MomentumOptions.com Pre-Market Update for 3/20/2020

Volatility Settles Lower

8:00am (EST)

The market showed continued weakness on Thursday but avoided another round of fresh 52-week lows as weaker-than-expected economic news weighed on sentiment. The impact of the coronavirus starting to show in the labor market but the rebound off the opening lows and higher closes were slightly encouraging developments. 

Volatility continues to show a topping out phase and signs of a market capitulation are also starting to show up. However, Friday’s (and most Monday’s) have been weak over the past month and usually signals money is moving out of the market so this trend needs to improve, as well.

The Russell 2000 zoomed 6.8% after trading to a session high of 1,069. Near-term and lower resistance at 1,050-1,065 was cleared and held with a close above the latter signaling ongoing strength towards 1,070-1,085.

The Nasdaq jumped 2.3% with the 2nd half high tapping 7,341. Current and lower resistance at 7,350-7,400 was breached but held with a close above the latter signaling a retest towards 7,450-7,500.

The Dow was higher by 1% after trading to an intraday high of 20,442. Current and lower resistance at 20,250-20,500 was tripped but held with continued closes above the latter signaling additional strength towards 20,750-21,000.

The S&P 500 climbed 0.5% following the late day push to 2,466. Fresh and lower resistance at 2,450-2,475 was cleared but held with a move above the latter getting 2,500-2,525 back in focus.

Energy and Consumer Discretionary led sector strength after soaring 6.8% and 3.5%, respectively, while Materials rallied 2.6%. Utilities and Consumer Staples were the leading sector laggards after falling 5.8% and 3.3%, respectively.

In economic news, Jobless Claims surged 70,000 to 281,000 after falling -6,000 to 211,000 in the prior week. The gain left claims at the highest level since September 2017 with the 4-week moving average rising to 232,250 from 215,750 previously. Continuing claims rose 2,000 to 1,701,000, following an -21,000 decline to 1,699,000 previously. was 1,722k).

Philadelphia Fed Business Outlook Survey plunged a record 49.4 points to -12.7, the lowest reading since July 2012, after jumping 19.7 points to 36.7 in February. The employment component slid to 4.1 from 9.8 while new orders dropped to -15.5 from 33.6. Prices paid tumbled to 4.8 from 16.4, with prices received more than halved to 6.8 from 17.1. The 6-month index fell to 35.2 from 45.4. The future employment index rose to 29.8 from 24, with new orders at 36.7 from 54. The future prices paid index dropped to 18.5 from 32.2, and prices received at 21.5 from 37.9. Capex sank to 12 from 29.8.

The U.S. current account deficit narrowed to -$109.8 billion n Q4, versus forecasts of -$109.5 billion, after flattening slightly to -$125.4 billion in Q3. The Q4 goods and services deficit dropped to -$139.9 billion from -$158.4 billion. The goods deficit widened to -$202.8 billion from -$220.9 billion. The services surplus was $62.9 billion versus $62.5 billion and the primary income surplus increased to $67.3 billion from $65.9 billion. The deficit on secondary income eroded to -$37.3 billion versus -$32.9 billion in Q3.

Leading Indicators edged up to 112.1 in February from 112 in January, and a new record high. The biggest positive contribution came from the average workweek (0.20%), followed by consumer expectations (0.13%). The largest negative contributions came from building permits (-0.17%) and ISM new orders (-0.12%).

The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 2-session slide after trading to an intraday high of $153.45. Lower resistance at $153.50-$154 was cleared but held with a close above the latter signaling additional strength towards $155-$155.50.

Current support is at $147.50-$147 and the 50-day moving average. A move back below the latter would signal a retest towards $145.50-$145.

sc.png

The S&P 500 Volatility Index ($VIX) seesawed for the 6th-straight session despite testing an opening high of 84.26. Major resistance at 85 held for the 4th-straight session with a close above this level leading to a possible pop towards 90 and the all-time high from August 2008.

Current and upper support at 70-67.50 held following the fade to 68.57 afterwards with additional recovery levels at 65-60. A close below the latter ahead of the weekend would be a slightly bullish signal for next week.

sc_1.png

The Spiders Dow Jones Industrial Average ETF (DIA) also flip-flopped for the 6th-straight session after trading to an intraday high of $204.98. Current and lower resistance at $204.50-$205 was tripped but held with additional hurdles at $207-$207.50.

Near-term but shaky support is at $200.50-$200 followed by $197.50-$197. A close below the latter would be a renewed bearish development with retest potential towards $192.50-$190 and Wednesday’s 52-week low at $189.67.

The 50-day moving average is on track to fall below the 200-day moving average and would form a death cross if breached. This typically signals lower lows down the road.

RSI is back in a slight uptrend with resistance at 35. A close above this level would signal additional strength towards 40-45 with the former representing the monthly peak. Support is at 30 with retest potential towards 25-20 on a close back below this level.

sc_2.png

The Real Estate Select Sector Spider (XLRE) was down for the 2nd-straight session despite trading to an intraday peak of $29.54. Fresh and lower resistance at $29.50-$29.75 was breached but held. A close above the $30 level would be an slightly bullish development with additional hurdles at $30.50-$30.75. 

Near-term support remains at $28.25-$28 following the opening fade to the latter and the 52-week low from last Thursday.

RSI is in a downtrend with key support at 30 holding. A close below this level would signal additional weakness towards 25 and the December 2018 low. Resistance is at 35-40.

sc_3.png

I have updated our current trades so let’s go check the tape.

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, $4.68, up $0.78)

LLNW June 5 calls (LLNW200619C00005000, $0.75, up $0.30)

Entry Price: $0.50 (3/18/2020)

Exit Target: $1.00

Return: 50%

Stop Target: None

Action: Shares tested a high of $4.70 with lower resistance at $4.75-$5 getting challenged but holding. Resistance is at $4-$4.25. 

sc_4.png

Rambus (RMBS, $10.87, up $0.94)

RMBS April 15 calls (RMBS200417C00015000, $0.25, up $0.15)

Entry Price: $0.45 (3/2/2020)

Exit Target: $0.90

Return: -46%

Stop Target: None

Action: Thursday’s peak reached $11.19 with current and lower resistance at $11-$11.25 getting breached but holding. Shaky support is at $10.75-$10.50.

sc_5.png