MomentumOptions.com Pre-Market Update for 2/7/2020

Bulls Set Another Round of Record Highs

8:00am (EST)

The market extended their winning streak to 4-straight after notching fresh record highs on Thursday. The return to risk that has driven the rally in stocks has been supported by hopes that the coronavirus will be contained in China and that a vaccine will be developed quickly. 

Additionally, China’s announcement that it is cutting tariffs by 50% on $75 billion in U.S. goods helped sentiment. The small-caps showed weakness after a higher open while volatility settled below a key level of support.

The Nasdaq was higher by 0.7% with the all-time high reaching 9,575. Fresh and lower resistance at 9,550-9,600 was cleared but held for the 2nd-straight session with a close above the latter signaling strength towards 9,650-9,700.

The Dow gained 0.3% after trading to a record high of 29,408. Fresh and lower resistance at 29,400-29,600 was cleared but held with a close above the latter signaling additional momentum towards 29,600-29,800.

The S&P 500 also rose 0.3% following the intraday record run to 3,347. Current resistance at 3,350-3,375 was challenged but held with upside potential towards 3,400-3,425 on a close above the latter.

The Russell 2000 was down by 0.3% despite trading to a morning high of 1,689. Near-term and lower resistance at 1,690-1,705 was cleared but held before the close on the session low of 1,677.

Communication Services paced sector strength after jumping 1.3% while Technology soared 0.9%. Real Estate was the leading sector laggard after falling 1% while Consumer Discretionary dipped 0.2%.

In economic news, Initial Jobless Claims fell -15,000 to 202,000, missing forecasts for a print of 215,000, and follows the -6,000 drop to 217,000 in the prior week. This left the 4-week moving average at 211,750 versus 214,750 previously. Continuing claims grew 48,000 to 1,751,000 after the prior -44,000 drop to 1,703,000.

Productivity Growth bounced back to a 1.4% pace in Q4 in the preliminary report, following the -0.2% contraction in Q3, which was the weakest since Q4 2015. Expectations were for a rise of 1.2%. Output growth accelerated slightly to a 2.5% clip versus 2.3% previously. Employee hours slipped to a 1.1% pace from 2.5% previously. Compensation per hour rose to 2.8% from 2.3% while real compensation slowed to 0.3% from 0.5%. Unit labor costs grew at a 1.4% rate versus the prior 2.5% pace. The price deflator dipped to 1% from 1.2%. On a year-over-year basis, productivity edged up to a 1.8% rate from 1.5% in Q3.

The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 3-session slide after testing an afternoon high of $142.88. Current and lower resistance at $142.50-$143 was cleared and held. A close above the latter would signal additional strength towards $143.50-$144.

Near-term support remains at $142-$141.50. A move below the latter would be a renewed bearish development with downside risk towards the $140 level.

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The S&P 500 Volatility Index ($VIX) extended its losing streak to 4-straight sessions after trading to an intraday low of 14.70. Prior and upper support at 15-14.50 and the 200-day moving average was recovered. A close below the latter would be an ongoing bullish signal with more important recovery levels at 14-13.50 and the 50-day moving average.

Lowered resistance at 15.50-16.

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The Wilshire 5000 Composite Index ($WLSH) was up for the 4th-straight session after tapping an all-time high of 34,049. Fresh and lower resistance at 34,000-34,200 was cleared and held. A close back above the latter would be an ongoing bullish signal for a run towards 34,400-34,500.

Current support is at 33,900-33,700. A close below the latter would signal a further backtest towards 33,600-33,400.

RSI remains in an uptrend with resistance at 65-70. A close above the latter would signal additional strength towards 75-80 with the latter representing the January and December peak. Support is at 60 with weakness towards 55-50 on a close back below this level.

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The Health Care Select Sector Spider (XLV) extended its winning streak to 4-straight sessions with the intraday peak reaxhing $104.24. Current and lower resistance is at $104-$104.50 was cleared but held. A close above the latter would signal a retest towards $105-$105.50 with the current all-time high at $105.08.

Near-term is at $103.50-$103. A close below the latter would likely signal another near-term top with additional selling pressure towards $102.50-$102.

RSI has leveled out with resistance at 60. A close above this level would signal additional strength towards 65-70. Support is at 55-50.

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We got some super sweet pin action with AT&T yesterday 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, 38.44, up $0.63)

T March 38 calls (T200320C00038000, $1.15, up $0.35)

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

Exit Target: $1.10

Return: 108%

Stop Target: $1.00 (Stop Limit)

Action: Set a new Stop Limit $1.00 to further protect profits.

Thursday’s high tapped $38.48 with prior and lower resistance at $38.50-$38.75 getting challenged and holding. Rising support is at $38.25-$38.

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Bed Bath & Beyond (BBBY, $15.62, down $0.13)

BBBY April 12 puts (BBBY0417P00012000, $0.45, flat)

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

Exit Target: $1.10

Return: -18%

Stop Target: None

Action: Shares traded to a low of $15.51 with upper support at $15.50-$15.25 holding on the close back below the 50-day moving average. Resistance remains at $15.75-$16.

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Cisco Systems (CSCO, $48.69, up $0.24)

CSCO March 52.50 calls (CSCO200320C00052500, $0.40, flat)

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

Exit Target: $1.10

Return: -27%

Stop Target: None

Action: Shares tested a high of $48.82 with prior and lower resistance at $48.75-$49 getting cleared but holding. Rising support is at $48.50-$48.25.

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Dropbox (DBX, $18.26, up $0.65)

DBX April 20 calls (DBX200417C00020000, $0.75, up $0.25)

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

Exit Target: $1.80

Return: -21%

Stop Target: None

Action: Prior and lower resistance at $18.25-$18.50 was recovered with Thursday’s peak reaching $18.68. Rising support is at $18-$17.75.

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