MomentumOptions.com Pre-Market Update for 1/27/2020
Bears Getting Aggressive/ Profit Alert (T)
The market was choppy for the 3rd-straight session on Friday following a strong open as fears of the Chinese coronavirus spreading had Wall Street in a more defensive mode throughout the day. Stocks involved in the travel and entertainment industries were under the most pressure, including airlines, cruise lines, gambling, and hotels.
Money continued to flow into safe havens as falling bond yields, and higher bond prices, along with the rise in Gold reaffirmed the flight to safety. Volatility stayed elevated after closing above a key level of resistance and is suggesting continued market weakness heading into the busiest week of the 4Q earnings season.
The Russell 2000 plummeted 1.3% after trading in a 36-point range while testing a session low of 1,653. Prior and upper support at 1,665-1,650 was breached and failed to hold with additional selling pressure towards 1,635-1,620 on a close below the latter.
The Nasdaq sank 0.9% despite trading to a fresh all-time of 9,451 on the open. The steady fade to 9,273 latter in the day breached mid-month and upper support at 9,300-9,250, but a level that held, with risk towards 9,200-9,150 on a move below the latter.
The S&P 500 also tanked 0.9% following the 2nd half backtest to 3,281. Current and upper support at 3,300-3,275 was tripped and failed to hold with additional weakness towards 3,250-3,200 on a close below the latter.
The Dow extended its losing streak to 4-straight after falling 0.6% with the late session low tapping 28,843. Key and upper support at 29,000-28,800 was breached and failed to hold with weakness towards 28,600-28,400 on a move below the latter.
For the week, the Russell 2000 lost 2.2% and has closer lower in 3 of the past 4, while the Nasdaq gave back 0.8% to snap a 6-week winning streak. The Dow was down 1.2% and the S&P 500 fell 1%.
Utilities were the only sector that showed strength after rising 0.3%. Healthcare and Consumer Discretionary led sector weakness with losses of 1.7% and 1.4% respectively
Over the past 5 sessions, the best performing sectors were Utilities (2.8%), Technology (1.5%) and Real Estate (1.3%). Energy (-3.7%) was the worst performing sector followed by Materials (-1.2%) and Industrials (-0.6%).
In economic news, PMI Composite Flash Manufacturing Index fell -0.7 ticks to 51.7 in January, missing forecasts of 52.2, after dipping 0.2 ticks to 52.4 in December. Concurrently, the preliminary January services index edged up 0.4 points to 53.2 after the December reading increased 1.2 points to 52.8, the best print since March. These left the flash January composite reading with a 0.4 tick gain to 53.1, following the 0.7 point rise to 52.7 in December.
Baker-Hughes reported the U.S. rig count was down 2 rigs from last week to 794, with oil rigs up 3 to 676, gas rigs down 5 to 115, and miscellaneous rigs unchanged at 3. The U.S. Rig Count is down 265 rigs from last year’s count of 1,059, with oil rigs declining 186, gas rigs lower by 82, and miscellaneous rigs up 3 to 3. The U.S. Offshore Rig Count was up 1 to 21 and is up 1 rig year-over-year.
The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 4-straight sessions after testing to an intraday high of $142.55. Prior and lower resistance from late September at $142.50-$143 was breached but held. A close above the latter would signal additional strength towards $143.50-$144.
Rising support is at $141.50-$141. A close below the $140.50 level would signal a possible near-term top with retest potential towards $140-$139.50.
RSI remains in an uptrend with resistance at 65-70. A close above the latter would signal additional momemtum towards 75-80 and prior highs from last August. Support is at 60.
The S&P 500 Volatility Index ($VIX) was also up for the 4th-straight session after tapping an intraday high 15.98. Prior resistance from the start of January at 14.50-15 and the 200-day moving average were breached but levels that held. A close above the 16 level would be a bearish development with upside risk towards 17.50-18 and early December levels.
Fresh and rising support is at 14-13.50. A close back below the latter would be a slightly bullish signal for the market with more important levels of recovery at 13.25-12.75 and the 50-day moving average.
RSI is in an uptrend with early December and key resistance at 65. A close above this level would signal additional strength towards 70-75 with the early August peak at 80. Support is at 60 with a close below this level siganling a retest towards 55-50.
The iShares Russell 1000 (IWF) traded up to $185.71 on the open before settling in negative territory. Near-term and lower resistance at $185.50-$186 was cleared but held. A close above the latter and last Wednesday’s all-time high of $185.80 would be a bullish signal for a potential run towards $187-$187.50.
The late day pullback to $182.46 breached current and upper support at $182.50-$182 but a level that held. A close below the latter would confirm a near-term top with additional risk towards the $180 level.
RSI is back in a downtrend after failing key resistance at 80 and the overbought monthly peak from January 2018. Fresh support is at 65-60 following the close back below 70 and a level that had been holding since mid-December.
The Financial Select Sector Spiders (XLF) was down for the 2nd-straight session and the 3rd time in 4 following the backtest to $30.20. Prior and upper support from early December at $30.25-$30 was breached but held. A close below the latter and the 50-day moving average would be an ongoing bearish development with additional risk towards $29.75-$29.50.
Lowered resistance is at $30.50-$30.75 following the breakdown out of the prior trading range that had been holding since mid-December.
RSI is in a downtrend with support at 40-35 and the October lows. A move below latter would signal continued weakness towards the 30 level and the early August low. Resistance is at 50.
The percentage of Nasdaq 100 stocks trading above the 50-day moving closed at 74.75% on Friday, down 7.77%, with the session and fresh January low kissing 71.84%. Upper support from mid-December at 72.5%-70% was breached but held. A move below the latter would signal additional weakness towards 67.5%-65%. Lowered resistance is at 75%-77.5% following the opening run to 80.58% and failure to hold the 80% level.
The percentage of S&P 500 stocks trading above the 200-day moving average average settled at 77.82%, down 3.17%, with the session and fresh monthly low reaching 76.23%. Mid-December and upper support at 77.5%-75% held. A close below the latter would be an ongoing bearish signal with additional weakness towards 72.5%-70% and early December levels. Lowered but still slightly overbought resistance is at 80%-82.5% with last week’s peak at 83.16%.
Aside from 4Q earnings this week, the FOMC is expected to leave policy unchanged at Wednesday’s meeting. Moreover, the market expects the Fed to be on hold all year amid moderate growth and tame inflation. The Fed doesn’t really have to edit the accompanying policy statement and should reiterate the current stance is appropriate. The Fed is not releasing quarterly forecasts this time around and Fed Chairman Powell’s press conference shouldn’t contain any surprise.
Powell will likely repeat the economy and policy are in a good place while adding the labor market remains strong with the unemployment rate low. Household spending has been rising at a strong pace, while business fixed investment and exports have been weak. Inflation remains low. Wall Street isn’t expecting a firm update on a standing repo facility, but Powell will indicate the Fed’s operations have helped stabilize the funding markets after the September jolt.
It appears the February fade we have been planning for may be arriving early. I have another Profit Alert from Friday’s action to get us off to a quick 7-0 to start 2020. I still like our current trades that held up well despite Friday’s rollercoaster ride and I also have a few put option trades on my Watch List in case the bears stay aggressive this week. Stay locked-and-loaded in case I take action.
Momentum Options Play List
Closed Momentum Options Trades for 2020: 7-0 (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.
Pfizer (PFE, $39.82, down $0.89)
PFE March 42 calls (PFE200320C00042000, $0.30, down $0.15)
Entry Price: $0.45 (1/23/2020)
Exit Target: $0.90
Stop Target: None
Action: Prior and upper support at $39.75-$39.50 was breached but held on Friday’s tumble to $39.63. Lowered resistance is at $40-$40.25.
The current yield is at 3.73% so this stock is considered a safe haven by investors seeking yield. I mentioned the technical setup and the golden cross that has formed but further weakness could be in the works if $39.50 fails.
Cisco Systems (CSCO, $48.85, down $0.15)
CSCO March 52.50 calls (CSCO200320C00052500, $0.57, up $0.02)
Entry Price: $0.55 (1/22/2020)
Exit Target: $1.10
Stop Target: None
Action: Shares tested a low of $48.54 with upper support at $48.50-$48.25 holding for the 2nd-straight session. Lowered resistance is at $49-$49.25.
The options closed up a few pennies as volume remained brisk in these call options on Friday.
AT&T (T, $38.63, down $0.41)
T March 40 calls (T200320C00040000, $0.55, down $0.05)
Entry Price: $0.50 (1/17/2020)
Exit Target: $1.00
Stop Target: 55 cents (Stop Limit)
Action: The Stop Limit at double-nickels tripped on Friday’s continued weakness in the stock.
Dropbox (DBX, $17.34, down $0.37)
DBX April 20 calls (DBX200417C00020000, $0.45, down $0.10)
Entry Price: $0.90 (1/6/2020)
Exit Target: $1.80
Stop Target: None
Action: Lower support at $17.25-$17 was breached but held on Friday’s backtest to $17.19. Lowered resistance is at $17.50-$17.75.
These option have another 81 days before expiration and earnings are due out the latter part of February. I still like the trade as long as $17 holds going forward.