MomentumOptions.com Pre-Market Update for 3/10/2020
Market Suffers Biggest Point Declines in History
The market slammed on Monday’s open following an overnight plunge in oil and were halted within 5 minutes of trading. The 7% selloff in the S&P 500 automatically triggered circuit breakers with trading resuming 15 minutes afterwards.
The action stablized with the major indexes bouncing back 1%-2% following the biggest gap lower in 12 years. The price war between Saudi Arabia and Russia dragged down crushed the Energy sector as the oil worries added to the ongoing fears regarding the still-expanding coronavirus outbreak.
The Russell 2000 was punished for a loss of 9.4% following the intraday tumble to 1,310. December 2018 and upper support at 1,315-1,300 was tripped and failed to hold with a close below the latter getting 1,285-1,270 in focus.
The Dow declined 7.8% after trading to a 1st half and fresh 52-week low of 23,706. Prior and upper support from January 2019 at 24,000-23,750 was breached and failed to hold with a close below the latter signaling additional risk towards 23,500-23,250.
The S&P 500 stumbled 7.6% with the morning low tapping 2,734 while closing below the 2,800 level. May 2019 and upper support at 2,750-2,725 was violated but with a move below the latter getting 2,700-2,675 in play.
The Nasdaq cratered 7.3% after testing a low of 7,943 shortly after the open while closing back below its 200-day moving average. Prior and upper support from last September at 7,950-7,900 was breached but held with a close below the latter signaling additional weakness towards 7,850-7,800.
Energy was the weakest sector after crumbling 20.1% while Materials and Industrials were hammered for 9.4% and 9.2%, respectively. There was no sector strength for the 2nd-straight session.
After the closing bell, the U.S. federal financial institution regulators and state regulators encouraged financial institutions to meet the financial needs of customers and members affected by the coronavirus. The statement said agencies recognize the potential impact of the coronavirus on the customers, members, and operations of many financial institutions and will provide appropriate regulatory assistance to affected institutions subject to their supervision.
Regulators noted that financial institutions should work constructively with borrowers and other customers in affected communities. Prudent efforts that are consistent with safe and sound lending practices should not be subject to examiner criticism. The agencies understand that many financial institutions may face current staffing and other challenges.
In closing, the statement said in cases in which operational challenges persist, regulators will expedite, as appropriate, any request to provide more convenient availability of services in affected communities. The regulators will also work with affected financial institutions in scheduling examinations or inspections to minimize disruption and burden.
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 3rd-straight session after soaring to an intraday and fresh all-time high of $179.70. Uncharted territory and lower resistance at $179.50-$180 was cleared but held with a move above the latter signaling possible momentum towards $182-$182.50.
Current and rising support is at $170-$170.50. A close below the latter would signal a possible blowoff top with pullback potential towards $167.50-$165.
The S&P 500 Volatility Index ($VIX) extended its winning streak to 3-straight sessions after zooming to an intraday high of 62.12. Longer-term and lower resistance from 2008 at 60-62.50 was breached but held with risk towards 65-70 on a move above the latter.
Near-term and rising support is at 52.50-50 followed by 47.50-45.
The Spiders Dow Jones Industrial Average ETF (DIA) extended its losing streak to 3-straight sessions following the drop to $237.17 shortly after the open. Prior and upper support from March 2018 at $237.50-$237 was breached but held. A close below the latter would be an ongoing bearish development with retest potential towards $235.50-$235.
Current and lowered resistance is at $239.50-$240 with additional hurdles at $242.50-$243.
RSI remains in a downtrend with prior support from late February at 25-20 holding with the latter also representing the December 2018 low. Resistance is at 30-35.
The Energy Select Sector Spider (XLE) was down for the 3rd-straight session after falling to an intraday low of $33.73. Upper support from September 2004 at $34-$33.50 was breached and failed to hold. A close below the latter would be an ongoing bearish signal with additional risk towards $32.50-$32.
Near-term and lowered resistance is at $34.50-$35 followed by $36-$36.50.
RSI is in a severe downtrend following the close below key support at 15. A test towards the 10 area and the low from August 2001 could be tested on additional weakness. Near-term resistance is at 20 with continued closes above this level signaling a rebound towards 25-30.
While yesterday’s continued selloff was alarming to the talking heads and market pundits, the action is just what I have been predicting since mid-February. This is why we haven’t traded too much over the past few weeks although I’m disappointed we haven’t participated in the downdraft.
Simply put, the put option premiums for stocks and ETF’s have been extremely inflated and the whipsaw action has been incredibly hard to trade. We did take profits in 2 trades last week, but I was hesitant to start fresh positions as I still expect a further possible pullback of 3%-5%.
At Monday’s lows, the major indexes were roughly 17% off their all-time highs, in less than 2 weeks. The downward velocity has came at one of the fastest paces in market history but bear markets are defined as a selloff of 20%, or more.
If these levels are reached this week, then I will likely start nibbling with longer-term call options with expiration dates out into May and June. April options expire mid-month and on the 17th so there is not much time premium built into them. Additionally, 1Q earnings season gets underway next month and when companies will report results and 2020 updates.
In summary, I’d rather sit on the sidelines as much of the selling action has already taken place. We have gotten off to another incredible start to begin a New Year with two 200+% and two 100+% winners and the last thing I want to do is give up profits. Although my trigger finger remains itchy, we just need to be a little more patient as I don’t believe a true capitulation moment has been reached. When it occurs, I will know and when we will start nibbling.
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Text Alerts go out during live market hours (along with an email) and includes New Trades and Profit Alerts so I want to make sure everyone is on board for the next batch of trades. Additionally, the newsletter comes out Daily at 8am (EST) every day the market is open.
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, $11.77, down $1.29)
RMBS April 15 calls (RMBS200417C00015000, $0.20, down $0.05)
Entry Price: $0.45 (3/2/2020)
Exit Target: $0.90
Stop Target: None
Action: Shares sank to a low of $11.64 with prior and upper support at $11.75-$11.50 getting breached but holding. Lowered resistance is at $12-$12.25.
These options have 38 days before expiration but have an incredible wide bid/ ask spread with the latter at 39 cents. There is no need to close out the position until next month so continue to hold.
AT&T (T, $34.69, down $2.34)
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: Monday’s low tapped $34.38 with prior and upper support at $34.50-$34 getting breached but holding. Lowered resistance is at $35-$35.25.
These options expire in 10 days, or on next Friday’s close, and shares will need to make a run towards $40 by then. We have been on a 15-0 run with AT&T since the start of last year but this trade could end that streak. The good news is these were cheap options so we are only down 35 cents.
This was our last trade from February when shares were making a run at a possible double-top breakout. Let’s see how the next few days play out before possibly closing and saving the remaining premium.