MomentumOptions.com Pre-Market Update for 3/2/2020

Bears Continue Assault on 3-Week Win Streak

8:00am (EST)

The market closed lower for the 6th time over the past 7 Friday’s while extending their overall losing streak to 6-straight sessions. The weekly drubbing capped the worst week and month in 11 years for the major indexes as ongoing coronavirus fears induced another round of selling pressure.

Despite the carnage, there were a few bullish signs as Tech actually closed higher for the session while the overall market settled well off the intraday lows. A pledge from the Fed that it will do what is needed also offered Wall Street some hope as a rate cut could come as early as March. 

The Dow extended its losing streak to 7-straight after falling 1.4% and trading to a morning low of 24,681. Prior support from last May at 25,000-24,750 was breached but levels that held on the close above the former. Continued closes back above the 25,500 level would be a slightly bullish signal of a near-term bottom.

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The Russell 2000 also gave back 1.4% following the opening plunge to a fresh 52-week low of 1,448. Prior and upper support from late August at 1,465-1,450 was breached but levels that also held on the 2nd-straight close below the 1,500 level. A close below the 1,450 level would be an ongoing bearish development with risk towards 1,435-1,420. Below is a chart if the IWM.

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The S&P 500 was also lower for the 7-straight session after falling 0.8% with the intraday low tapping 2,855. Early October and upper support at 2,875-2,850 was breached but held before the close above the 2,950 level and nearly 100 points off the low. A rebound above the 3,000 level is needed to signal a return of strength with more important hurdles at 3,050 and the 200-day moving average.

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The Nasdaq was up nearly a point, or 0.01%, despite testing a session low of 8,264 while holding the 200-day moving average into the closing bell. Prior and upper support from late October at 8,300-8,250 was tripped but held with a move below the latter signaling additional weakness towards 8,150-8,100.

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For the week, the Dow tanked 12.4% and the Russell 2000 lost 12%. The S&P 500 sank 11.5% and the Nasdaq shed 10.5%. For February, the blue-chips dropped lost 10%, the S&P 500 sank 8.4%. Tech was lower by 6.4% and the small-caps lost 8.6%.

Technology and Communication Services showed sector strength on Friday after rising 0.8% and 0.3%, respectively. Utilities were the weakest sector after giving back 3.3% while Financials and Real Estate were both down 2.7% and 2.5%, respectively. 

Over the last 5 sessions, Energy was down 16.4% while Materials and Industrials lost 12.6%. Over the past 30 days, Energy tumbled 17.7% while Industrials stumbled 9.2%. There was no sectors strength last week or for the month.

In economic news, Personal Income climbed 0.6% in January, with spending rising 0.2%, following December’s respective gains of 0.1% and 0.4%. Wages and salaries increased 0.5% from 0.1%. Disposable income jumped 0.6% from 0.1%. The savings rate rose to 7.9% from 7.5%. The PCE chain price index edged up 0.1% for the headline and core rates, after respective December gains of 0.3% and 0.2%. The 12-month price data showed the headline accelerating to 1.7% year-over-year pace versus 1.5%, with the ex-food and energy component at 1.6% year-over-year from 1.5%.

Advance goods trade deficit narrowed to -$65.5 billion in January from a revised -$68.7 billion. Exports fell -1% to $135.7 billion after rising 0.9% $137.1 billion previously. Imports dropped -2.2% to $201.2 billion following December’s 3.1% bounce to $205.8 billion. January advance wholesale inventories declined -0.2% to $672.4 billion while retail inventories were unchanged at $660.5 billion.

Chicago PMI rose to 49 in February, much better than expectations for a reading of 45.8. The 3-month moving average improved to 46.7 from 45.9.

Consumer Sentiment was revised up to 101, topping forecasts of 100.9 and the preliminary print, and was up 1.2 points from January’s 99.8 reading. The current conditions index increased to 114.8 from 114.4 for January. The expectations index slipped to 92.1 from the 92.6 preliminary, but was up from 90.5 in January. The 12-month inflation gauge slowed to a 2.4% rate versus 2.5% for the preliminary and the 2.5% clip in January. The 5-year price index was steady at 2.3%, the same as the preliminary, but below the 2.5% print from January.

Baker-Hughes reported the U.S. rig count was down 1 rig from last week to 790, with oil rigs slipping 1 to 678, gas rigs unchanged at 110, and miscellaneous rigs unchanged at 2. The U.S. Rig Count is down 248 rigs from last year’s count of 1,038, with oil rigs down 165, gas rigs off 85, and miscellaneous rigs up 2 to 2. The U.S. Offshore Rig Count was unchanged at 22 year-over-year.

Fed Chair Powell said the fundamentals of the U.S. economy remain strong, but warned the coronavirus poses evolving risks to economic activity. He stated the Federal Reserve is closely monitoring developments and their implications for the economic outlook and will use their tools and act as appropriate to support the economy.

St. Louis Federal Reserve President James Bullard said the coronavirus may temporarily slow global economic growth, but that the FOMC is in a good position because of previous policy rate cuts designed to insure the U.S. economy against adverse shocks. 

Bullard said longer-term U.S. interest rates have been driven lower by a global flight to safety, likely benefiting the U.S. economy. He added further policy rate cuts are a possibility if a global pandemic actually develops with health effects approaching the scale of ordinary influenza, but this is not the baseline case at this time.

Bullard said the main hit to economic growth should be in Asia, and global growth will likely weaken amid temporary disruptions to global supply chains.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session and for the 6th time in the past 7 after tagging a fresh all-time record high of $155.98. Unchartered territory and lower resistance at $155.50-$156 was cleared but held with a move above the latter signaling momentum towards $157-$157.50.

Near-term and rising support is at $154.50-$154. A close below the latter would signal a possible near-term top with additional backtest potential towards $152.50-$152.

RSI remains in an uptrend after clearing key resistance at 80. Continued closes above this level keeps 85 in play and the oversold peak from last August. Support is at 75-70.

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The S&P 500 Volatility Index ($VIX) closed higher for the 6th time in 7 sessions after zooming to an intraday high of 49.48. Key resistance from February 2018 at the 50 level was challenged but held. There is potential risk towards 52.50 and the September 2015 high at 53.29 if the 50 level is breached.

Rising but undefined support is at 40-37.50 followed by 32.50-30.

RSI remains in extremely overbought territory with resistance from February 2018 at 90 holding. Support is at 85-80 with a close below the latter signaling additional weakness towards 75-70.

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The iShares Russell 1000 (IWF) rebounded to close higher despite trading to a low of $161.47. Late October and upper support at $161.50-$161 was breached but levels that held. A close below $160 would be an ongoing bearish signal with additional pullback potential towards $158-$157.50.

The close above the 200-day moving average keeps near-term resistance at $168-$168.50 in play with additional hurdles at $169.50-$170. A close above the $172.50 level would signal a possible near-term bottom.

RSI may have also bottomed after holding key and oversold support near 20 and a level last seen in October 2018 and September 2015. In each occurrence, a strong rebound resumed in a short period of time. Resistance is at 25-30 with retest potential towards 35-40 on a move back above 30.

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The Dow Jones Transportation Average ($TRAN) extended its losing streak to 6-straight sessions after tapping a fresh 52-week low of 9,127. Prior and upper support from December 2018 at 9,200-9,100 was breached but held. A close below the latter would be an ongoing bearish development with additional weakness towards 9,000-8,900.

Current and lowered resistance is at 9,400-9,500. Continued closes above 9,700-9,800 and prior support levels from early October would be a slightly bullish signal of a near-term bottom.

RSI is showing signs of leveling out after falling below key support at 20. This level was tested and held in October and December 2018 along with September 2015. Resistance is at 25-30.

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The percentage of S&P 500 stocks trading above the 200-day moving average closed at 23.96% on Friday, down 8.51%, with the session low reaching 16.83%. Upper support from December 2018 at 17.5%-15% was breached but held. A move below the latter would signal additional weakness towards 10% and a level that was tested last May. Lowered resistance is at 25%-27.5% with Friday’s high at 24.15%. Continued closes above the 30% level would be a slightly bullish signal for a retest towards 32.5%-35%.

The percentage of Nasdaq 100 stocks trading above the 50-day moving average average settled at 34.95%, down 4.85%, with the session low tapping 24.27%. Prior support from January 2019 at 30%-27.5% was tripped but levels that held held. A close below the 25% level would be an ongoing bearish signal with additional weakness towards 22.5%-20%. Lowered resistance is at 37.5%-40% with a close above the latter and last Thursday’s low of 39.8% being a bullish signal for a gap higher towards 45%-50%.

One of the key takeaways I mentioned from Friday morning’s update is that I wanted to see was the VIX push 50 and stick and it was exactly what we got. Now, this doesn’t mean a near-term bottom has been reached but chances are there will be a substantial rebound over the near-term from current oversold levels.

The market went from overbought to oversold at the fastest pace ever so the technical picture over the near-term favors the bulls. I also mentioned February usually provides a buying opportunity and that March is typically a bullish month.

The problem is, for a true bottom to be reached, a rebound, followed by another pullback likely needs to occur. The major focus for Monday’s open will be for the small-caps to hold the 1,450 level while seeing the VIX hold 50 and possibly closing lower.

A weaker open on Monday, without lower lows, and a steady rise into the closing bell would be ideal. If the reverse happens, with the Russell 2000 falling below 1,448 and the VIX clearing 50, an additional 3%-5% pullback come and where we see a capitulation moment.

The options market is also pricing in a near-term bottom as bid/ask prices have widened on a number of stocks and index ETFs. This means we will need to use strict limit orders to ensure we get the prices we want. 

In any event, I have both bullish and bearish trades ready to deploy that come come as early as today. If I take action, I will send out an email and text alert.

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, $28.50, down $0.63)

BAC April 34 calls (BAC200417C00034000, $0.20, flat)

Entry Price: $0.40 (2/26/2020)

Exit Target: $0.80

Return: -50%

Stop Target: None

Action: Prior and upper support from early October at $28-$27.75 was taken out but levels that held. Lowered resistance is at $28.75-$29.

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AT&T (T, $35.22, down $0.51)

T March 39 calls (T200320C00039000, $0.20, up $0.05)

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

Exit Target: $1.00

Return: -60%

Stop Target: None

Action: The options actually closed a nickel higher despite Friday’s pullback. 

Shares sank to a low of $33.01 on Friday with prior and upper support at $33.25-$33 getting breached but levels that held. Lowered resistance is at $35.50-$35.75 and the 200-day moving average.

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