MomentumOptions.com Pre-Market Update for 1/31/2020
Bulls Rebound Off Session Lows to Get Big Win
The market was under pressure throughout much of Thursday’s session as continuing concerns about the impact of the spread of the coronavirus on both China’s economy and the global recovery outweighed a batch of strong corporate earnings.
Most of the major indexes pared their losses into the close while closing higher and avoided taking out Monday’s lows. However, the action in the small-caps remain a slight concern following a fresh monthly low.
The Dow climbed 0.4% the afternoon high reaching 28,879. Lower resistance at 28,800-29,000 was recovered with a close back above the latter being a more bullish signal for a run towards 29,200-29,400.
The S&P 500 was up 0.3% after trading to a afternoon high of 3,285. Current and lower resistance at 3,275-3,300 was cleared and held with a close above the latter keeping 3,325-3,350 and possible all-time highs in play.
The Nasdaq also rose 0.3% following the late day run to 9,298. Near-term and lower resistance at 9,250-9,300 was recovered with a move above the latter signaling strength towards 9,350-9,400.
The Russell 2000 slipped 0.1% after testing a January low of 1,630. Prior and upper support from mid-December at 1,635-1,620 was breached but held on the close back below the 50-day moving average.
Financials showed the most sector strength after rallying 1.3% followed by a 1.2% gain in Consumer Staples. Communication Services were the weakest sector after losing 1% while Healthcare and Materials lost 0.7% and 0.6%, respectively.
In economic news, Initial Jobless Claims fell -7,000 to 216,000, versus expectations for a print of 215,000, and follows the revised 18,000 gain to 223,00 in the prior week. This left the 4-week moving average at 214,500 versus 216,250 previously. Continuing claims fell -44,000 to 1,703,000 after dropping -21,000 to 1,747,000 previously.
Q4 GDP posted a 2.1% growth rate, matching forecasts, and the same as in Q3. Consumption remained decent but slowed to a 1.8% growth pace, down from the 3.2% from Q3. Business fixed investment improved, rising at a 0.1% pace following the -0.8% clip in the prior quarter. Inventories subtracted -$62.9 billion after an unchanged reading in Q3. Net exports added $88.1 billion following Q3’s -$9.4 billion. The chain price index slid to a 1.4% pace from 1.8%, with the core rate at 1.3% from 2.1%.
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session and for 7th time in 8 following the intraday run to $145.67. Prior and and lower resistance from early October at $145.50-$146 was cleared but held. A close above the latter would signal additional strength towards $146.50-$147 and late August highs.
Rising support at $144.50-$144. A close below the latter would signal a possible near-term top with further backtest potential towards $143.50-$143.
The S&P 500 Volatility Index ($VIX) settled lower despite tapping an intraday high of 18.39. Prior and lower resistance at 18.50-19 was challenged but held.
The fade to 15.30 afterwards pushed upper support at 15-14.50 and the 200-day moving average but levels that held. A close below the latter ahead of the weekend would be a slightly bullish signal for the market next week with further recovery levels at 13.50-13 and the 50-day moving average.
The S&P 400 Mid Cap Index ($MID) was up for the 2nd time in 3 sessions despite testing a fresh momthly low of 2,025. Current and upper support at 2,040-2,020 and the 50-day moving average were breached but held. A close below the latter would signal a additional weakness towards the 2,000 level.
The late day bounce to 2,048 challenged lower resistance at 2,050-2,070. Continued closes above the 2,080 level would be a more bullish signal of a near-term bottom.
RSI has leveled out with resistance at 50. A close above this level would signal additional strength towards 55-60. Support is at 45-40 with the latter representing the monthly low.
The Real Estate Select Sector Spider (XLRE) settled with a slight gain following the morning pullback to $39.51. Crucial support at $39.50 held. A close below this level would be a bearish development with additional downside risk towards $39.25-$39.
Near-term resistance at $39.75-$40 was cleared and held on the rebound to $39.83. A close above the latter would be a bullish signal for a retest towards $40.25 with the recent all-time high at $40.34.
RSI is in a slight uptrend with resistance at 65-70 and the latter representing the monthly peak. Key support is at 60 with a close below this level signaling additional weakness towards 55-50 and the latter holding since mid-December.
I have updated our current trades so let’s go check the tape.
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.
Bed Bath & Beyond (BBBY, $14.95, down $1.26)
BBBY April 12 puts (BBBY0417P00012000, $0.55, up $0.15)
Entry Price: $0.55 (1/30/2020)
Exit Target: $1.10
Stop Target: None
Action: Shares tested a low of $14.79 with prior and upper support at $15-$14.75 getting breached and failing to hold. Lowered resistance is at $15.25-$15.50 and the 50-day moving average.
The company will announce earnings in early April and I’m looking for an eventual backtest towards the $11 area. If reached, these puts will be $1 in-the-money and will give us a triple digit return, technically, if shares are below $10.90 by expiration on April 17th.
Cisco Systems (CSCO, $47.24, up $0.19)
CSCO March 52.50 calls (CSCO200320C00052500, $0.25, flat)
Entry Price: $0.55 (1/22/2020)
Exit Target: $1.10
Stop Target: None
Action: Shares traded to a low of $46.26 with upper support at $46.50-$46.25 and the 50-day moving average getting breached but holding. Lower resistance at $47.25-$47.50 was cleared but held on the late day rebound to $47.27.
Dropbox (DBX, $17.01, up $0.06)
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-$17.25 was recovered on the late day rebound to $17.04. Support is at $16.75-$16.50.