MomentumOptions.com Pre-Market Update for 3/4/2020
Fed Cuts Interest Rates but Bears Return/ Profit Alerts (INTC, XLK)
The market was choppy throughout Tuesday’s session following a surprise half-point rate cut from the Fed shortly after the open. The Fed said fundamentals of the U.S. economy remain strong but the coronavirus poses evolving risks to economic activity.
Not surprisingly, the major indexes recovered from the earlier declines but turned south again following comments from Fed Chair Powell an hour afterwards. Lower lows afterwards and a negative close may be suggesting the Fed wasted 2 bullets trying to surprise the market ahead of the mid-month meeting.
The Nasdaq lost 3.2% with the afternoon low reaching 8,602. Current and upper support at 8,600-8,550 was challenged but held with a move below the latter signaling additional weakness towards 8,450-8,400 and the 200-day moving average.
The S&P 500 sank 3% while testing a 2nd half low of 2,976 and closing back below its 200-day moving average. Fresh and upper support at 3,000-2,975 was breached but held with a move below the latter signaling a retest towards 2,950-2,925.
The Dow declined 2.9% following the intraday pullback to 25,706. Near-term and upper support at 25,750-25,500 was breached but held with a close below the latter reopening risk towards 25,250-25,000.
The Russell 2000 was lower by 2.2% after testing a midday low of 1,472 while closing back below the 1,500 level. Prior and upper support from at 1,475-1,450 was tripped but held with a move below the latter and the recent 52-week low of 1,448 getting 1,435-1,420 in focus.
Financials and Technology were the weakest sectors after tanking 3.8% while Communications Services and Energy dropped 3.3% and 3%, respectively. There was no sector strength.
In economic news, Chain Store sales fell -0.3% last week versus the modest 0.1% bounce in the prior week. Sales have been choppy so far this year, and the report noted that consumer spending only dipped back slightly despite the worries over the coronavirus and the spillover effects. The 12-month pace slowed to 2.1% year-over-year versus 2.8% previously.
Fed Chair Powell said the Fed’s been carefully monitoring the coronavirus situation and came to the view that it was time to act. He added there has been a broader spread of the virus, including more cases in the U.S. but it was the risk to the outlook for the economy that prompted the move now.
Powell said no one really knows how long the virus effects will last and that the Fed is in active discussions with other central banks. The G7 statement was an acknowledgement of coordination at high levels.
Powell reiterated the economy is strong and that analysts will get through this. Analysts do like our current policy stance and think it is appropriate, and the Fed will continue to use its tools as appropriate. He said the economy is performing well, and he hasn’t seen much disruption to the economy yet, as financial markets are still functioning in an orderly manner.
The virus outbreak will require a multi-faceted response, including fiscal, businesses, with a role for monetary policy as well, Powell said. He added the rate cut won’t solve various issues, but it should provide a meaningful boost to the economy, and will avoid a tightening of financial conditions, as well as support household and business confidence.
The iShares 20+ Year Treasury Bond ETF (TLT) bounced back after trading to an intraday a fresh all-time high of $159.70. New and lower resistance at $159.50-$160 was breached but held. A close above the latter would signal additional momentum towards $161-$161.50.
Current support remains at $154-$153.50 with backtest help at $152.50-$152.
The S&P 500 Volatility Index ($VIX) was higher for the 3rd time in 4 sessions despite trading to a first half low of 24.93. Shaky and upper support at 25-22.50 was breached but held.
The surge to 41.06 afterwards breached near-term and lower resistance at 40-42.50 but a level that held. A close above the latter keeps upside risk towards 47.50-50 in play.
The Invesco QQQ Trust (QQQ) had its 2-session winning streak snapped following the intraday pullback to $207.62. Current support at $207.50-$205 was challenged but held. A move below the latter would be a renewed bearish development for a retest towards $202.50-$200 and the 200-day moving average.
Near-term resistance is at $212.50-$215 was cleared and held with additional hurdles at $219.50-$220. A close above the $221 level and the 50-day moving average would signal a possible near-term bottom.
RSI is back in an downtrend with current and upper support at 40-35 failing to hold. A move below the latter would signal backtest potential towards 30-25. Resistance is at 45-50 with the latter representing key support throughout the back half of January.
The Health Care Select Sector Spider (XLV) was down for the 6th time in 7 sessions despite testing an opening high of $98.89. Lower resistance at $98.50-$99 was cleared but held
The fade to $93.27 afterwards breached the 200-day moving average and upper support at $93.50-$93 but levels that held. A close below $92.50 would likely signal a another near-term top with additional selling pressure towards $90.50-$90 with last Friday’s low at $89.98.
RSI is back in a downtrend with upper support at 35-30 failing to hold. A move below the latter would signal a retest towards 25-20 and last week’s lows. Resistance is at 40 with a close above this level signaling additional strength towards 45-50.
I had a good feeling the market would remain choppy and our Stop Limits for INTC and XLK were tripped yesterday. Option premiums remain highly elevated so we need to be careful with adding new positions.
I would like to,see the VIX retest 50 with the major indexes holding last Friday’s lows. However, a break below these levels, and a VIX close above 50, would be renewed bearish developments but one that should create another buying opportunity as oversold levels come back into play.
As usual, if I take action, I will send out an email along with a Text Alert.
Momentum Options Play List
Closed Momentum Options Trades for 2020: 13-1 (93%). 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.
Intel (INTC, $55.91, down $2.21)
INTC March 60 calls (INTC200320C00060000, $0.60, down $0.50)
Entry Price: $0.60 (3/2/2020)
Exit Target: $1.80, lower to $1.20 (Limit Order on half)
Stop Target: 75 cents (Stop Limit)
Action: The Stop Limit at 75 cents was hit yesterday.
I was a tad greedy after trying to get $1.80. The options peaked at $1.29 and where we could have locked-in triple-digits.
Rambus (RMBS, $14.07, down $0.23)
RMBS April 15 calls (RMBS200417C00015000, $0.45, down $0.05)
Entry Price: $0.45 (3/2/2020)
Exit Target: $0.90
Stop Target: None
Action: Shares tested an intraday high of $14.64 with lower resistance at $14.50-$14.75 getting cleared but holding. The fade to $13.96 clipped upper support at $14-$13.75 but a level that held.
Technology Select Spiders (XLK, $89.93, down $3.55)
XLK April 97 calls (XLK0417C00097000, $1.20, down $0.60)
Entry Price: $1.20 (3/2/2020)
Exit Target: $2.40
Stop Target: $1.25 (Stop Limit)
Action: The Stop Limit at $1.25 tripped after the options peaked at $1.93 with the low reaching $1.16.
Bank of America (BAC, $27.75, down $1.62)
BAC April 34 calls (BAC200417C00034000, $0.10, down $0.10)
Entry Price: $0.40 (2/26/2020)
Exit Target: $0.80
Stop Target: None
Action: Prior and upper support at $27.75-$27.50 was breached but held on Tuesday’s tumble to $27.62. Lowered resistance is at $28-$28.25. We will like;y exit the position if shares fail to hold $27 this week.
AT&T (T, $36.30, down $0.88)
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 $35.87 with upper support at $36-$35.75 getting breached but holding. Resistance is at $36.50-$36.75.