MomentumOptions.com Pre-Market Update for 2/25/2020
Dow Sinks 1,000+ points on Coronavirus Fears
The market was punished on Monday as the major indexes failed to hold their 50-day moving averages while plunging to prior support levels from January and December. Concerns over the continuing rise in coronavirus cases and deaths also sent global market reeling with losses between 3%-4%, as well.
The Nasdaq plummeted 3.7% with the session low reaching 9,166. Prior and upper support from late January at 9,200-9,150 was breached but held on the close back below the 50-day moving average. A move below 9,150 would signal additional weakness towards 9,050-9,000 and levels from early January.
The Dow declined 3.6% following the intraday pullback to 27,912. Mid-December and upper support at 28,000-27,750 was breached and failed to hold on the close below the 50-day moving average. There is additional risk towards 27,500-27,250 and the 200-day moving average if 27,750 fails to hold.
The S&P 500 stumbled 3.4% while bottoming at a low of 3,214. Fresh and upper support at 3,225-3,200 was breached but held with the close below the 50-day moving average being a bearish signal for additional weakness towards 3,175-3,150.
The Russell 2000 was roasted for 3% after trading to an afternoon low of 1,620. Prior and upper support at 1,625-1,610 was breached but held with a move below the latter signaling a further pullback towards 1,600-1,585.
Energy and Technology were the weakest sectors after sinking 4.6% and 4.1%, respectively, while Consumer Discretionary and Communication Services were hit with losses of 3.5% and 3.4%. There was no sector strength.
In economic news, Dallas Fed Manufacturing Survey rose 1.4 ticks to 1.2 in February, after rising 3 points to -0.2 in January, but missing forecasts for a print of 2.1. However, the positive print breaks a string of 4-straight months in negative territory. The employment component decreased to -0.9 after slipping to 1.9 in January. The new order index slid to 8.4 after jumping to 17.6 previously. Prices paid rose to 12.8 from 9.5, with prices received at -0.1 from -1.9. The 6-month outlook more than doubled to 18 from 7.6. The future employment gauge dipped to 20.4 from 25.3, with new orders dropping to 34.1 from 40.1. Prices paid edged up to 21.4 from 20.2, with prices received at 11.6 from 10. The capex index fell to 21.2 from 28.3.
Chicago Fed National Activity Index edged up 0.26 points to -0.25 in January after falling -1 to a revised -0.51 in December. The 3-month average improved slightly to -0.09 from -0.23. Thirty-six of the 85 monthly indicators made positive contributions, and 49 made negative.
The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight sessions after trading to an all-time high of $150.96. Uncharted territory and lower resistance at $151-$151.50 was challenged but held. A close above the latter would signal additionl strength towards $152-$152.50.
Rising support is at $150-$149.50 with a close below the $148.50 level signaling a near-term top.
The S&P 500 Volatility Index ($VIX) was up for the 3rd-straight session after ballooning to an intraday high of 26.35. Multi-year and lower resistance from December 2018 at 26-26.50 was breached but held. There is additional risk towards 27.50-30 on a move above the 26.50 level.
Rising and new support is at 24.50-24 followed by 22.50-22 with the latter representing Monday’s low.
The S&P 400 Mid Cap Index ($MID) was down for the 2nd-straight session after testing a morning low of 2,013. Prior and upper support from late January at 2,020-2,000 was breached but held. A close below the latter would signal additional weakness towards 1,980-1,960 and the 200-day moving average.
Lowered resistance at 2,040-2,060 and the 50-day moving average. Continued closes back above the latter would be a more bullish signal of a near-term bottom.
RSI is in a downtrend with upper support at 40-35 failing to hold. A close below the latter and the late December low would signal risk towards 30 and a level from last August and late May. Resistance is at 45-50.
The Technology Select Sector Spiders (XLK) extended its losing streak to 3-straight after tapping a session low of $93.80. Prior and upper support at $94.50-$94 was tripped but held. A close below the latter reopens risk towards $92.50-$92 and levels from the beginning of January.
Lowered resistance is at $95.50-$96 and the 50-day moving average.
RSI is remains in a downtrend after holding key support from early October at 40. A close below this level would signal additional weakness towards 35-30 and levels from early August. Resistance is at 45-50.
The technical damage from yesterday was severe with January lows likely to be taken out. The late January fade was roughly 3% and lasted briefly before a buying opportunity presented itself. However, this selloff could be more pronounced with a further backtest towards the 200-day moving averages over the next week or so.
The opportunity to add put options was tough as premiums spiked on the open and I didn’t want to chase XLK, or RMBS, as i should have added them on Friday, obviously. Given this scenario, call options are getting cheaper on some solid stocks so we can look out into April or May for setups. Over the near-term, I’m still looking for bearish setups but let’s see how the next day or so goes before getting aggressive.
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, $38.05, down $0.50)
T March 39 calls (T200320C00039000, $0.40, down $0.10)
Entry Price: $0.50 (2/19/2020)
Exit Target: $1.00
Stop Target: None
Action: Shares kissed a low of $37.98 with prior and upper support at $38-$37.75 getting breached but holding. Lowered resistance is at $38.25-$38.50 and the 50-day moving average.