MomentumOptions.com Pre-Market Update for 2/4/2020

Bulls Rebound but Key Resistance Levels Holds

8:00am (EST)

The market rebounded on Monday despite another round of global selling pressure and the rise in the number of deaths and infections concerning the coronavirus. The major indexes had inside “candlestick” days on the charts, meaning higher highs and lower lows weren’t achieved. 

The failure to recover much, or even half, of Friday’s losses along with the closes off the highs keeps downside risk in play. Volatility also stayed elevated after failing to recover key support levels.

The Nasdaq rose 1.3% following the 1st half run to 9,299. Current and lower resistance at 9,300-9,350 was challenged but held with a move above the latter signaling a retest towards 9,400-9,450 – and possible fresh all-time highs.

The Russell 2000 was up 1.1% with the opening high tapping 1,636. Near-term and lower resistance at 1,635-1,650 was cleared but held with continued closes above the latter and the 50-day moving average being a slightly bullish development.

The S&P 500 gained 0.7% after trading to a morning high of 3,268. Prior and lower resistance at 3,250-3,275 was cleared but held with a close above the 3,300 level being a more bullish signal of a near-term bottom. 

The Dow jumped 0.5% with the intraday high reaching 28,630. Current resistance at 28,400-28,600 was cleared with the former holding by a fifth-point along with the 50-day moving average.

Materials were the strongest sector after surging 2.1% while Technology and Communication Services advanced 1.2% and 1.1%, respectively. Energy tumbled another 1.3% while Industrials dipped 0.04% and were the only sector laggards.

In economic news, Markit PMI dipped -0.5 ticks to 51.9 in the final January read versus forecasts of 51.7, but below December’s 52.4 reading. The index remains in expansionary territory, but is at the lowest level since October. The employment component slid to 51.1 from December’s 51.4, though it remained in expansion for a 6th-straight month. New orders declined while inflationary pressures also softened and remain historically subdued.

ISM manufacturing index rose 3.1 points to 50.9 in January, much better than expectations of 48.7, after dipping -0.3 ticks to 47.8 in December. This breaks a string of 5-straight months in contractionary territory, and is the best print since July. Strength was broad based with the employment component edging up to 46.6 from 45.2. New orders jumped 4.4 ticks to 52 from 47.6. New export orders rose 6 points to 53.3 versus 47.3, with imports at 51.3 from 48.8. Prices paid also increased to 53.3 from 51.7.

Construction Spending fell -0.2% in December versus forecasts for a rise of 0.5%, and follows the 0.7% November gain. A -1.2% drop in nonresidential spending after a 0.2% gain previously drove the decline in total spending during December. Residential spending rose 1.4%, just below the 1.5% gain previously. Private spending slipped -0.1% versus November’s 0.6% gain. Public construction spending declined -0.4% versus a 1% improvement previously.

The iShares 20+ Year Treasury Bond ETF (TLT) had its 3-session winning streak snapped following the morning pullback to $144.12. Current and upper support at $144-$143.50 was challenged but held. A close below the latter would signal a possible near-term top with further pullback potential towards $143.50-$143.

Lowered resistance is at $146-$146.50. A move above the latter would signal additional strength towards $147-$147.50 and prior peaks from late August.

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The S&P 500 Volatility Index ($VIX) traded mostly in the red throughout the day with the session low tapping 17.10. Fresh snd upper support at 17.50-17 was breached but held with additional recovery levels at 16.50-16. 

Slightly lowered resistance is at 19-19.50. A close above the 20 level would signal additional upside potential towards 21-21.50.

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The Spiders Dow Jones Industrial Average ETF (DIA) settled higher for the 4th time in 5 sessions with the intraday peak reaching $286.26. Near-term and lower resistance at $286-$286.50 was cleared but held. A close above the $287.50 level would be a more bullish signal of a near-term bottom with retest potential towards $288.50-$289.

Current support is at $283.50-$283. A close below the $282.50 level could lead to an extended pullback towards $280.50-$280 and prior support from mid-December.

RSI is back in a slight uptrend with lower resistance at 45-50 getting cleared intraday but holding. A move above the latter would signal additional strength towards 55-60. Support is at 40-35 with the latter representing the early October low.

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The Consumer Staples Select Spiders (XLP) has been in an extended trading range between $63-$64.25 since mid-January with Monday’s top reaching $63.65. Near-term and lower resistance at $63.50-$64 was cleared but held. Continued closes above the latter and the recent all-time high at $64.24 would be a bullish signal for a run towards $64.75-$65.25 over the near-term.

Key support is at $63. A close below this level would be a bearish development and signal a breakdown out of the current range with additional weakness towards $62.50-$62 and the 50-day moving average.

RSI is trying to regain strength with lower resistance at 55-60. Continued closes above the latter would signal a possible retest towards the 65-70 area. Support is at 50-45. A close below the latter and the January low would be a bearish signal with weakness towards 45-40 and early August levels.

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I could have a New Trade this morning as shares of AT&T (T) are at oversold levels. We were 12-0 last year and 2-0 this year trading call options but we need to be a tad careful. Shares could take one more dip lower so let’s see how today goes.

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Also, the website is updated for all of 2019 and the closed 2020 trades.

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, $14.89, up $0.64)

BBBY April 12 puts (BBBY0417P00012000, $0.60, down $0.10)

Entry Price: $0.55 (1/30/2020)

Exit Target: $1.10

Return: 10%

Stop Target: None

Action: Shares traded to a high of $14.96 with fresh and lower resistance at $14.75-$15 getting cleared and holding. Support is at $14.50-$14.25.

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Cisco Systems (CSCO, $46.53, up $0.56)

CSCO March 52.50 calls (CSCO200320C00052500, $0.20, flat)

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

Exit Target: $1.10

Return: -64%

Stop Target: None

Action: Lower resistance at $46.50-$46.75 and the 50-day moving average was cleared and held on the run to $46.83. Support is at $46.25-$46.

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Dropbox (DBX, $16.91, down $0.11)

DBX April 20 calls (DBX200417C00020000, $0.35, flat)

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

Exit Target: $1.80

Return: -61%

Stop Target: None

Action: Upper support at $16.75-$16.50 was breached and held on the fade to $16.73 yesterday. Resistance remains at $17.25-$17.50.

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