MomentumOptions.com Pre-Market Update for 2/12/2020

Dow Lags Despite Setting a Fresh Record High

8:00am (EST)

The market was choppy throughout Tuesday’s session following comments from Fed Chair Jay Powell shortly after the open. Powell said there is a lot of uncertainty regarding the impact of the coronavirus and the potential spillover. More importantly, he said the key for the FOMC will be whether the impacts result in a “material change” in the outlook and that it’s too early to tell.

The Russell 2000 gained 0.6% following the first half push to 1,686. Near-term and lower resistance at 1,675-1,690 was cleared and held with a close above the latter signaling strength towards the 1,700 level.

The S&P 500 climbed 0.2% with the intraday and all-time high reaching 3,375. Fresh and lower resistance at 3,375-3,400 was kissed but held with upside potential towards 3,425-3,450 on a close above the latter.

The Nasdaq edged up 0.1% after testing another record high of 9,714 shortly after the opening bell. New and lower resistance at 9,700-9,750 was cleared but held with a move above the latter signaling additional momentum towards 9,800-9,850.

The Dow slipped a half-point, or 0.002%, despite trading to a fresh lifetime high of 29,415 shortly after the open. Current and lower resistance at 29,400-29,600 was cleared but with a close above the latter keeping upside potential towards 29,600-29,800 in play.

Real Estate and Energy led sector strength with gains of 1.2% and 1.1%. 

Consumer Staples and Technology were the leading sector laggards after falling 0.4% and 0.3%, respectively.

In economic news, NFIB small business optimism index bounced 1.6 points to 104.3 in January, recovering most of the 2 point decline to 102.7 in December. Six of the ten components improved and the economic expansion continues its historic run, said the report. Additionally, a historically high percentage of business owners plan to boost compensation as the inability to find qualified workers is the top concern of 26% of respondents. The report also indicated 28% of employers believe it’s a good time to expand, although the net percentage of firms expecting a better economy fell to 14% from 16%.

JOLTS reported job openings dropped -364,000 to 6,423,000 in December after falling -574,000 in November to 6,787,000. Expectations were for a print of 6,775,000. The JOLTS rate slipped again to 4%, after diving to 4.3% in November from 4.6% in October. Quitters declined -80,000 to to 3,488,000 with the rate holding steady at 2.3%. Hirings rose 80,000 to 5,907,000, with the rate rising to 3.9% versus 3.8%.

Chain Store Sales were unchanged last week following the prior 0.7% increase. The 12-month pace slowed to 2.2% year-over-year from the 3.1% jump previously.

Fed Chairman Jay Powell sees no reason why the expansion won’t continue and there is nothing about this expansion that is unstable or unsustainable. He said the system is strong and has strengthened since the financial crisis. The most significant risk to the financial system, he believes, is cyber attacks, which are the new frontier.

Powell indicated minimum wage laws have played a roll in boosting wages, but said a strong labor market and very low unemployment are bigger factors. He repeated that the Fed doesn’t take a position on minimum wage legislation is for Congress to decide. Earlier on Libor he said the Fed is committed to having banks switch over to a new rate. He doesn’t believe a change in laws is necessary, but if analysts do, analysts will let you know, he said.

The iShares 20+ Year Treasury Bond ETF (TLT) had its 3-session winning streak snapped following the intraday pullback to $143.94. Current and upper support is at $144-$143.50 was breached but held. A move below the latter would signal additional weakness towards $143-$142.50.

Near-term and lowered resistance is at $144.50-$145.

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The S&P 500 Volatility Index ($VIX) tested an intraday low of 14.38 before settling slightly higher. Current and upper support at 15-14.50 was breached but held.

Near-term resistance at 16-16.50 held on the intraday pop to 15.27 and close back above the 200-day moving average. A close above the 16.50 level would be a bearish development with upside risk towards 17.50-18.

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The S&P 400 Mid Cap Index ($MID) was up for the 2nd-straight session after testing a morning high of 2,085. Near-term and lower resistance at 2,070-2,090 was cleared and held. Continued closes above the latter would be a more bullish signal of a near-term bottom with retest potential towards 2,100-2,120 and the recent all-time high at 2,106.

Current and upper support is at 2,050-2,030 and the 50-day moving average. A close below the latter would signal additional weakness towards 2,020-2,000.

RSI is in a slight uptrend after clearing key resistance at 55. Continued closes above this level would signal additional strength towards 60-65. Support is at 50 with risk towards 45-40 on a close below this level with the latter representing the monthly low.

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The Spider S&P Retail ETF (XRT) extended its winning streak to 2-straight session after reaching a morning peak of $44.56. Near-term and upper resistance at $44.25-$44.50 was cleared but held on the close above the former. Continued closes above the $44.50 would signal additional strength towards $44.75-$45 and the 50-day moving average.

Current support is at $44-$43.75. A close below $43.50 would be a bearish development with backtest potential towards $43-$42.75 and the 200-day moving average.

RSI is in an uptrend with key resistance at 50. Continued closes above this level would signal additional strength towards 55-60 with the latter representing the January peak. Support is at 45-40.

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After yesterday’s close, shares of BBBY were tanking 25% after delivering an update on its upcoming earnings report. On that note, let’s go check the current trade updates.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 8-1 (89%). 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, $14.85, up $0.56)

BBBY April 12 puts (BBBY0417P00012000, $0.55, down $0.10)

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

Exit Target: $1.10

Return: 0%

Stop Target: None

Action: After the close, the company pre-announced earnings after saying same-store-sales for the first 2 months of Q4 were down 5.4%. Shares were down a whopping 25% and were pushing the $11 level in extended trading last night. 

If shares fail to hold $11, and prior resistance from September/ early October, there is a good chance a test down to $10 could come into play. If so, these puts will be $2 in-the-money and could give us a return in the 250%-300% range.

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Cisco Systems (CSCO, $49.13, up $0.26)

CSCO March 52.50 calls (CSCO200320C00052500, $0.55, up $0.10)

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

Exit Target: $1.10

Return: 0%

Stop Target: None

Action: Shares traded to a high of $49.71 with lower resistance at $49.50-$49.75 getting cleared but holding. A close above the latter and the 200-day moving average would be an ongoing bullish signal for a run towards $50.25-$50.50. Fresh support is at $49-$48.75.

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Dropbox (DBX, $18.60, up $0.07)

DBX April 20 calls (DBX200417C00020000, $0.90, flat)

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

Exit Target: $1.80

Return: 0%

Stop Target: None

Action: Tuesday’s high tapped $18.68 with lower resistance at $18.75-$19 getting challenged but holding. Current support is at $18.25-$18.

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