MomentumOptions.com Pre-Market Update for 1/29/2020
Market Rebounds but Fails Key Resistance Levels
The market rebounded on Tuesday after showing opening strength with most of the major indexes holding their gains throughout the session. The Wuhan virus is spreading and the death toll has risen above 100, but it remains largely in China where authorities have implemented various measures in an attempt to contain the outbreak.
Prior resistance levels were challenged and held but the technical damage from Monday’s session keeps downside risk in play. The small-caps were slightly weak and volatility eased to a degree but remains at elevated levels.
The Nasdaq rallied 1.4% following the intraday push to 9,288. Current and lower resistance at 9,250-9,300 was recovered with a move above the latter signaling strength towards 9,350-9,400.
The S&P 500 soared 1% after trading to a afternoon high of 3,285. Prior and lower resistance at 3,275-3,300 was cleared and held with a close above the latter getting 3,325-3,350 and possible all-time highs back in focus.
The Dow jumped 0.7% to snap a 5-session slide with the intraday high reaching 28,823. Prior and lower resistance at 28,600-28,800 was recovered with a close back above the 29,000 being a more bullish signal.
The Russell 2000 was down 0.2% with the morning low tapping 1,651. Prior and upper support at 1,650-1,635 and the 50-day moving average was challenged but held with a close below the latter signaling risk towards the 1,625-1,610 area.
Technology and Communications Services led sector strength after zooming 1.9% and 1.2%, respectively, while Materials and Financials were higher by 1.1%. There were no sector laggards.
In economic news, Durable Goods Orders rebounded 2.4%, easily topping expectations for a rise of 1.5%, following a revised -3.1% decline in November. Transportation orders jumped 7.6%, largely correcting from the prior -8.3% tumble. Excluding transportation, orders dipped -0.1% after a -0.4% decline previously. Nondefense capital goods orders excluding aircraft fell -0.9% from a 0.1% November gain. Shipments slipped -0.2% after a -0.1% fall in the November reading. Nondefense capital goods shipments excluding aircraft was off -0.4% while inventories rose 0.5%. The inventory-shipment ratio edged up to 1.74 from 1.73.
S&P Corelogic Case-Shiller 20-City home price index rose 0.12% to 218.7 for November after inching up 0.09% to 218.4 in October. The index is up 2.6% year-over-year from the 213.2 print a year ago, versus the 2.2% year-over-year October clip. The 10-City index rose 0.13% to 231.5 after increasing the same 0.13% to 231.2 previously. It’s up 2.0% year-over-year versus 1.7%. All of the 20 cities surveyed posted year-over-year gains in home prices, led by Phoenix at 5.9% and Charlotte at 5.2%, while Chicago and San Francisco rose 0.4% year-over-year.
Richmond Fed Manufacturing Index surged 25 points to 20 in January, versus forecasts for a print of 5, and follows the -4 point drop to -5 in December. The employment sub-index climbed to 20 from 7 and is just shy of the record high of 24 from June 2018. However, the wage component fell to 21 from 29. New order volume jumped to 13 from -13. Prices paid decelerated to a 1.21% rate versus 1.73%, with prices received at 1.31% versus 1.6%. The 6-month shipment index rose to 41 after climbing 7 points to 38 in December. The future employment gauge increased to 19 versus 12, with new order volume at 37 from 29. The future price data showed prices paid dipping to 1.51% versus 1.59%, and prices received at 1.29% from 1.43%.
The iShares 20+ Year Treasury Bond ETF (TLT) had its 5-session winning streak snapped following the pullback to $142.82. Near-term support at $143-$142.50 was breached but held. A close below the $142.50 level would signal additional risk towards $141.50-$141.
Current resistance is at $143.50-$144. A close above the latter would signal additional strength towards $145.50-$146.
The S&P 500 Volatility Index ($VIX) fell for the first time in 6 sessions after testing a first half low of 15.69. Current and upper support is at 16-15.50 was breached but held. A close below 15-14.50 and the 200-day moving average would be more bullish developments.
Lowered resistance is at 17.50-18. A close above the latter would be a renewed bearish development with upside risk towards 19.50-20.
The Invesco QQQ Trust (QQQ) snapped a 2 session slide after trading to an intraday high intraday high of $221.96. Current and lower resistance at $221.50-$222 was cleared but held with additional hurdles at $222.50-$223. Continued closes back above the latter would be a bullish development and signal a possible near-term bottom.
Near-term support but shaky support is at $221-$220.50. A move below the $220 level would signal another pullback towards $217.50-$217.
RSI rebounded after clearing resistance at 60. Continued closes above this level would keep upside potential towards 65-70 in play. Current support is at 55-50. A close back below 50 would signal additional weakness towards 45-40 with the latter representing the early October low.
The iShares MSCI Emerging Markets Fund (EEM) was up for the first time in 4 sessions with the afternoon peak reaching $43.50. Prior and lower resistance from mid-December at $43.50-$43.75 was kissed but held. A close above the latter and the 50-day moving average would be a slightly bullish signal for a retest towards $44.25-$44.50. Continued close back above the $44.50 level would also signal a possible near-term bottom.
Current support is at $43-$42.75. A close below the $42.50 level would signal additional weakness towards $42-$41.75 and the 200-day moving average.
RSI is back in a slight uptrend with resistance at 40. Continued closes back above this level would signal additional strength towards 45-50. Support is at 35-30. A close below the 30 level would be a renewed bearish development with risk towards 25-20 and the latter representing the early August low.
We got some disappointing news yesterday with our PFE position after the company missed earnings. Although the percentage loss looks ugly, we didn’t pay much in premium and we can save some premium by exiting early.
My Watch List is more bearish than bullish but I want to see how today might play out before getting too aggressive, or either side. However, I still like a few overbought stocks that look ripe for a near-term pullback so stay locked-and-loaded.
Momentum Options Play List
Closed Momentum Options Trades for 2020: 7-1 (88%). 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, $38.14, down $2.02)
PFE March 42 calls (PFE200320C00042000, $0.10, down $0.35)
Entry Price: $0.45 (1/23/2020)
Exit Target: $0.90
Stop Target: None
Action: Close the trade today to save the remaining premium. Shares will need to rally more than 10% from current levels for this trade to possibly break even. We can get back in if shares can regain the $40 level.
Shares of Pfizer (PFE) sank 5% after the company reported better-than-expected sales but lower than expected earnings. The mid-point for the fiscal year earnings outlook range also trailed forecasts.
Cisco Systems (CSCO, $47.77, up $0.30)
CSCO March 52.50 calls (CSCO200320C00052500, $0.35, flat)
Entry Price: $0.55 (1/22/2020)
Exit Target: $1.10
Stop Target: None
Action: Shares traded to a high of $47.97 with lower resistance is at $48-$48.25 getting challenged but holding. Support is at $47.50-$47.25.
Dropbox (DBX, $17.14, up $0.19)
DBX April 20 calls (DBX200417C00020000, $0.30, flat)
Entry Price: $0.90 (1/6/2020)
Exit Target: $1.80
Stop Target: None
Action: Lower resistance at $17.25-$17.50 was challenged but held following Tuesday’s trip to $17.22. Support remains at $17-$16.75.