MomentumOptions.com Pre-Market Update for 1/30/2020

Market Settles Mixed After Strong Open

8:00am (EST)

The market showed continued strength throughout much of Wednesday’s action following upbeat corporate earnings, improving fundamentals and widespread expectations that currently accommodative monetary policies from the Fed will remain in place through year end.

Although higher highs were reached, the mixed close was a slight concern as the major indexes started to give up the gains in the final 30 minutes of trading. Volatility remained elevated after failing key support levels and is still giving a cautious reading.

The Nasdaq nudged up 0.1% after trading to an intraday high of 9,329. Near-term and lower resistance at 9,300-9,350 was cleared but held with a move above the latter signaling a retest towards 9,400-9,450 and fresh all-time highs.

The Dow was up 11 points, or 0.04% following the intraday run to 28,944. Current and lower resistance at 28,800-29,000 was cleared but held with a close above the latter getting 29,200-29,400 and record highs back in focus.

The S&P 500 slipped 0.1% despite testing a 2nd-half high of 3,293. Key resistance at the 3,300 level was challenged but held for the 2nd-straight session with a close above the latter keeping 3,325-3,350 and all-time highs in play.

The Russell 2000 fell 0.6% after failing key resistance at 1,665 on the opening pop to 1,663. The close on the session low of 1,649 was just above the 50-day moving average but a tad below upper support at 1,650-1,635.

Industrials led sector strength after rising 0.5% while Materials, Technology and Utilities rounded out the winners with gains of 0.3%. Energy was the leading sector laggard after tumbling 1.1% while Real Estate and Consumer Staples gave back 0.5%.

In economic news, MBA Mortgage Applications bounced 7.2% last week after falling 1.2% in the prior week. Applications are up 70.9% year-over-year versus 56.2% previously, with the index at its best level since June 2013. Refinancings paced the overall gain with a 7.5% increase following the prior -1.8% decline. The index is up 145.9% year-over-year. The purchase index rose 5.3%, more than unwinding the prior -2% decline, with the index up 16.6% year-over-year and at an 11-year high. The 30-year fixed rate fell to 3.81% from 3.87% and was at 4.76% a year ago. The 5-year ARM slid to 3.15% from 3.29%, and was at 4.15% at this time in 2019.

International Trade in Goods deficit checked in at -$68.3 billion for December after narrowing to -$63.0 billion in November. Exports increased 0.3% to $137 billion after rising 0.8% to $136.6 billion in November. Imports bounced 2.9% to $205.3 billion following November’s -1.3% drop to $199.6 billion.

December Wholesale Inventories dipped -0.1% to $675.6 billion from $675.4 billion, while Retail Inventories dipped to $661.2 billion from $661.9 billion.

December Pending Home Sales dropped -4.9% to 103.2, missing estimates for a rise of 0.4%, after bouncing 1.2% to 108.5 in November. Despite the monthly decline, the index rose to a 6.8% year-over-year clip from the 5.6% November pace.

The FOMC left policy unchanged with a funds rate band of 1.50%-1.75%. There were no surprises, and no explicit comment on the coronavirus. The statement reiterated that policy is “appropriate.” The Fed said the labor market “remains strong” and economic activity has been rising at a “moderate rate.” 

The Fed repeated business fixed investment and exports remained weak and core inflation is running below the 2% target. The Fed repeated the phrase from December that it will “continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures.” As expected, IOER was boosted 5 basis points to 1.60%. There was no mention, and none was expected, on the balance sheet. Also, the vote was a unanimous 10-0.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 6th time in 7 sessions after trading to an intraday high of $144.70. Current and lower resistance at $144.50-$145 was cleared and held. A close above the latter would signal additional strength towards $145-$145.50 and levels from early October.

Near-term support at $143.50-$143. A close below the $142.50 level would we a slightly bearish development with additional weakness towards the $141.50-$141 area.

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The S&P 500 Volatility Index ($VIX) was up for the 6th time in 7 sessions despite tapping an intraday low of 14.94. Prior and upper support at 15-14.50 and the 200-day moving average were breached but held. A close below the later would be a slightly bullish signal for the market with further recovery hurdles at 13.50-13 and the 50-day moving average.

Near-term resistance is at 16.50-17. A close back above the 17.50 level would be a renewed bearish development for a retest towards 18.50-19.

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The Russell 2000 ETF (IWM) was down for the 7th time in 8 sessions following the late day pullback to $163.90. Near-term and upper support at $164-$163.50 was breached and failed to hold. A close below the latter and the 50-day moving average would signal additional weakness towards $162.50-$162.

Current resistance is at $165-$165.50. Continued closes back above the $166 level would be a more bullish signal for a retest towards $167.50-$168.

RSI is back in a slight downtrend after failing to hold upper support at 45-40. A close below the latter would be an ongoing bearish development with additional weakness towards 35-30 and the early August lows. Resistance is at 50.

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The Technology Select Sector Spiders (XLK) showed strength for the 2nd-straight session after testing an afternoon high of $97.87. Prior and lower resistance at $97.50-$98 was cleared but held. A close above the latter would be a bullish signal for a run towards $98.50-$99 with last Friday’s all-time high at $98.83.

Near-term support is at $97-$96.50. A close below the latter reopens risk towards $95-$94.50.

RSI is back in a slight uptrend after clearing and holding lower resistance at 65-70. A close above the latter would signal additional strength towards 75-80 with the latter representing the monthly peak. Support is at 60 with a move below this level signaling weakness towards 55-50 and the latter representing the early December low.

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It appears there could be a continued back-and-fill pattern developing over the next few weeks until key resistance levels are reclaimed. That likely won’t happen until there is more clarity concerning the coronavirus and its effect on global growth.

I have been mentioning February is always a tricky month to trade so we could be on the sidelines the rest of the week as far as new trades. I’m favoring bearish positions over bullish setups but I’m also waiting for some of our favorite stocks to test key support levels. 

AT&T (T) pulled back on a revenue miss and there could be an opportunity to get back in this name over the next week or so. We were 13-0 last year and are 2-0 this year trading call options. 

While I anticipated the pullback on a revenue miss, I wasn’t comfortable playing the puts this week as I knew earnings would probably top estimates. There could be a further backtest towards $36.50-$36 and where we will have to see if prior support levels hold. If not, and shares can recover the $38.50 level, then maybe we get back in with March or April calls.

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I also have Rambus (RMBS, $16.04, up $1.02) on my Watch List but yesterday’s breakout has me a little hesitant to chase. The RMBS March 15 calls (RMBS200320C00015000, $1.50, up $0.75) doubled on the 6.8% pop in the stock. The action on Tuesday was volatile and why we didn’t establish a position earlier in the week.

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On that note, if I do take action on a New Trade, I will be sure to send out an update along with a Text Alert.

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.

Cisco Systems (CSCO, $47.05, down $0.72)

CSCO March 52.50 calls (CSCO200320C00052500, $0.25, down $0.10)

Entry Price: $0.55 (1/22/2020)

Exit Target: $1.10

Return: -55%

Stop Target: None

Action: Shares traded to a low of $46.93 with upper support at $47-$46.75 getting breached but holding. Lowered resistance is at $47.25-$47.50.

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Dropbox (DBX, $16.95, down $0.19)

DBX April 20 calls (DBX200417C00020000, $0.30, down $0.05)

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

Exit Target: $1.80

Return: -67%

Stop Target: None

Action: Upper support at $17-$16.75 failed to hold on yesterday’s pullback to $16.93. Resistance remains at $17.25-$17.50.

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