MomentumOptions.com Pre-Market Update for 2/21/2020

Small-Caps Show Strength on Down Day

8:00am (EST)

The market showed strength to start Thursday’s session following better-than-expected job numbers along with other positive economic news. However, weakness resumed afterwards on concerns that the coronavirus outbreak is spreading in the Asian region, with Japan and South Korea reporting new cases. China, however, reported a large decline in cases. 

The Nasdaq was lower by 0.7% following the afternoon pullback 9,636. Fresh and upper support at 9,650-9,600 was breached but held with a close below the latter signaling additional weakness towards 9,550-9,500.

The S&P 500 fell 0.5% with the intraday low reaching 3,341. New and upper support at 3,350-3,325 was breached but held with a close below the latter leading to retest potential towards 3,300-3,275 and the 50-day moving average.

The Dow declined 0.4% after trading to an intraday low of 28,959. Current and support at 29,200-29,000 was breached but levels that held with a close below the latter signaling additional weakness towards 28,800-28,600 and the 50-day moving average.

The Russell 2000 was up 0.2% with the session high reaching 1,698. Key resistance at 1,700 was challenged for the 2nd-straight session but held with a close above this level signaling upside potential towards 1,715 and the current 52-week high.

Real Estate and Utilities showed the most sector strength after rising 1.1% and 0.4%, respectively. Technology and Communication Services were the weakest sectors after sinking -1%.

In economic news, Initial Jobless Claims rose 4,000 to 210,000, matching expectations, after the prior week’s 3,000 rise to 206,000. The 4-week average slipped 3,000 209,000 from the previous week’s 212,000 reading. Continuing claims climbed 25,000 to 1,726,000 following the -58,000 drop to 1,701,000 for the prior week.

Philadelphia Fed Business Outlook Survey surged 19.7 points to 36.7 in February, well above forecasts for a print of 15x, and follows January’s 14.6 point jump to 17. The components were mixed, however, with employment reading falling to 9.8 from 19.3, while new orders nearly doubled to 33.6 from 18.2. Prices paid slipped to 16.4 from 22.1 while prices received edged up to 17.1 from 14.7. The 6-month outlook index rose to 45.4 after the 4.4 point gain to 38.4 in January. The future employment gauge dipped to 24 from 24.3, and new orders jumped to 54 from 41.9. Prices paid slid to 32.2, down from 41.9, with prices received at 37.9 from 34. Capex declined to 29.8 versus 32.9.

Leading Indicators rose 0.8% to 112.1 in January, a new all time high. This follows the -0.3% decline to 111.2 in December. Gains were broad based with nearly all of the strength in a couple of components, jobless claims (+0.32%) and building permits (+0.26%). Only one of the 10 components made a negative contribution, ISM new orders (-0.07%).

Fed Vice Chairman Richard Clarida said it’s a good picture for the economy with economic fundamentals strong and monetary policy remaining accommodative. He said the Fed is closely watching the coronavirus and believes it will have a noticeable impact on the Chinese economy, but it’s too soon to say what it will mean for the U.S.

He noted the solid regional manufacturing indexes and said analysts could see a rebound in business investment. He is not sure that the futures market is really pricing in a rate cut as market pricing is a little tricky as it deals with expectations, along with term and liquidity premia. He went on to add financial stability risks are moderate but wouldn’t say whether the Fed’s balance sheet operations are affecting the markets and whether the liquidity has underpinned the boom in stocks.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 4th time in 5 sessions after testing a high of $146.94. Fresh and lower resistance from late August at $147-$147.50 was challenged but held. A move above the latter would signal additionl strength towards $148.50-$149 with the current 52-week peak at $148.90.

Rising support is at $146-$145.50.

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The S&P 500 Volatility Index ($VIX) zigzagged for the 10th-straight session after zooming to an intraday peak of 17.21. Prior and lower resistance from late January at 17-17.50 was breached but held.

New support is at 15.50-15 and the 200-day moving average.

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The Invesco QQQ Trust (QQQ) was down for just the 2nd time in 8 sessions following the intraday pullback to $231.88. Prior and upper support at $232-$231.50 was breached but held. A move below the latter level would signal additional risk towards $230-$229.50.

Lowered resistance is at $235.50-$236.

RSI is back in a downtrend with support at 65-60. A close below the latter would signal additional weakness towards 55-50. Resistance is at 70-75.

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The Industrials Select Sector Spider (XLI) fell for the 5th-straight session with the morning low reaching $83.40. Prior and upper support at $83.50-$83 was breached but held. A close below the latter would be an ongoing bearish development with additional risk towards $82.50-$82 and the 50-day moving average.

Near-term resistance is at $84.50-$85. A close above the latter would signal a possible near-term bottom with more important hurdles at $85.50-$86 and the current all-time high at $85.33.

RSI is in a downtrend with support at 50. A close below this level would signal additional weakness towards 45-40. Resistance is at 55-60.

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The action in the VIX kept me on the sidelines yesterday and today’s close will be crucial on how next week might play out.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 11-1 (92%). 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, $38.61, up $0.17)

T March 39 calls (T200320C00039000, $0.50, up $0.05)

Entry Price: $0.50 (2/19/2020)

Exit Target: $1.00

Return: 0%

Stop Target: None

Action: Shares traded to a high of $38.67 with lower resistance at $38.50-$39 getting cleared and holding. Support is at $38.25-$38 and the 50-day moving average.

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