MomentumOptions.com Pre-Market Update for 3/16/2020
Bulls Bounce Back, but Bears Win Week
The market zoomed higher to start Friday’s session following liquidity injections from the Fed while expectations for near-term fiscal action and a possible agreement for a virus spending bill also helped sentiment. The aid would include sick pay, free coronavirus testing and other resources, to help address the impact of the epidemic.
However, the rally faded shortly afterwards but still held positive territory as the market braced for comments from the President ahead of the closing bell. Trump declared a national emergency due to the coronavirus outbreak with the declaration making $50 billion available for use to respond to the outbreak.
The final 30 minutes of action provided another strong surge to the upside with the indexes closing at session peaks after the President said interest on all federal student loans will also be waived until further notice, and that the U.S. will be purchasing oil for its strategic reserves.
The Dow jumped 9.4% with the late day peak reaching 23,189. Current and lower resistance at 23,000-23,250 was cleared and held with continued closes above the 23,500 level signaling a possible retest towards 23,750-24,000.
The Nasdaq was also up 9.4% after closing a point off its session high of 7,875. New and lower resistance at 7,850-7,900 was breached and held with a close above the latter signaling additional upside towards 7,950-8,000.
The S&P 500 soared 9.3% after settling on the session high of 2,711. Fresh and lower resistance at 2,700-2,725 was cleared and held with a move above the 2,750 level being a bullish signal for additional strength towards 2,775-2,800.
The Russell 2000 rallied 7.8% while closing on its session high of 1,210. Near-term and lower resistance at 1,200-1,215 was recovered with a close above the latter leading to a possible push towards 1,225-1,240.
For the week, the Dow was down 10.4% and the S&P 500 stumbled 8.8%. The Nasdaq crumbled 8.2% and the Russell 2000 was down 8%.
Financials and Technology led sector strength after advancing 13.2% and 11.7%, respectively, while Energy and Communication Services were up 9.2% and 9%. There was no sector weakness.
Over the past 5 sessions, there were no sectors that closed strength. Energy (-24.2), Financials (-23%), Utilities (-19.2%) and Consumer Discretionary (-17.3%) were the worst performing sectors.
In economic news, Import Prices fell -0.5% versus a flat reading in January while Export Prices dropped -1.1% after rising 0.6%. On a 12-month basis, import prices are contracting at a -1.2% year-over-year pace versus 0.3% previously, and export prices are declining at a -1.3% year-over-year rate from 0.5%. For imports, petroleum prices dropped -7.6% following an unchanged reading in January. Excluding petroleum, prices edged up 0.2% versus the prior 0.1% print. Industrial supplies prices tumbled -2.6%. Foods, beverage prices increased 1.5%. Import prices with China were down -0.2% from unchanged, and dropped -2.8% with Canada versus 0.2% last month. For export prices, agriculture fell -2.7% from 2.1%. Ex-ag, prices slid -1% from the prior 0.6% gain.
Consumer Sentiment was down 5.1 points to 95.9 in the preliminary March survey from the University of Michigan, the lowest since October, and below forecasts for a reading of 98. Much of the damage was in the consumer expectations index which dropped to 85.3 from February’s 92.1. The current conditions index declined to 112.5 from 114.8 last month. The 12-month inflation gauge dipped to 2.3% versus 2.4% in February and 2.5% in January. The 5-year index was steady at 2.3% versus the 2.5% pace in January.
Baker-Hughes reported the U.S. rig count was down 1 rig to 792, with oil rigs up 1 to 683, gas rigs down 2 to 107, and miscellaneous rigs unchanged at 2. The U.S. Rig Count is down 234 rigs from last year’s count of 1,026, with oil rigs down 150, gas rigs down 86, and miscellaneous rigs up 2 to 2. The U.S. Offshore Rig Count is down 4 to 19 and down 3 year-over-year.
The iShares 20+ Year Treasury Bond ETF (TLT) fell for the 3rd time in 4 sessions after testing an intraday low of $152.19. Prior and upper support from the start of the month at $152.50-$152 was tripped but held. A close below the latter would signal an ongoing backtest towards $150.50-$150.
Lowered resistance is at $154.50-$155 with additional hurdles at $157-$157.50.
RSI remains in a downtrend with key support at 50 holding. A close below this level would signal additional weakness towards 45-40 and the latter representing the late December low. Resistance is at 55-60.
The S&P 500 Volatility Index ($VIX) fell for the first time in 3 sessions despite testing another fresh 52-week peak of 77.57. Longer-term and lower resistance from August 2008 at 75-80 was cleared but held for the 2nd-straight session. A close above the latter keeps risk towards 90 in the mix and the all-time high from 2008.
The drop to 55.17 into the closing bell pushed new support at 55-52.50. Continued closes below 50 would be a bullish signal of a possible near-term bottom for the market.
RSI is back in a downtrend with support 60. A move below this level would signal additional weakness towards 55-50. Lowered resistance is 65-70.
The Invesco QQQ Trust (QQQ) snapped a 2-session slide after trading to a late day high of $194.48. Near-term resistance at $194.50-$195 was challenged but held with additional hurdles at $197-$197.50. Continued closes above the $199 level and the 200-day moving average would be a more bullish development and signal a possible near-term bottom.
Current support is at $190.50-$190 with backup help at $187.50-$187. Another drop below the $185 level would signal a head fake.
RSI is back in an uptrend with current resistance at 40. A move above this level would signal additional strength towards 45-50 with the latter representing key support throughout the back half of January. Support is at 35-30. A close below 30 would be a renewed bearish signal with risk towards 25 and the December 2018 low.
The Financial Select Sector Spiders (XLF) bounced back to snap a 2-session losing streak after trading to an afternoon high of $23.09. Lower resistance at $23-$23.25 was cleared and held with additional hurdles at $23.75-$24. Continued closes above $24.25 would signal a possible near-term bottom with additional upside towards $25-$25.25.
Current support is at $22.75-$22.50 with backup up $22.25-$22.
RSI is back in a slight uptrend with lower resistance at 35-40 getting recovered. A move above the latter would signal continued strength towards 45-50. Support is at 30 with retest potential and additional weakness towards 25-20 if breached.
The percentage of S&P 500 stocks trading above the 200-day moving average closed at 11.48% on Friday, up 6.43%, and the session high. New and lower resistance at 10%-12.50% was cleared and held. A close above the 15% level would signal additional strength towards 17.5%-20%. Support is at 7.50%-5% with the latter representing the late 2008 and early 2009 low.
The percentage of Nasdaq 100 stocks trading above the 50-day moving average average settled at 1.94%, unchanged, and the session peak. Lower resistance at 2.5%-5% held with a move above the latter signaling a run towards 7.5%-10%. The percentage remains near 0% and represents the August and December 2015 bottoms.
Friday’s action was encouraging for the bulls but some follow thru needs to occur and hold again today to start a possible bottoming process. Another good sign was the drop 23% drop in volatility. However, I was still hoping 90 would trigger and the all-time high from 2008 with a flat or lower market close on Friday. The fact the VIX is still holding the 50 level remains a concern and Thursday’s action didn’t feel like a capitulation moment.
This leads me to believe any short-term rallies could be sold until the charts start to improve. I mentioned the majority of charts are showing 50-day moving averages remaining on track to fall below 200-day moving averages and to form death crosses. This is typically a bearish technical signal for lower lows down the road.
This type of technical pattern could improve on a strong and continued market rebound and the next week or so could provide a more defined outlook. In the meantime, the other technical signal that has emerged is that oversold levels are also back in play.
We made some quick profits from the prior week’s rebound following the February selling pressure but the whipsaw action was frustrating. We were on the sidelines last week, as I mentioned in last Monday’s commentary, I expected another 3%-5% pullback.
In any event, the volatility is providing an incredible trading opportunity to go long and short using call and put options. However, premiums remain juiced with wider bid/ask prices. For instance, ahead of Friday’s open, a call option on Intel (INTC) that was $5 out-of-the-money closed at $2.60 on Thursday. This would normally cost less than $1 if volatility was near historic levels of around 15-20.
Shares of INTC closed Thursday at $45.54 and zoomed nearly 20% on Friday to close north of $54. The INTC April 50 calls (INTC0417C00050000, $4.30, up $1.60) made a nice move higher but easily would have returned 200%-300% in a more “normal” market.
While I was targeting these specific calls on Friday, and some in Cisco Systems (CSCO), I just didn’t like the risk/ reward setup. With that said, I could have some New Trades today. However, until volatility gets at more reasonable levels, it will be imperative we use tight Limit Orders to open and close positions.
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, $10.33, up $0.59)
RMBS April 15 calls (RMBS200417C00015000, $0.20, up $0.10)
Entry Price: $0.45 (3/2/2020)
Exit Target: $0.90
Stop Target: None
Action: Friday’s high tapped $10.72 with new and lower resistance at $10.50-$10.75 getting cleared but holding. Support is at $10-$9.75.