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

Bulls Get Weekly Win Despite Whipsaw Action

8:00am (EST)

The market ended the week on a 2-session losing streak with the major indexes pushing the prior Friday’s lows. The major indexes held near-term support levels, for the most part, with the small-caps testing a fresh 52-week low.

The blowout jobs numbers had little effect on the market as the negative action deepened late into the session with volatility rising to its highest level since the summer of 2015. The final hour bounce off the lows was a slightly bullish signal and gave the bulls the overall weekly win. However, the technical outlook remains bearish with a retest towards oversold levels likely coming over the near-term.

The Russell 2000 was down 2% after testing a 2-year low of 1,417 while closing just below the 1,450 level. Longer-term and upper support from December 2018 at 1,425-1,400 was breached but held with a move below the latter opening risk towards the 1,385-1,370 area.

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The Nasdaq stumbled 1.9% with the late day low tapping 8,375 on the close just below the 8,600 level. Current support at 8,400-8,350 was split but held with a close below the latter signaling a retest towards 8,300-8,250 and prior Friday’s low of 8,264.

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The S&P 500 sank 1.7% following the intraday pullback to 2,901 while closing back below the 3,00 level. Prior and upper support at 2,975-2,950 was breached and failed to hold with a move below the latter getting 2,875-2,850 and last Friday’s low at 2,855 in play.

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The Dow dropped 1% after trading to a low of 25,226 while closing just south of the 26,000 level. Near-term support at 25,500-25,250 was breached but levels that held with a close below the latter reopening risk towards 24,750-24,500 with the late February low at 24,681.

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For the week, the Dow gained 1.8% and the S&P 500 added 0.6%. The Nasdaq edged up 0.1% while the Russell 2000 fell 2%.

Energy and Financials were the weakest sectors on Friday after sinking 5.6% and 3.4%, respectively, while Materials and Technology were lower by 2.6% and 2.1%. There was no sector strength.

Over the past 5 sessions, Utilities (7.9%), Consumer Staples (6.1%) and Healthcare (4.9%) were the best performing sectors. Energy (-6.1%) was the worst performing sector followed by Financials (-3.9%) and Communication Services (-1.9%).

In economic news, Nonfarm Payrolls surged 273,000 in February, versus forecasts of 175,000, and matching January’s revised numbers. The unemployment rate fell back to 3.5%, a 50-year low, versus 3.6% previously. The labor force declined -60,000 versus the prior 50,000 gain. Household employment bounced 45,000 from -89,000. Earnings rose 0.3%, with a steady 3% year-over-year growth rate. Hours worked rose to 34.4 from 34.3. Private payrolls jumped 228,000. Employment in the goods producing sector rose 61,000 last month, with construction adding 42,000. The manufacturing sector rose 15,000. The service sector added 167,000 jobs with strength in education/health and a 54,000 increase, along with leisure/hospitality’s 51,000 gain. The government added 45,000, with help from some census hiring. The labor force participation rate was steady at 63.4% in January. The BLS said there was no impact from coronavirus.

Wholesale Trade fell 0.4% in January, missing estimates for a dip of 0.2%, but sales jumped 1.6%. December inventories were revised down to -0.3%, while sales were bumped up to -0.2%. The big jump in sales lowered the inventory-sales ratio from 1.36 down to 1.33.

U.S. trade deficit trade deficit narrowed -6.7% to -$45.3 billion January following the 11% December jump to -$48.6 billion. Exports dipped -0.4% to $208.6 billion following a prior 0.9% increase to $209.5 billion. Imports dropped -1.6% to $253.9 billion versus December’s 2.6% pop higher to $258.1 billion. The “real” goods deficit was -$77.7 billion versus -$80 billion previously. Excluding petroleum, the deficit narrowed to -$45.4 billion versus -$48.9 billion. The trade balance with China widened to -$26.1 billion versus -$24.8 billion while the balance with Canada shrunk to -$2.8 billion versus -$5.1 billion.

Baker-Hughes Rig Count reported the U.S. rig count is up 3 rigs to 793, with oil rigs up 4 to 682, gas rigs down 1 to 109, and miscellaneous rigs unchanged at 2. The U.S. Rig Count is down 234 rigs from last year’s count of 1,027, with oil rigs down 152, gas rigs down 84, and miscellaneous rigs up 2 to 2. The U.S. Offshore Rig Count is up 1 to 23 and up 1 year-over-year. 

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session and 3 of the past 4 after zooming to an intraday high of $169.33. Uncharted territory and lower resistance at $169-$169.50 was cleared but held with a move above the latter signaling momentum towards $170-$172.50.

Current and rising support is at $165-$164.50. A close below $164 would signal a near-term peak with backtest potential towards $162.50-$160.

RSI is in an uptrend with overbought and lower resistance at 80-85 getting cleared and holding with the latter representing the high from last August. Support is at 75-70 on a move back below 80.

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The S&P 500 Volatility Index ($VIX) extended its winning streak to 3-straight sessions after surging to an intraday high of 54.39. July 2015 resistance at 52.50 was breached but held with risk towards 60-65 and 2008 levels on a move above 55.

New support at 40-37.50 followed by 35-32.50.

RSI remains in an uptrend with resistance at 75-80. Support is at 70-65 with a move below the latter signaling additional weakness towards 60-55.

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The Spider Small-Cap 600 ETF (SLY) was down for the 2nd-straight session after tumbling to an intraday and 52-week low of $60.26. Prior and upper support from December 2018 at $60.50-$60 was breached but held. A close below the latter would be an ongoing bearish development with risk towards $58.50-$58.

Lowered resistance is at $62-$62.50 with additional hurdles at $63.50-$64. 

RSI remains in a downtrend after failing key support at 30. There is risk towards 25-20 and oversold levels from October 2018 on continued closes below the 30 level. Resistance is at 35-40.

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The Spider S&P Retail ETF (XRT) also extended its losing streak to 2-straight sessions after trading to a low of $39.13. Upper support from last August at $39.50-$39 was breached and failed to hold. A close below the latter would be an ongoing bearish signal with additional pullback potential towards $37.50-$37 and the 52-week low at $37.46.

Lowered resistance is at $39.50-$40 followed by $40.50-$41.

RSI is in a downtrend after failing upper support at 30-25 with the latter representing the late February low. Resistance is at 35 with a close above this level signal strength towards 40-45.

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The percentage of S&P 500 stocks trading above the 200-day moving average closed at 32.67% on Friday, down 3.96%, with the session low reaching 24.35%. Prior Friday support at 30%-25% was breached but levels that held. A close below the latter would signal additional weakness towards 20%-17.50% and the latter representing the late February low. Lowered resistance is at 35%-37.50%.

The percentage of Nasdaq 100 stocks trading above the 50-day moving average average settled at 17.47%, down 4.86%, with the session low tapping 10.67%. December 2018 and upper support at 15%-10% was tripped but held. A close below the latter would be an ongoing bearish signal with additional weakness towards 5%-0% and the latter representing August and December 2015 bottoms. Lowered resistance is at 17.5%-20%.

A retest of the late February lows remains in play and a necessary part of any potential bottoming process. Friday’s late rebound was mildly encouraging but volatility remains highly elevated after trading to a 5-year peak. 

Obviously, there will need be more upside follow-through to start the week to determine if a short-term bottom is being formed and why Monday’s close will be crucial. If the fresh lows come into play, there could be another round of intense selling pressure before a true buying opportunity presents itself.

I was aggressive on last week’s open and we made slight profits in 2 trades in a day. However, the higher gaps and cascading lows have been very difficult to trade. I have often mentioned timing market tops and bottoms is also extremely hard and requires some patience. I mention this because I don’t think a bottom has been reached. 

We were basically in cash when the mid-February tumble began and our current trades cost less than $1 in premium. However, the premiums in put options have become super inflated for the major indexes as well as a number of individual stocks.

If new lows are reached today, I think there is a good chance for another 3%-5% pullback from current levels, that could come quick, with the VIX pushing the 70-75 level. This would nearly put all of the major indexes into bear market territory and where we will have to see if the bulls make a stand. 

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, $13.06, down $0.33)

RMBS April 15 calls (RMBS200417C00015000, $0.25, down $0.05)

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

Exit Target: $0.90

Return: -44%

Stop Target: None

Action: Friday’s low tapped $12.76 with prior and upper support at $13-$12.75 getting breached but holding. Lowered resistance is at $13.25-$13.50 and 200-day moving average.

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AT&T (T, $37.03, down $0.15)

T March 39 calls (T200320C00039000, $0.25, down $0.05)

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

Exit Target: $1.00

Return: -50%

Stop Target: None

Action: Shares traded down to $36.18 with upper support at $37-$36.75 getting breached but holding. Lowered resistance is at $37.25-$37.50.

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