MomentumOptions.com Pre-Market Update for 2/28/2020
Market Reaches Correction Territory
The market extended its overall losing streak to 5-straight sessions on Thursday as ongoing coronavirus concerns once again dominated the news cycle, here at home and across the pond. The major indexes tested lower lows with the 200-moving averages continuing to tumble like dominos and the technical damage going from bad to worse.
This week’s ongoing carnage and official trip into correction territory comes ahead of the recent Friday fades with volatility rising to another fresh 52-week and 2-year peak. The slightly good news is another leg lower could start to create a buying opportunity as multi-year oversold levels remain in play and have typically provided some relief once reached.
The Nasdaq tumbled 4.6% with the session low reaching 8,562. Prior and upper support from early December at 8,550-8,500 was challenged but held with a move below the latter signaling additional risk towards 8,450-8,400 and the 200-day moving average.
The Dow dropped 4.4% following the intraday pullback to 25,752. Early October and upper support at 26,000-25,750 was breached and failed to hold on the 3rd-straight close below the 200-day moving average. There is additional risk towards 25,500-25,250 on a move below 25,750.
The S&P 500 also stumbled 4.4% while bottoming at a late day low of 2,977. Fresh and upper support at 3,000-2,975 was breached and failed to hold with the close below the 3,050 level and the 200-day moving average being an ongoing bearish development.
The Russell 2000 sank 3.5% after testing a morning low of 1,495. Prior and upper support from late September at 1,500-1,485 was breached and failed to hold on the 3rd-straight close below the 200-day moving average.
Real Estate was the weakest sector after sinking 5.7% while Technology and Energy were both saddled for losses of 5.4%. There was no sector strength.
In economic news, Initial Jobless Claims were up 8,000 to 219,000 last week after rising 5,000 to 211,000 previously. The 4-week moving average edged up to 209,750 versus 209,250. Continuing claims fell -9,000 to 1,724,000 following the 32,000 prior week bounce to 1,733,000.
Durable Goods Orders slipped -0.2% in January, versus expectations for a decline of -0.9%, after December’s 2.9% gain. There was a -2.2% drop in transportation orders following the 8.8% increase, with orders excluding transportation rising 0.9% versus the prior 0.1% gain. Nondefense capital goods orders excluding aircraft climbed 1.1% from -0.5%. Shipments slipped -0.2% versus -0.1% previously. Nondefense capital goods shipments excluding aircraft were increased 1.1%. Inventories were were unchanged after the prior 0.4% increase. The inventory-shipment ratio was steady at 1.74.
Q4 GDP growth was unrevised at the same 2.1% from the Advance report, matching forecasts. Consumption was bumped down to a 1.7% pace versus 1.8% previously. Business fixed investment was also revised lower to a -2.3% clip from -1.5%, while residential investment was nudged up to 6.2% from 5.8%. Inventories were at -$56.4 billion from -$62.9 billion as the accumulation rate rose to $13 billion from the prior $6.5 billion. Net exports added $90.5 billion versus $88.1 billion. Government spending was revised down to a 2.6% rate from 2.7%. The chain price index slowed to 1.3% versus 1.4% previously, with the core rate at 1.2% versus 1.3%.
Pending Home Sales Index climbed 5.2% to 108.8 in January, topping forecasts for a rise of 2.2%, after dropping a revised -4.3% to 103.4 in December. The 12-month gauge slowed slightly to a 6.7% year-over-year growth rate versus the prior 6.8% clip. Regionally, sales were up in the South (8.7%), the Midwest (7.3%), and the Northeast (1.3%), but declined in the West (-1.1%).
Kansas City Fed Manufacturing Index for February came in at 5.
The iShares 20+ Year Treasury Bond ETF (TLT) rebounded to resume its upward trend with the intraday and fresh all-time high reaching $153.08. Unchartered territory and lower resistance at $153-$153.50 was pierced but held with a move above the latter getting $154.50-$155 in focus.
Current and rising support at $151.50-$151. A close below the $149.50 level would signal a possible near-term top with additional pullback potential towards $148-$147.50.
The S&P 500 Volatility Index ($VIX) was up for the 5th time in 6 sessions after soaring to a late day high of 39.31. Prior and lower resistance from February 2018 at 37.50-40 was tripped and failed to hold. There is potential risk towards 47.50-50 if the 40 level is breached. The peak from 2 years ago this month tapped 50.30.
Fresh but undefined support is at 37.50-35 followed by 32.50-30. A close below the 30 today, or next week, would signal some relief from the recent panic selling.
The Spider S&P 500 ETF (SPY) fell for the 6th-straight session after closing in its session low of $297.51. Prior and upper support from late October at $300-$297.50 was breached and failed to hold on the close back below the 200-day moving average. A close below the $297.50 level would be an ongoing bearish development and likely confirm a further backtest towards the $295 area.
Lowered resistance is at $298-$298.50 with more important recovery hurdles at $300-$302.50.
RSI remains in a nasty downtrend with key support 20 now in play and oversold conditions from September and December 2018. Resistance is at 25-30 with continued closes above the latter signal a possible end of the recent weakness with retest potential towards 35-40.
The Consumer Staples Select Spiders (XLP) extended its losing streak to 4-straight sessions following the intraday plunge to $59.15. Prior and upper support at $59.50-$59 was breached and failed to hold on the close below the 200-day moving average. A close below the $59 level would be an ongoing bearish development with weakness towards $58.50-$58 and levels from last October.
New resistance is at $59.50-$60. Continued closes back above the $60.50 level would be a more bullish signal of a possible a near-term bottom.
RSI remains in an avalanche with key support from December 2018 at 20 getting breached and failing to hold. There is risk towards the 17.50-15 area and extreme oversold levels from July 2002 on continued weakness. Resistance is at 25-30.
Our 2 open bullish positions took another hit but we have been prepared for this week’s carnage by staying light while doing a little nibbling midweek. However, if today doesn’t show some type of capitulation, the market could correct another 5%-10% over the near-term.
This means we still need to be careful, and somewhat patient, while seeing how today’s session plays out. I would love to see the VIX kiss 50 while closing slightly lower but I imagine volatility will stay elevated heading into the weekend. As usual, stay locked-and-loaded in case I take action. If you don’t hear from me by 3:30pm (EST) have a great and safe weekend.
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.
Bank of America (BAC, $29.13, down $1.50)
BAC April 34 calls (BAC200417C00034000, $0.20, down $0.05)
Entry Price: $0.40 (2/26/2020)
Exit Target: $0.80
Stop Target: None
Action: Thursday’s low kissed $28.91 with upper support from mid-October at $29-$28.75 getting breached but holding. Lowered resistance is at $29.25-$29.50 with the close below the 200-day moving average being an ongoing bearish development.
AT&T (T, $35.73, down $1.37)
T March 39 calls (T200320C00039000, $0.15, down $0.10)
Entry Price: $0.50 (2/19/2020)
Exit Target: $1.00
Stop Target: None
Action: Shares tested a low of $35.36 yesterday with prior and upper support at $35.50-$35.25 and the 200-day moving averages getting breached but holding. Lowered resistance is at $36-$36.25.