MomentumOptions.com Pre-Market Update for 3/13/2020
Bear Market Becomes Official
The market continued its downward spiral on Thursday after being halted shortly after the open. It was the second time this week circuit-breakers were triggered after hitting a 7% limit on the downside. Much of action was a reaction from President Trump’s travel limits from European countries, excluding the United Kingdom, into the country.
Airlines and Cruise-lines stocks were the hardest hit after one of the major companies in the space said it is voluntarily pausing all operations for the next 60 days. The losses put the Nasdaq and S&P 500 into bear market territory for the first time since the financial crisis of 2008.
The Russell 2000 plummeted 11.2% following the ongoing selloff to a 52-week low of 1,128. Prior support from October 2016 at 1,140-1,125 was breached and failed to hold with a move below the latter getting 1,115-1,100 in play.
The Dow tanked 10% after testing an intraday low of 21,154 and fresh 52-week low. Longer-term and upper support from August 2017 at 21,250-21,000 was breached and failed to hold with a close below the latter signaling additional weakness towards 20,750-20,500.
The S&P 500 sank 9.5% with the midday and 52-week low tapping 2,478. January 2019 and upper support at 2,500-2,475 failed to hold with a close below the latter getting 2,450-2,425 in focus.
The Nasdaq was hammered for 9.4% following the intraday pullback to 7,194 and new 52-week low. Prior and upper support from May 2019 at 7,200-7,150 was breached but held with a move below the latter signaling additional risk towards 7,100-7,050.
Energy was the weakest sectors after getting crushed for 12.5% while Financials Industrials were down 10.8% and 10.4% respectively. There was no sector strength.
Initial Jobless Claims declined -4,000 to 211,000 following the prior week’s -4,000 decline to 215,000. The 4-week moving average edged up to 214,0–from 212,750. Continuing claims declined 11,000 to 1,722,000 after the 11,000 rise to 1,733,000 in the prior week.
Producer Price Index for February fell -0.6%, with the core rate sliding -0.3%, versus 0.5% increases for both in January. On a 12-month basis, the headline index decelerated to a 1.3% year-over-year rate versus a 2.1% pace previously, while the core rate slowed to 1.4% year-over-year compared to 1.7% from January. Prices in the goods sector declined -0.9% versus the prior 0.1% gain, with energy tumbling -3.6% after a -0.7% drop in January. Food prices dropped -1.6% versus 0.2% previously. Service sector prices were down -0.3% versus 0.7%.
The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 2-session slide after soaring to an intraday high of $166.36. Lower resistance at $166-$166.50 was breached but held with additional hurdles at $167.50-$168.
Current support is at $157.50-$157. A close below the latter would signal a retest towards $155.50-$155.
The S&P 500 Volatility Index ($VIX) closed higher for the 2nd-straight session and for the 5th time in 6 sessions after trading an intraday and 52-week high of 76.83. Longer-term and lower resistance from August 2008 at 75-80 was cleared but held. A close above the latter could lead to a quick pop towards the 90 area and the all-time high from 2008.
Current and rising support is at 72.50-70 followed by 67.50-65.
The Wilshire 5000 Composite Index ($WLSH) was down for the 2nd-straight session and for the 5th time in 7 after trading in a fresh 52-week low of 24,901. Longer-term and upper support at 25,000-24,750 was breached and failed to hold. A close below the latter would signal a continued pullback towards 24,500-24,250 and levels from December 2018.
Current and lowered resistance at 26,000-26,250 followed by 26,500-26,750.
RSI remains in a downtrend with upper support 25-20 getting breached and failing to hold. A close below the latter and last month’s low would signal additional weakness towards 15 and the August 2018 low. Resistance is at 30.
The Materials Select Sector (XLB) fell for the 5th time in 6 sessions after testing an intraday and fresh 52-week low of $42.37. Prior and upper support from October 2017 at $42.50-$42 was breached but held. A close below the latter would be an ongoing bearish development with additional weakness towards $41.50-$41.
Lowered resistance is at $44-$44.50 with additional hurdles at $45.50-$46.
RSI remains in a downtrend with support at 20 and the late February low. Close below,this level would signal risk towards 15 and the September 2018 low. Resistance is at 25-30.
The point losses for Thursday’s session were the worst ever and I’ve been talking about an exploding VIX for 2 weeks. The 20+% pullbacks in the major indexes came at the fastest rate in stock market history and I’m hoping the VIX pushes two 90’s today (the other is RSI – relative strength index).
This would signal a possible overbought “double-top” in the VIX, and from there, we can see if the action starts to settle down. However, the charts still look scary bearish with “death crosses” continuing to form on nearly every stock and ETF. A death cross forms when the 50-day moving average falls below the 200-day moving average and usually is a signal of lower lows forthcoming.
In any event, a short-term rally appears to be on the horizon if the aforementioned action plays out as planned. It’s has been extremely hard to remain patient during this time period as our last trade was 11 days ago. At the time, we were trying to see if the market would hold a 10% correction but I knew when these levels were breached there would be a test towards the current 20% selloff.
While I was hoping for a more orderly selloff, it has also been a relief to be in cash, but I know that doesn’t help for those of you that want action. I hate losing trades more than I love winning trades and I don’t trade just to trade. On that note, let’s see how today plays out, along with Monday, to see if it will be safe to start nibbling again.
Momentum Options Play List
Closed Momentum Options Trades for 2020: 13-3 (81%). 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, $9.74, down $1.73)
RMBS April 15 calls (RMBS200417C00015000, $0.10, down $0.05)
Entry Price: $0.45 (3/2/2020)
Exit Target: $0.90
Stop Target: None
Action: Shares tapped a 52-week low of $9.72 with fresh and upper support at $9.75-$9.50 getting breached and failing to hold. A close below the latter will likely force us out of the trade. Lowered resistance is at $10-$10.25.