MomentumOptions.com Pre-Market Update for 3/12/2020
Dow Falls Into Bear Market Territory
The market weak throughout Wednesday’s session as worries over the impact of the coronavirus were again in focus, with reported cases in the states now over 1,000. New York set up the country’s first containment area around one of the largest outbreaks, centered on the town of New Rochelle.
The overall losses were the 12th in the past 15 sessions for the market with Monday and Tuesday’s lows failing to hold. The major indexes joined the small-caps in hitting bear market territory following the losses and remain troublesome signs along with volatility which closed back above the 50 level.
The Russell 2000 plummeted 6.4% after testing a new 52-week low of 1,249. Prior support from December 2018 at 1,265-1,250 was breached on the close below the former with a move below the latter getting 1,240-1,225 in focus.
The Dow declined 5.9% following the intraday pullback to 23,328 and fresh 52-week low. Current and upper support at 23,500-23,250 was breached but held with a close below the latter signaling risk towards 23,000-22,750.
The S&P 500 stumbled 4.9% with the second half and 52-week low tapping 2,707. Near-term and upper support at 2,725-2,700 was triggered but held with a close below the latter getting 2,675-2,650 in play.
The Nasdaq gave back 4.7% following the afternoon backtest to 7,850. Current and upper support at 7,900-7,850 was tripped but held with a move below the latter signaling additional weakness towards 7,800-7,750.
Industrials and Consumer Discretionary were the weakest sectors after falling 5.9% and 5.5%, respectively, while Financials and Real Estate tumbled 5.4%. There was no sector strength.
In economic news, MBA Mortgage Applications zoomed 55.4%, after the 15.1% jump in the prior week. Most of the strength was in refis, not surprisingly, with the index skyrocketing 78.6% following the 26% gain previous. It’s accelerated to a 479.2% year-over-year clip from 223.6% previously. The index is at its highest level since April 2009, and is up 192.4% year-over-year versus the 95.7% pace the prior week. The purchase index rebounded 5.6% last week following the prior -2.7% decline. The index is 11.8% year-over-year higher compared to the 10.3% pace previously recorded. The average 30-year fixed rate mortgage fell to 3.47%, matching the prior record low, from 3.57% previously.
Consumer Price Index edged up 0.1% for the headline and 0.2% on the core, matching expectations, after respective gains of 0.1% and 0.2% in January. The 12-month headline pace slowed to 2.3% year-over-year versus 2.5% previously, with the core rate accelerating to 2.4% year-over-year compared to 2.3%. The energy component declined -2% from -0.7% previously, with gasoline down -3.4%. The food index increased 0.4%, with food at home rising 0.5%, its largest gain since May 2014. Shelter and medical care services were up 0.3%. Apparel was up 0.4% following the prior 0.7% gain. Recreation dipped -0.3% after gains over the prior 4 months.
The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 2nd-straight session despite trading to a morning high of $157.03. Lower resistance at $167-$167.50 was breached but held.
The plunge to $155.63 in the final hour held fresh support at $155.50-$155. A close below the latter would signal a further backtest towards $153-$152.50 and prior support to start the month.
The S&P 500 Volatility Index ($VIX) showed strength for 4th time in 5 sessions after testing an intraday high of 55.82. Lower resistance at 55-57.50 was cleared but held with a move above the latter signal a retest towards 60-62.50 with the current 52-week peak at 62.12.
Current and rising support is at 52.50-50 followed by 47.50-45.
The iShares Russell 1000 (IWF) fell for the 5th time in 7 sessions following the late day tumble to $156.06. Prior and upper support from Monday and mid-October at $156-$155.50 was challenged but held. A close below the $155 level would be an ongoing bearish signal with retest potential towards $154-$153.50 and the early October low at $153.64.
Near-term and lowered resistance is at $159.50-$160 with additional hurdles at $162-$162.50.
RSI is back in a downtrend after falling below upper support at 35-30. A close below the later would signal additional weakness and a retest towards 25-20. Resistance is at 40-45.
The Utilities Select Spider (XLU) reversed course with Wednesday’s low tapping $59.97. Current and upper support from early August at $60-$59.50 was tripped but held. A close below the latter would be an ongoing bearish development with additional pullback potential towards $57-$56.50 and the 52-week low at $56.66.
Lowered resistance is at $61.50-$62 with more important hurdles at $62.50-$63 and the 200-day moving average.
RSI is back in a downtrend after failing upper support at 35-30. A close above the latter would signal additional weakness towards 25-20 with the latter representing the late February low. Resistance is at 40-45.
Futures are showing another nasty open of roughly 5% so it is looking like the rest of the week will be a wash. With 2018 levels coming into play, extremely oversold levels are coming into play so a buying opportunity may be presenting itself by early next week. Although we had a couple of trades go south on us, we were mostly in cash BEFORE the selloff and have protected the profits we worked hard to get the first 6 weeks of the year.
The bid/ask prices remain wide for virtually all stocks and index funds and I don’t see this changing until the VIX falls below 50 again and holds for several days. In the meantime, stay patient as an incredible buying opportunity using longer-term call options is starting to present itself.
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, $11.47, down $0.60)
RMBS April 15 calls (RMBS200417C00015000, $0.15, down $0.10)
Entry Price: $0.45 (3/2/2020)
Exit Target: $0.90
Stop Target: None
Action: Shares tapped a low of $11.21 with fresh and upper support at $11.25-$11 getting clipped but holding. Lowered resistance is at $11.75-$12.
AT&T (T, $34.52, down $1.33)
T March 39 calls (T200320C00039000, $0.10, down $0.10)
Entry Price: $0.50 (2/19/2020)
Exit Target: $1.00
Stop Target: None
Action: Close the trade to save the remaining premium.
These options expire next Friday and I don’t see shares making a run at $40 by then. This breaks a string of 15-straight wins in AT&T call options dating back to the start of last year.