MomentumOptions.com Pre-Market Update for 3/6/2020

Choppy Action Continues as Coronavirus Fear Rises

8:00am (EST)

The market continued its see-saw action with another down day after the World Health Organization reported that the number of coronavirus cases reported worldwide has moved above 95,000 and the number of deaths linked to the illness is now over 3,000. 

The House has passed a roughly $8.3 billion emergency spending package for fighting the coronavirus outbreak, sending the legislation to the Senate. Meanwhile, California was the 3rd state to declare a state of emergency, joining Washington and Florida.

The Dow plummeted 3.6% following the intraday pullback to 25,943. Near-term and upper support at 26,000-25,750 was breached but held with a close below the latter reopening risk towards 25,500-25,250.

The Russell 2000 gave back 3.4% after testing a session low of 1,462 while closing back below the 1,500 level. Prior and upper support at 1,475-1,450 was but held with a move below the latter and the recent 52-week low of 1,448 getting 1,435-1,420 in focus.

The S&P 500 also stumbled 3.4% after testing a late day low of 2,999 while closing back below its 200-day moving average. Prior and upper support at 3,000-2,975 was breached but held with a move below the latter getting 2,950-2,925 back in play.

The Nasdaq tanked 3.1% with the afternoon low reaching 8,677. Current support at 8,700-8,650 was split but held with a move below the latter signaling additional weakness towards 8,550-8,500.

Industrials and Financials were the weakest sectors after sinking 4.9% and 4.8%, respectively, while Consumer Discretionary and Energy dropped 3.7%. There was no sector strength.

In economic news, Initial Jobless Claims slipped -3,000 to 216,000 following the 8,000 increase to 219,000 in the prior week. The 4-week moving average rose to 213,000 versus 209,750. Continuing claims were up 7,000 to 1,729,000 after the prior -11,000 drop to 1,722,000.

Challenger Job-Cut Report announced layoffs fell -11,100 in February to 56,700 following January’s 34,900 increase to 67,700. Compared to last February, announced job cuts are down -26.3% year-over-year versus a 27.8% pace previously. Technology has led all sectors with planned layoffs year-to-date of 24,100, with 10,200 announced last month. Retail announced the second highest level in February of 8,100. Announced hirings increased 65,000 to 88,200, led by retail’s 80,000 increase.

Nonfarm Productivity was revised down to a 1.2% Q4 growth rate versus the 1.4% clip in the preliminary data. Q4 output was lowered to 2.4% versus the 2.5% from the preliminary, and 2.3% in Q3. Employee hours were revised up to 1.2% versus the preliminary 1.1% Q4 print, and compared to 2.7% in Q3. Compensation per hour was knocked down to 2.1% from the 2.8% preliminary Q4 reading and -0.1% in Q3. Labor costs declined to 0.9% from 1.4% preliminary and Q3’s 0.2% print. The year-over-year pace held at a 1.8% rate from the preliminary, and is slightly higher than the 1.6% clip from Q3.

Factory Orders dropped -0.5% in January, with inventories dipping -0.1%. Transportation orders fell -2.1% versus the prior 8.8% jump in December. Excluding transportation, factory orders slipped -0.1% from December’s 0.6% gain. Non-defense capital goods orders excluding aircraft bounced 1.1% versus -0.8% in December. Nondefense capital goods shipments ex-aircraft rose 1% versus -0.4% previously. The inventory-shipment ratio held at 1.40 for a 5th-straight month.

The iShares 20+ Year Treasury Bond ETF (TLT) rebounded to trade to an intraday high of $158.82. Near-term and lower resistance at $158.50-$159 was cleared and held with additional hurdles at $159.50-$160 and the all-time high at $159.70.

Current support is at $157.50-$157 followed by $154.50-$154.

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The S&P 500 Volatility Index ($VIX) was up for the 2nd-straight session and for the 4th time in 5 sessions after zooming to an intraday high of 42.84. Prior and lower resistance at 40-42.50 was breached but held with risk towards 45-47.50 on a move above the latter. A close above the 50 level would be a very bearish development for the maeket

New support at 37.50-35 followed by 32.50-30.

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The S&P 400 Mid Cap Index ($MID) was down for the 2nd-time in 3 sessions after testing an intraday low of 1,811. Near-term and upper 1,825-1,800 was breached but held. A close below the latter would signal a retest towards the 1,775 level with the recent 52-week low at 1,771.

Lowered resistance at 1,850-1,875. Continued closes back above the 1,900 level would be a more bullish signal of a near-term bottom with more important hurdles at 1,925-1,950 and the 50-day moving averages.

RSI is in a downtrend with upper support at 35-30 failing to hold. A close below the latter would signal risk towards 25-20 with the latter representing the late February low. Resistance is at 40.

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The iShares PHLX Semiconductor ETF (SOXX) flip-flopped for the 7th-straight session following the afternoon pullback to $234.08. Current and upper support at $234-$233.50 was challenged but held. A close below the latter keeps near-term and downside risk towards $232.50-$230 in play.

Lowered resistance is at $237-$237.50 with additional hurdles at $240-$240.50. Continued closes above the $245 level would signal the beginning of a possible near-term bottom.

RSI is back in a downtrend with key support at 40. A close below this level reopens downside pressure towards 35-30 with the latter representing the late February low. Resistance is at 45-50.

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The current action remains a coin flip on if a bottom is in, or lower lows come into play. Friday’s have been bearish for the past 6 weeks as traders have been hesitant to hold long positions over the weekend.

The portfolio remains light as this week’s seesaw action has just been best to wait out. We did have 2 profitable trades this week but I’m closing BAC this morning given how far out-of-the-money our call option have become. I’m still holding out for T but the options expire in 2 weeks. RMBS is a longer-term trade for April but I wasn’t happy with yesterday’s price action.

Futures were lower after midnight so I’m expecting a weak open. If last Friday’s lows are taken out, I could have New Trades today so stay lock-and-loaded throughout the session in case I take action.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 13-2 (87%). 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.

Rambus (RMBS, $13.39, down $0.77)

RMBS April 15 calls (RMBS200417C00015000, $0.30, down $0.15)

Entry Price: $0.45 (3/2/2020)

Exit Target: $0.90

Return: -33%

Stop Target: None

Action: Thursday’s low kissed $14.26 with prior and upper support at $13.25-$13 and 200-day moving average holding. Lowered resistance is at $13.50-$13.75.

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Bank of America (BAC, $26.78, down $1.43)

BAC April 34 calls (BAC200417C00034000, $0.05, down $0.05)

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

Exit Target: $0.80

Return: -87%

Stop Target: None

Action: Close the trade today to save the remaining premium. Although shares remain oversold, we can circle back at a later date. This was just our 2nd losing trade for 2020 and we lost 35 cents in premium. However, a loss is a loss and I was wrong trying to predict a bottom last week.

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AT&T (T, $37.18, down $1.00)

T March 39 calls (T200320C00039000, $0.30, down $0.10)

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

Exit Target: $1.00

Return: -40%

Stop Target: None

Action: Shares traded down to $36.97 with upper support at $37-$36.75 getting breached but holding. Lowered resistance is at $37.25-$37.50.

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