MomentumOptions.com Pre-Market Update for 2/19/2020

Apple Warns, Market Weathers Storm/ Profit Alert (BBBY)

8:00am (EST)

The market was weak throughout Tuesday’s session following an earnings warnings from Apple (AAPL) along with ongoing concerns over the coronavirus situation. Shares tested a low of $314.61 before closing at $319.

The overall market pullback held near-term support levels with the Tech sector actually showing midday strength despite the ripple effect from Apple’s supply chain issues. Volatility eased higher but held key levels of resistance heading into Wednesday’s update from the Fed and the FOMC minutes.

The Nasdaq was up over a point, or 0.02%, despite testing a midday low of 9,675. Current and upper support at 9,700-9,650 was tripped but held with a close below the latter signaling backtest potential towards 9,600-9,550.

The S&P 500 slipped 0.3% following the intraday pullback to 3,355. Near-term and upper support at 3,375-3,350 was breached and failed to hold with a move below the latter signaling additional weakness towards 3,325-3,300.

The Dow extended its losing streak to 3-straight after falling 0.6% while testing a session low of 29,116. Near-term and upper support at 29,200-29,000 was breached but held with a close below the latter opening up additional weakness towards 28,800-28,600 and the 50-day moving average.

The Russell 2000 was down for the 2nd-straight session after giving back 0.2% with the morning low tapping 1,674. New and upper support at 1,680-1,665 was triggered but held with a close below the latter signaling additional risk towards 1,650 and the 50-day moving average.

Utilities and Communication Services led sector strength with gains of 0.8% and 0.7%, respectively. Financials were the weakest sector after sinking 1% while Energy lost 0.8%.

In economic news, NFIB Small Business Optimism Index slipped 1 point to 74 in February following the 75 reading in January. The record peak is at 78 from December 1998 as all of the measures remain close to historic highs. The single family index dipped to 80 versus 81. The future sales index also fell to 79 from 80. The index of prospective buyer traffic came in at 57 versus 58 previously. The NAHB also noted that price appreciation and limited inventories have been limiting factors, along with regulatory restraints and a shortage of construction workers.

Empire State Manufacturing Survey surged 8.1 points to 12.9 in February, more than double expectations for a reading of 5, after January’s 1.5 point increase to 4.8. The employment index fell to 6.6 from 9 while the workweek also declined to -1 from 1.3. However, new orders jumped to 22.1 from 6.6. Prices paid slid to 25 from 31.5, though prices received increased to 16.7 from 14.4. The 6-month index dipped to 22.9 from 23.6, with employment at 15 from 12.1 and new orders at 27.5 from 31.4. The future prices paid index declined to 37.9 from 43.8, with prices received at 22.7 from 29.5. The capex index fell to 22 from 25.4. 

The Fed Policy outlook from the FOMC minutes on Wednesday are expect to say the Fed will maintain a steady policy stance with an asymmetric bias toward easing. However, the Fed funds futures market has been rising, in part on safe haven trades, but also as the market worries that the spread of the coronavirus will have bearish effects to the global economy. The feared slowing in growth is also seen tempering inflationary pressures as well, and will force the FOMC to cut rates later in the year. The market is pricing a 25 basis point rate cut by the September 15th, 16th FOMC meeting, and is pricing in a second by the end of the year with about 70% probability.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight after trading to a session high of $146.08. Prior and lower resistance from late January at $146-$146.50 was cleared but held. A move above the latter would signal ongoing strength towards $147.50-$148 and late August highs.

Rising support is at $145.50-$145.

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The S&P 500 Volatility Index ($VIX) stayed elevated throughout the day with the intraday high reaching 15.49. Prior and lower resistance at 15-15.50 and the 200-day moving average were breached but levels that held. There is additional risk towards 16-16.50 on a move above the 15.50 level.

New support is at 14.50-14 and the 50-day moving average.

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The iShares Russell 1000 (IWF) was down for just the 2nd-time in 6 sessions following the afternoon pullback to $190.09. Near-term and upper support at $190-$189.50 was challenged but held. A close below $188.50 and last Tuesday’s low at $188.43 would be slightly bearish signals with additional pullback potential towards $186.50-$186.

Current resistance is at $191-$191.50 with last Friday’s all-time peak at $191.15. A close above the $191.50 level would signal a return of momentum with upside potential towards $192.50-$193.

RSI has flatlined with key support at 70. A close below this level would be a slightly bearish development and would signal additional weakness towards 65-60. Resistance at 75 and the monthly hgh. A close above this level could signal a retest towards 75-80 and the latter representing the overbought high from January and late December.

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The Materials Select Sector (XLB) fell for the 2nd time in 3 sessions after testing a 1st half low of $60.08. Prior and upper support from mid-month at $60-$59.50 and the 50-day moving average was breached but levels that held. A close below $59.50 would be a bearish development with additional weakness towards $59-$58.50.

Lowered resistance is at $60.50-$61. A close back above the latter would signal a near-term bottom with additional hurdles at $61.50-$62.

RSI remains in a slight downtrend with support at 50 and a level that has been holding throughout the start of the month. A close below 50 would signal additional weakness towards 45-40. Resistance is at 55-60.

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I could have new trades today so stay locked-and-loaded.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 10-1 (91%). 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, $11.78, up $0.60)

BBBY April 12 puts (BBBY0417P00012000, $1.50, down $0.30)

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

Exit Target: $2.25 

Return: 181%

Stop Target: $1.50 (Stop Limit)

Action: The Stop Limit at $1.50 was triggered on the stocks’s rebound to $12.05 yesterday. 

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