MomentumOptions.com Pre-Market Update for 2/14/2020

Small-Caps Shine Despite Choppy Session

8:00am (EST)

The market traded lower throughout the first half of Thursday’s action after China’s report that coronavirus cases in its Hubei Province were revised sharply higher. Meanwhile, here at home, the CDC confirmed another infection with the coronavirus disease, or COVID-19, marking the nation’s 15th confirmed case. 

The 2nd-half rebound into positive territory erased the early losses as the opening decline was considered a buying opportunity by some investors. However, weakness resumed into the close despite another round of fresh all-time highs.

The Russell 2000 climbed 0.3% after testing a late day high of 1,696. Major resistance at 1,700 was challenged but held with a close above this level signaling further upside towards 1,715 and the current 52-week peak.

The Nasdaq was lower by 0.1% following the intraday rebound to 9,748 and fresh record high. Current and lower resistance at 9,750-9,800 was challenged but held with a close above the latter signaling additional strength towards 9,850-9,900.

The S&P 500 shed 0.2% despite trading to an intraday all-time high of 3,385. Near-term resistance at 3,400 was challenged for the 2nd-straight session but held with a close above this level signaling momentum towards 3,425-3,450.

The Dow was down 0.4% after trading in the red throughout the session with the opening low tapping 29,345. New support at 29,400-29,200 was breached but held with a close below the latter getting 29,000 back in focus. 

Utilities and Real Estate led sector strength after rising 1% and 0.6%, respectively. Industrials paced sector weakness after falling 0.6% while Healthcare was lower by 0.5%.

In economic news, Initial Jobless Claims edged up 2,000 to 205,000 following the unexpected -14,000 drop to 203,000 previously. The 4-week moving average was unchanged at 212,000. Continuing claims dropped -61,000 to 1,698,000 after climbing 56,000 to 1,759,000 in the prior week.

CPI rose 0.1% in January while the core rate was up 0.2%, both matching forecasts. There were no revisions to December’s respective gains of 0.2% and 0.1%. The 12-month pace accelerated to 2.5% year-over-year versus 2.3% previously, though the ex-food and energy rate was unchanged at 2.3%. Most components posted moderate gains with services prices increasing 0.4%, housing up 0.3%, and food/beverage costs 0.2% higher. Apparel increased 0.7%. Energy prices declined -0.7% from a 1.6% prior gain while transportation costs slid -0.6%. Personal computer prices dropped -1.1%.

The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 2-session slide after trading to an intraday high of $144.20. Current and lower resistance is at $144-$144.50 was cleared but held. A close above the $145 level would be a more bullish signal of a near-term bottom.

Support is at $143.50-$143. A close below the $142.50 level would signal a further backtest towards $142-$141.50.

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The S&P 500 Volatility Index ($VIX) stayed slightly elevated throughout the session following the morning spike to 15.44. Lower resistance at 15-15.50 was breached but held. A close above the latter and the 200-day moving average would be a slightly bearish signal for a retest towards 16-16.50.

Support remains at 14-13.50 and the 50-day moving average.

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The Spiders Dow Jones Industrial Average ETF (DIA) was down for the 2nd-time in 3 sessions with the first half low reaching $293.92. Near-term and upper support is at $294-$293.50 was breached but held. A close below the $292.50 level would signal a possible near-term top with backtest potential towards the $290.50-$290 area.

Current resistance is at $295.50-$296 with Wednesday’s all-time peak at $295.87. A close above the $296 level would be a renewed bullish signal with upside potential towards $297.50-$298.

RSI is in a slight downtrend with key support at 60 holding. A close below this level would signal additional weakness towards 55-50. Resistance is at 65 with a close above this level signaling strength towards 70-75 with the latter representing the December and January peak.

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The Communication Services Select Sector Spider (XLC) showed strength for the 2nd-straight session after trading to a fresh all-time high of $57.08. Fresh and lower resistance at $57-$57.50 was tripped but held. A move above the latter would signal additional momentum towards $58-$58.50.

Current support is at $56.50-$56. A close below the latter would signal a possible near-term top with additional risk towards $55.50-$55.

RSI has leveled out with lower resistance at 65-70 getting cleared and holding. A close above the 70 level would signal additional strength towards 75-80 with the latter representing the January high. Key support is at 60.

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Recent Friday’s have resulted in pullbacks and we will have to see how the action plays out to see if next week offers a buying opportunity to get into some fresh trades. I usually don’t like opening new positions on Friday but shares of AT&T (T) may be providing us another opportunity to get back into call options. I was looking for a further backtest towards $37.50 but yesterday’s rebound looked promising for another run towards $38.50-$39. If the latter clears, shares could make a run at $40 and fresh 52-week highs.

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Stay locked-and-loaded in case I take action. If so, I will send out a Text Alert.

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, $11.81, up $0.02)

BBBY April 12 puts (BBBY0417P00012000, $1.60, down $0.05)

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

Exit Target: $2.25 

Return: 197%

Stop Target: $1.25, raise to $1.35 (Stop Limit)

Action: Raise the Stop Limit at $1.25 to $1.35 to further protect profits.

Wednesday’s low reached $10.83 with prior and upper support at $11-$10.75 getting breached but holding. Lowered resistance is at $12-$12.25.

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Cisco Systems (CSCO, $47.32, down $2.61)

CSCO March 52.50 calls (CSCO200320C00052500, $0.15, down $0.65)

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

Exit Target: $1.10

Return: 10%

Stop Target: 60 cents (Stop Limit)

Action: The Stop Limit at 60 cents tripped on the open as shares reversed course ahead of Thursday’s open. The company topped earnings but disappointed on its outlook. Interestingly, there was a rumor floating that Cisco wants to buy FireEye (FEYE, $16.46, up $0.72) but that was later debunked.

We will keep both stocks on our Watch List for a possible reentry point, or for a new trade, but for now, we are out of CSCO.

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Dropbox (DBX, $18.61, up $0.04)

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: Lower resistance at $18.75-$19 was breached but held on yesterday’s run to $18.76. Support remains at $18.50-$18.25.

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