MomentumOptions.com Pre-Market Update for 3/17/2020
Bears Push Fresh 52-Week Lows
The market was halted at the start of Monday’s action and for the 3rd time in 6 sessions on resurgent coronavirus fears. The fallout started on Sunday night as futures were slammed following the Fed’s emergency 100 basis point emergency easing that lowered rates to 0%-0.25%.
Volatility jumped to highest level since 2008, surpassing the 52-week peak seen last week as the Fed’s move did little to calm nerves. Meanwhile, gold, treasury yields and crude oil prices also settled lower, adding to the ongoing woes facing the market.
The Russell 2000 dropped 14.3% after testing a fresh 52-week low of 1,035 ahead of the closing bell. Prior support from March 2016 at 1,035-1,025 was breached but held with a move below the latter signaling risk towards 1,010-1,000.
The Dow declined 12.9% with the afternoon 52-week low tapping 20,116. Longer-term and upper support from February 2017 at 20,250-20,000 was breached and failed to hold with a close below the latter signaling additional weakness towards 19,750-19,500.
The Nasdaq gave back 12.3% after testing a late session and 52-week low of 6,882. Prior and upper support from January 2019 at 6,900-6,850 was breached but held with a move below the latter signaling additional downside risk towards 6,800-6,750.
The S&P 500 was lower by 12% following the intraday pullback to 2,380 and new 52-week low. December 2018 and upper support at 2,400-2,375 was tripped and failed to hold with a close below the latter getting 2,350-2,325 in play.
Financials were the weakest sector after tanking 15.5% while Technology and Materials lost 14% and 13.1%, respectively. There was no sector strength.
In economic news, Empire State Manufacturing Survey dropped a record -34.4 points to -21.5 in March. It’s the lowest since the -33.7 from March 2009, and compares to the record low of -34.3 from February 2009. New orders plunged -31.4 points to -9.3 to lead the weakness. The workweek fell -9.6 points to -10.6, with employment falling -8.1 points to -1.5. Prices paid dipped to 24.5 from 25 with prices received at 10.1 versus 16.7. The 6-month index fell to 1.2 versus 22.9. The future employment index was at 10.2 from 15, with the workweek at 3.6 versus 8.3, and new orders at 17.6 from 27.5. Prices paid dipped to 34.5 from 37.9 with prices received at 17.3 from 22.7. Capex fell to 18.7 from 22.
The Federal Reserve lowered the target range for the federal funds rate to 0%-0.25% in light of the view that the effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. Additionally, to support the flow of credit to households and businesses over coming months, the Fed will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion.
The iShares 20+ Year Treasury Bond ETF (TLT) rebounded to close higher for the 2nd time in 3 sessions after testing an intraday high of $166.15. Prior and lower resistance at $166-$166.50 was cleared but held with additional hurdles at $167-$167.50.
Current and rising support is $162.50-$162 with backup help at $160-$157.50.
The S&P 500 Volatility Index ($VIX) was up for the 3rd time in 4 sessions and 6 of the past 8 after tagging another fresh 52-week high of 83.56. Longer-term and key resistance from August 2008 at 80 was breached and failed to hold. Continued closes above the latter keeps upside risk towards 90 in focus and the all-time high from 2008.
Fresh support is at 75-70 followed by 65-60. Continued closes below 50 would be a more bullish development volatility is somewhat easing.
The Russell 2000 ETF (IWM) settled lower for the 3rd time in 4 sessions after trading to a fresh 52-week low of $101.43. Longer-term and upper support from June 2016 at $101.50-$101 was breached but held. A close below the latter would be an ongoing bearish development with additional selling pressure towards $100-$99.50.
Near-term and lowered resistance is at $104-$104.50 with additional hurdles at $106.50-$107.
RSI is back in an downtrend with support at 20 and the low from this month and late February. A move below this level would signal additional weakness towards 17.50-15 and lows from October 2018. Resistance is at 25-30.
The Industrials Select Sector Spider (XLI) fell for the 3rd time in 4 sessions and 7 of the past 9 with the morning and fresh 52-week low kissing $55.57. Prior and upper support from November 2016 at $56-$55.50 was breached and failed to hold. A close below the latter would be an ongoing bearish development with additional risk towards $54-$53.50.
Current and lowered resistance is at $56.50-$57 followed by $59.50-$60. Continued closes above the $63 level would be a slightly bullish signal for the start of a near-term bottom.
RSI is in a downtrend with support at 25-20 and the latter representing the monthly and February low. Resistance is at 30-35.
The weaker Monday continued a recent pattern of heavy selling pressure and the VIX is starting to show signs of topping out. However, a bottoming process could take another week, or two, and I’ve mentioned I would like to see the VIX close below 50 before adding possible new trades.
One stock I like at current levels is Limelight Networks (LLNW, $3.66, down $0.56) but there could be a drop to $3.25-$3, if $3.50 cracks. RSI is signaling oversold levels but could dip into the 20’s.
We made 222% in January using longer-term call options and I think we can mirror these gains again at some point this year. This is a content delivery company that has an impressive list of customers.
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.
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Rambus (RMBS, $9.26, down $1.07)
RMBS April 15 calls (RMBS200417C00015000, $0.10, down $0.10)
Entry Price: $0.45 (3/2/2020)
Exit Target: $0.90
Stop Target: None
Action: Shares tested a fresh 52-week low of $9.11 with new support at $9.25-$9 getting breached but holding. Lowered resistance is at $9.50-$9.75.