesterday. Resistance is at $18.25-$18.50 and the 50-day moving average.

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Pfizer (PFE, $40.61, down $0.06)

PFE March 40 calls (PFE200320C00040000, $1.30, down $0.10)

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

Exit Target: $1.50

Return: 73%

Stop Target: 85 cents, raise to $1.10 (Stop Limit)

Action: Raise the Stop Limit from 85 cents to $1.10.

Thursday’s low tapped $40.32 with upper support at $40.25-$40 holding. Near-term resistance remains at $40.75-$41.

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Limelight Networks (LLNW, $5.28, up $0.41)

LLNW January 3 calls (LLNW200117C00003000, $2.20, up $0.30)

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

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

Return: 222%

Stop Target: $1.70, raise to $2 (Stop Limit)

Action: Raise the Stop Limit from $1.40 to $1.70. We have a Limit Order to close the remaining 2/3rd’s of the trade at $2.50. 

I mentioned we might get one pop higher ahead of expiration but the Limit Order at $2.50 wasn’t tripped. The options expire today so we have to exit the trade at some point before the close. If the Limit Order or the Stop Limit fails to trigger, close the trade this afternoon ahead of the closing bell. 

Shares surged to a 52-week and intraday high of $5.41 with new and lower resistance at $5.40-$5.50 holding into the close. Rising support is at $5.10-$5.

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