MomentumOptions.com Pre-Market Update for 3/18/2020
Bulls Bounce Back but Volatility Remains Extremely Elevated/ New Trade (LLNW)
The market rebounded on Tuesday following the massive declines on Monday although trading remained choppy amid the relentless uncertainty around the coronavirus. Strength came after the Fed and other parts of the federal government announced a number of steps to try to blunt the impact of the coronavirus on the economy.
Among those measures, the Fed reintroduced some crisis-era tools to stabilize financial markets while Treasury Secretary Mnuchin said the administration is looking at sending checks to Americans immediately. He added that Americans need cash now and in the next two weeks from the sizable $800 billion stimulus package.
The Russell 2000 advanced 6.7% while closing at its session peak of 1,106. Near-term and lower resistance at 1,100-1,115 was tripped but held with a close above the latter leading to a possible run towards 1,125-1,140.
The Nasdaq gained 6.2% following the midday run to 7,406. Near-term lower and lower resistance at 7,400-7,450 was breached but held with a close above the latter signaling a retest towards 7,500-7,550.
The S&P 500 was higher by 6% with the session high tapping 2,553. Fresh and lower resistance at 2,550-2,575 was cleared but held with a move above the latter being a slightly bullish signal for additional strength towards 2,600-2,625.
The Dow rose 5.2% after trading to an intraday high of 21,379. Current and lower resistance at 21,250-21,500 was cleared and held with continued closes above the latter signaling additional strength towards 21,750-22,000.
Utilities were the strongest sector after zooming 12.8% while Consumer Staples and Technology rallied 8.4% and 6.8%, respectively. There was no sector weakness.
In economic news, Chain Store Sales slipped -0.5% last week, following an unchanged print in the prior week. However, compared to the same week last year, sales jumped to a 3% year-over-year clip, from 0.9%.
Retail Sales for February dropped -0.5% overall and fell -0.4% ex-autos, below expectations for a rise of 0.2% for both, following respective January gains of 0.6%. Sales excluding autos, gas, and building materials slipped -0.1% after a prior 0.4% gain. Vehicle sales declined -0.9% from the prior 0.8% gain. Gas station sales tumbled -2.8% from -0.4%. Building materials slid -1.3% after rising 3.3% previously. Clothing sales fell 1.2% versus -1.4%. Food/beverage sales were flat from -0.2%. Non-store retailers were one of the few gainers, rising 0.7% from the prior 0.2% gain. Eating/drinking sales dipped -0.5% versus the previously 0.8% gain.
Industrial Production rose 0.6% in February, topping forecasts for a print of 0.4%, and follows January’s decline of -0.5%. Capacity utilization rose to 77% after falling to 76.6% previously. Manufacturing edged up 0.1% last month after slipping -0.2% in January. Motor vehicle and parts production climbed 3.5% versus January’s 1.3% gain. Excluding vehicles/parts, manufacturing dipped -0.2% after falling -0.3% preciously. Utilities rebounded 7.1% following the -4.9% drop in January. Mining slumped -1.5% from the previous 1% gain.
Business Inventories dipped -0.1% in January, with sales rising 0.6%, matching forecasts. The inventory-sales ratio dropped to 1.38 versus 1.39 and the lowest since March 2019.
JOLTS reported a 411,000 bounce in January to 6,963,000, stronger than expectations for 6.4 million, following a -241,000 decline to 6,552,000 in December. The rate jumped back to 4.4% after falling to 4.1% previously. Hirings declined -103,000 to 5,824,000 following a 70,000 rise to 5,927,000. The rate dipped to 3.8% from 3.9%. Quitters were up 4,000 to 3,532,000 in January after a flat December reading of 3,528,000. The rate was steady at 2.3%.
Housing Market Index slipped 2 points to 72 in March following the 1 point decline to 74 in February. The present single family index dropped to 79 from 81 while the future sales declined to 75 from 79. The index of prospective buyer traffic slid to 56 from 57.
The iShares 20+ Year Treasury Bond ETF (TLT) showed weakness for the 2nd time in 3 sessions after tapping a late day low of $152.71. Prior and upper support at $153-$152.50 was breached and failed to hold with a close below the latter would signal additional weakness towards $150.50-$150.
Lowered resistance is at $154.50-$155 with additional hurdles at $157.50-$158.
The S&P 500 Volatility Index ($VIX) fell for the 2nd time in 3 sessions despite testing a new 52-week high of 84.83 shortly after the open. Longer-term resistance and the all-time high of 90 from August 2008 continues to hold.
The fade to 70.37 cleared upper and near-term support at 75-70, but a level that held, with additional recovery levels at 65-60. Continued closes below 50 would be a more bullish development volatility is somewhat easing.
The S&P 400 Mid Cap Index ($MID) showed strength despite testing a fresh 52-week low of 1,309 shortly after the open. Longer-term and upper support from March 2016 at 1,325-1,300 was breached but held. A close below the latter would signal weakness towards 1,275-1,250.
The rebound to 1,404 cleared and held new resistance at 1,400-1,425. Continued closes above the 1,450 level would be a more bullish signal of a near-term bottom with additional hurdles at 1,500-1,525.
RSI is back in a slight uptrend after recovery key resistance at 30. Continued closes above this level would signal additional short-term strength towards 35-40. Support is at 25 with a close below this level signaling a retest towards 20 and the recent low.
The iShares MSCI Emerging Markets Fund (EEM) showed strength for the 2nd time in 3 sessions after closing on its session high of $33.81. Fresh and lower resistance at $33.75-$34 was cleared and held. A close above the latter would be a slightly bullish signal for a retest towards $34.25-$34.50.
Current support is at $33.50-$33.25. A close below the latter would signal a retest towards $32.25-$32 with Monday’s 52-week low at $31.59.
RSI is in an uptrend with key resistance at 35. A move above this level would signal additional strength towards 40-45 with the latter representing the monthly peak. Support is at 30-25.
Folks, it has been frustrating not trading options over the past couple of weeks but I’ve been trying to give you stock picks that could bounce over the near-term. For instance, yesterday I mentioned Limelight Networks (LLNW, $4.43, up $0.77) was my current and favorite safety stock and shares zoomed 21% yesterday.
I’m still looking at opening a longer-term position in LLNW with options and have included special instructions for today’s open for a possible new trade.
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.
Limelight Networks (LLNW, $4.43, up $0.77)
Buy to Open LLNW June 5 calls (LLNW200619C00005000, $0.50, up $0.15)
Action: I like these call options at current levels and you can use a Limit Order up to 60 cents on the open to get the best fills. These are the regular LLNW June 5 calls that expire on June 19th, 2020. If the calls open above 60 cents, VOID the trade.
Rambus (RMBS, $10.75, up $1.49)
RMBS April 15 calls (RMBS200417C00015000, $0.15, up $0.05)
Entry Price: $0.45 (3/2/2020)
Exit Target: $0.90
Stop Target: None
Action: Shares zoomed to a high of $10.79 with fresh resistance at $10.75-$11 getting cleared and holding. New support is at $10.25-$10.