MomentumOptions.com Pre-Market Update for 2/6/2020

Bulls Extend Winning Streak to 3-Straight

8:00am (EST)

The market was higher for the 3rd-straight session on Wednesday as private sector employment soared with additional better-than-expected economic news keeping the bullish sentiment intact. The reported number of coronavirus cases of the deadly disease continues to rise in China but didn’t dampen enthusiasm as the outbreak is still mainly contained to that country. 

More importantly, there are reports of some success in treating the virus using existing drugs along with U.K. scientists reporting a significant breakthrough on a vaccine. The major indexes look poised for higher highs but volatility remains elevated and the pullback in Tech off the high was a slight concern going forward.

The Dow soared 1.7% with the late session high tapping 29,308. Prior and lower resistance at 29,000-29,200 was cleared and held with a move above the all-time high at 27,373 signaling additional strength towards 29,400-29,600.

The Russell 2000 rose 1.5% after testing a late day high of 1,682. Near-term and lower resistance at 1,670-1,685 was cleared and held with a close above the latter getting the 1,700 level back in focus.

The S&P 500 surged 1.1% following the afternoon run to 3,337 while missing a new all-time high by a quarter-point. Current resistance at 3,300-3,325 was cleared and held with upside potential towards 3,350-3,375 on continued closes above the 3,335 level.

The Nasdaq was up 0.4% after trading to a 2nd-straight all-time high of 9,574. Fresh and lower resistance at 9,550-9,600 was cleared but held with a move above the latter signaling momentum towards 9,650-9,700.

Energy led sector strength after zooming 3.8% while Healthcare and Financials rallied 2%. Real Estate was the only sector laggard after slipping 0.1%.

In economic news, MBA Mortgage Applications climbed 5% last week following the prior 7.2% surge. The index is up 82.4% year-over-year, from 70.9% previously. Strength continued to be in the refinancing index, which increased 7.5% and is up 145.9% year-over-year. The purchase index increased 5.3% and is up 16.6% year-over-year. Refinancing comprised 60.4% of mortgage applications last week. The 30-year fixed rate fell to 3.71%, and is down from 4.69% a year ago. The 5-year ARM edged up to 3.23% from 3.15%.

ADP reported private payrolls surged 291,000 in January, sharply beating estimates of 154,000, though weather reportedly juiced the gain. The 202,000 December climb was revised down to 199,000. The service sector added 237,000 jobs. Employment in the goods producing was up 54,000 as construction jobs spiked 47,000 and manufacturing rose 10,000. Leisure/hospitality jobs increased 96,000, and education/health services climbed 70,000.

The U.S. trade deficit widened 11.9% to -$48.9 billion in December, in line with expectations, following the -7.8% drop to -$43.7 billion in November. Imports increased 2.7% to $258.5 billion after 3-straight months of declines. Exports rose 0.8% to $209.6 billion. The “real” goods balance widened to -$80.5 billion versus -$76.2 billion previously, as imports bounced 2.6% following the -1.3% prior slide, and exports increased 1% from the prior 0.3% gain. The trade balance with China narrowed to a -$24.8 billion deficit from -$26.4 billion. The balance with Canada was at -$5.1 billion from -$1.7 billion.

ISM Non-Manufacturing Index for January rose 0.6 points to 55.5, topping expectations of 55.2, and follows the 1 point gain to 54.9 in December. The employment sub-index dipped to 53.1 from 54.8 previously. New orders improved to 56.2 versus 55.3. New export orders slipped -0.9 ticks to 50.1 while imports jumped 7.1 points to 55.1. Prices paid fell to 55.5 from from 59.3.

Markit services PMI was revised up to 53.4 in the final January print versus forecasts of 53.2, and above the 53.2 preliminary print. The employment component rose to 51.8 from 51.7 in December, the 3rd-straight month of expansion. The composite was nudged up to 53.3 from the 53.1 preliminary, and was up from December’s 52.7 reading. Input prices increased to 52.6 from 52.5, the 4th-straight monthly gain, and the highest since last June.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its losing streak to 3-straight following the intraday and continued backtest to $141.90. Prior and upper support at $142-$141.50 was breached but held by a penny. A close below the latter would signal additional weakness towards $140 and the prior breakout level from late January.

Current and lowered resistance is at $142.50-$143.

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The S&P 500 Volatility Index ($VIX) fell for the 3rd-straight session despite trading to a high of 16.32 shortly after the open. Lower resistance at 16.50-17 was challenged but held. A close back above the 17.50 level would be a bearish development with risk towards 19.50-20.

Upper support at 15.50-15 was recovered on the late day fade to 15.02 afterwards. A close below the latter and the 200-day moving average would be an ongoing bullish signal but with more important recovery levels at 14-13.50 and the 50-day moving average.

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The iShares Russell 1000 (IWF) closed in positive territory for the 3rd-straight day after trading to a fresh all-time high of $187.43. Uncharted territory and lower resistance at $187-$187.50 was cleared but held. A close above the latter would signal additional momentum towards $188.50-$189.

Near-term and rising support is at $185-$184.50. A close below the latter would be a slightly bearish signal with additional backtest potential towards the $182.50-$182 area.

RSI remains in an uptrend after clearing lower resistance at 65-70. A close above the 70 level could signal a retest towards 75-80 with the latter representing the overbought monthly peak from January. Current support is at 60-55. A close below 50, and a level that has been holding since mid-October, would be a bearish development and signal additional weakness towards 45-40.

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The Consumer Discretionary Select Spiders (XLY) extended its winning streak to 4-straight sessions after tapping an intraday and fresh all-time high of $129.52. New and lower resistance at $129.50-$130 was cleared but held. A close above the latter would be an ongoing bullish signal for additional strength towards $131.50-$132, depending on momentum.

Current support is at $128.50-$128. A close below the $127.50 level would signal a possible near-term top with backtest potential towards $126-$125.50.

RSI remains in an uptrend after closing above lower resistance at 65-70 with the December peak at 75. Key support is at 60 with a move below this level signaling additional weakness towards 55-50.

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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.

AT&T (T, 37.81, up $0.18)

T March 38 calls (T200320C00038000, $0.80, up $0.10)

Entry Price: $0.55 (2/4/2020)

Exit Target: $1.10

Return: 45%

Stop Target: 60 cents (half), raise to 70 cents on half (Stop Limit)

Action: Raise the Stop Limit at 59 cents to 70 cents on half. Keep a Stop Limit at 60 cents on the other half.

Shares traded to a high of $37.95 yesterday with prior and lower resistance at $37.75-$38 getting challenged and holding. I would like to see a close above the latter and the 50-day moving average today. New support is at $37.50-$37.25.

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Bed Bath & Beyond (BBBY, $15.75, up $0.41)

BBBY April 12 puts (BBBY0417P00012000, $0.45, down $0.05)

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

Exit Target: $1.10

Return: -18%

Stop Target: None

Action: Shares traded to a high of $15.83 with prior and lower resistance at $15.75-$16 holding on the close back above the 50-day moving average. New support is at $15.50-$15.25.

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Cisco Systems (CSCO, $48.45, up $0.83)

CSCO March 52.50 calls (CSCO200320C00052500, $0.40, up $0.15)

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

Exit Target: $1.10

Return: -27%

Stop Target: None

Action: Wednesday’s peak reached $48.60 with prior and lower resistance at $48.50-$48.75 getting cleared and holding. Rising support is at $48.25-$48. Earnings are due out next Tuesday after the close.

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Dropbox (DBX, $17.61, up $0.51)

DBX April 20 calls (DBX200417C00020000, $0.50, up $0.10)

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

Exit Target: $1.80

Return: -44%

Stop Target: None

Action: Prior and lower resistance at $17.50-$17.75 was recovered with Wednesday’s top at $17.85. Rising support is at $17.25-$17.

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