MomentumOptions.com Pre-Market Update for 1/21/2020

Bulls Keep Weekly Momentum/ Profit Alert (VIAV)

8:00am (EST)

The market extended last weeks’ overall rally to 5-straight sessions after tapping another round of fresh all-time highs on Friday. Trading was somewhat choppy before the late day bounce back towards session highs with the small-caps lagging.

The first week of the 4Q earnings season was generally solid, but its hard to draw conclusions with less than 10% of the S&P 500 having reported so far. The pace picks up next week with Wall Street returning from the long holiday weekend and a number of high-profile earnings likely influencing market direction.

The S&P 500 rose 0.4% while closing at the session and all-time high of 3,329. Fresh and lower resistance at 3,325-3,350 was cleared and held with potential towards 3,375-3,400 on a move above the latter.

The Nasdaq climbed 0.3% after testing a late day lifetime high of 9,393. New and lower resistance at 9,350-9,400 was breached and held with a move above the latter signaling strength towards 9,450-9,500.

The Dow edged up 0.2% following the first half record run to 29,373. Uncharted territory and lower resistance at 29,400-29,600 was challenged but held with a close above the latter getting 29,800-30,000 in play.

The Russell 2000 fell 0.3% after testing an intraday low of 1,697. Current and upper support at 1,700-1,685 was breached and failed to hold with additional risk towards 1,680-1,665 on a move below the latter.

For the week, the Russell 2000 snapped a 2-week slide after surging 2.6% while the Nasdaq zoomed 2.3% to extend its weekly win streak to 6-straight. The S&P 500 soared 2% while closing higher for the 6th time in 7 weeks and the Dow was up for the 5th time in 6 weeks after jumping 1.8%.

Communication Services rose 0.8% to led sector strength while Utilities and Technology advanced 0.7%. Energy was the only sector laggard after falling 0.6%.

Over the past 5 sessions, the best performing sectors were Real Estate (3.3%), Utilities (3.2%) and Technology (2%). Energy (-1.1%) was the only sector.

In economic news, Jolts reported job openings dropped -561,000 to 6,800,000 in November, versus forecasts of 7,100,000, after bouncing 329,000 to 7,361,000 in October. It was the first sub 7 million print since March 2018. The rate of openings dipped to 4.3% from 4.6%. Hirings increased 39,000 to 5,821,000 with the hire rate steady at 3.8%. Quitters rose 39,000 to 3,536,000 with the rate unchanged at 2.3%.

Consumer Sentiment dipped 0.2 points to 99.1 in the preliminary January print versus forecasts and December’s 99.3 reading. Weakness was in the expectations component which dropped to 88.3 from 88.9. The current conditions index nudged up to 115.8 from 115.5 previously. The 12-month inflation gauge climbed to 2.5% from 2.3%. The 5-year index also rose to 2.5% from a record low of 2.2%.

Baker-Hughes reported the U.S. rig count was up 15 rigs from last week to 796, with oil rigs higher by 14 to 673, gas rigs up 1 to 120, and miscellaneous rigs unchanged at 3. The U.S. Rig Count is down 254 rigs from last year’s count of 1,050, with oil rigs lower by 179, gas rigs off 78, and miscellaneous rigs up 3 to 3. The U.S. Offshore Rig Count is down 1 to 20 and up 1 rig year-over-year.

The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 2nd-straight session after plunging to an intraday low of $137.36. Prior and upper support at $138-$137.50 and the 50-day moving average were breached but held. A close below the latter reopens risk towards $136.50-$136.

Lowered resistance is at $138.50-$139.

RSI is in a downtrend with key support at 50 holding. A close below this level would signal additional weakness towards 45-40 with the latter representing the late December low. Resistance is at 55-60.

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The S&P 500 Volatility Index ($VIX) extending its losing to 2-straight sessions with the intraday low reaching 11.75. Current and upper support at 12-11.50 was breached but held for the 3rd-straight session. A close below the latter and the late November lows at 11.44 and 11.42 could signal a test towards the 11 area with the 52-week low at 11.03. This would be a bullish signal for the market and a continued run at records high, but likely a bottom for the VIX afterwards.

Near-term and lower resistance remains at 12.50-13 following the 5th-straight close below the former. A close above 13.25-13.50 level and the 50-day moving average would be a yellow light for the market.

RSI is trending lower with suppprt at 40 and a level that has been holding since September with last July’s low near the 35 area. Resistance is at 45-50 with a move above the latter being a bearish signal for the market.

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The S&P 400 Mid Cap Index ($MID) was down for the first time in 5 sessions despite trading to an all-time high of 2,106 shortly after the open. Fresh and lower resistance at 2,100-2,120 was cleared but held. Continued closes above the latter would be an ongoing bullish signal for a possible run towards 2,130-2,150.

Current and upper support at 2,090-2,070 held on the late day fade to 2,095. A close below the latter would signal a near-term top with further backtest potential towards 2,050-2,030 and the 50-day moving average.

RSI is in a slight downtrend with key support at 70 holding into the closing bell. A move below this level would be a bearish signal for additional weakness towards 65-60. Resistance is at 75 and the February 2019 peak.

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The Energy Select Sector Spider (XLE) was down for the 2nd time in 3 sessions following the intraday pullback to $59.01. Key support at $59 was challenged but held. A close below this level would be a slightly bearish signal with backtest potential towards $58.50 and the 50/200-day moving averages.

Near-term resistance is at $59.50-$60. A close above the latter would be a bullish signal of a near-term bottom with additional hurdles at $60.50-$61.

RSI remains in a downtrend with near-term support at 45-40. A close below this level would signal additional weakness towards 35-30 with the latter representing the October low. Resistance is at 50-55.

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The percentage of Nasdaq 100 stocks trading above the 50-day moving closed at the session low of 85.43% on Friday, down 2.91%. Upper support at 85%-82.5% held. A move below the latter would signal additional weakness towards 80%-77.5% with the monthly low at 76.69%. Lowered but extremely overbought resistance is at 87.5%-90% with the late December peak at 91.26%. 

The percentage of S&P 500 stocks trading above the 200-day moving average average settled at 84.15%, down 0.2%, with the session low reaching 83.16%. Near-term and upper support at 82.5%-80% held. A close below the latter would be a bearish signal with additional weakness towards 77.5%-75% and the monthly low at 77.42%. Current and also extremely overbought resistance is at 85%-87.5% with last week and Friday’s peak reaching 84.55%. Although this represented a 5-year high, there is still a chance for a pop towards 87.5%-90% on continued market momentum with the May 2013 peak 93.98%.

The start of the 4Q earnings season was supported by strong numbers from the Big Banks and has also been a catalyst for higher highs. Volatility is still giving a bullish signal for the market after staying range bound throughout last week and will be a good clue going forward on when to lighten up positions.

Earnings will be a huge focus again this week for the market but there is also the impeachment trial of President Trump that starts in DC on Tuesday. The market has mainly ignored the political theater and will likely continue to do so as impeachment seems highly unlikely. 

I still believe market momentum could last for another week or so but I’m planning on a February fade towards the 50-day moving averages. The good news is the portfolio is getting light with only 3 open trades as we were stopped out of VIAV on Friday. This gets us off to a quick 5-0 start with two 200+% winners to start 2020.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 5-0 (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.

AT&T (T, $38.38, up $0.35)

T March 40 calls (T200320C00040000, $0.50, up $0.10)

Entry Price: $0.50 (1/17/2020)

Exit Target: $1.40

Return: 0%

Stop Target: None

Action: Friday’s peak reached $38.44 with prior and lower resistance at $38.50-$38.75 getting challenged but holding. Support is at $38.25-$38 and the 50-day moving average. Volume was huge as over 50,000 contracts exchanged hands. This is signaling big money is expecting a pop past $40 by mid-March.

The company announces earnings January 28th with Wall Street expecting a profit of 87 cents a share. However, the high estimate is at 95 cents with the low at 81 cents. This means a possible 8-cent beat or a 6-cent miss. The company posted a penny beat last time out and the prior 3 quarters earnings matched estimates.

The recent weakness was due to a dividend payment so I like the risk/ reward this trade offers, especially  when there will be a market pullback at some point. The dividend is at 5.5% and could see safe money buy the stock on market jitters.

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Viavi Solutions (VIAV, $15.68, down $0.20)

VIAV March 16 calls (VIAV200320C00016000, $0.75, down $0.15)

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

Exit Target: $1.40

Return: 7%

Stop Target: 75 cents (Stop Limit)

Action: The Stop Limit at 75 cents tripped on Friday despite the slight pullback in the stock. I will keep VIAV on my Watch List while we wait for a possible reentry point. The company announces earnings on February 4th.

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Dropbox (DBX, $18.02, up $0.02)

DBX April 20 calls (DBX200417C00020000, $0.80, flat)

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

Exit Target: $1.80

Return: -11%

Stop Target: None

Action: Lower resistance at $18.25-$18.50 and the 50-day moving average was challenged but held on Friday’s run to $18.19. Support remains at $18-$17.75. 

Earnings are scheduled for late February so there isn’t any near-term headline risk unless the company says something early. However, if shares fall below $17.50, we could make an early exit.

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Pfizer (PFE, $40.51, down $0.10)

PFE March 40 calls (PFE200320C00040000, $1.25, down $0.05)

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

Exit Target: $1.50

Return: 67%

Stop Target: $1.10 (Stop Limit)

Action: Friday’s low kissed $40.42 with upper support at $40.50-$40.25 getting breached but holding. A move below $40 will likely trip the Stop Limit. Near-term resistance remains at $40.75-$41.

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