MomentumOptions.com Pre-Market Update for 3/23/2020

Bears Stay Aggressive on Double-Digit Weekly Pullback 

8:00am (EST)

The market showed strength through most of the morning but started stumbling midday after New York Governor Cuomo said he is instructing all employees in the state who do not work in essential businesses to remain home, and follows a similar announcement from California.

President Trump also announced the Mexican border, like the Canadian border, will be closed to non-essential travel starting this weekend. Meanwhile, the Fed announced new emergency measures to try to maintain financial liquidity in the face of the coronavirus crisis. 

The news flow, along with triple-witching, was a 1-2 punch that capped the worst week for the major indexes since October 2008. The major indexes avoided fresh 52-week lows but remain vulnerable despite volatility falling for the 2nd-straight session.

The Dow was down 4.6% following the late day backtest to 19,094. Upper support from at 19,000-18,800 was challenged but held with a move below the latter signaling additional risk towards 18,800-18,600 and the 52-week low at 18,917.

The S&P 500 was lower by 4.3% with the low reaching 2,295 ahead of the closing bell. Near-term and upper support at 2,300-2,280 was tripped but held with a close below the latter and last Wednesday’s 52-week low leading to a further pullback towards 2,250-2,225.

The Russell 2000 fell 4.2% after trading to a late day low of 1,009. Current and upper support from at 1,010-1,000 was breached but held with a close below the latter signaling a retest towards 970-960 with last week’s low at 966.

The Nasdaq gave back 3.8% after tapping a late session low of 6,854. Shaky but upper support at 6,900-6,850 failed to hold with a close below the latter getting 6,700-6,650 and the 52-week low at 6,686 back in focus.

For the week, the Dow sank 17.3% and the S&P 500 plummeted 15%. The Russell 2000 dropped 14.9% and the Nasdaq tanked 12.6%.

Utilities and Consumer Staples were the leading sector laggards after falling 7.9% and 6.5%, respectively, while Real Estate and Industrials lost 5.6% and 5%. Energy rose 1% and was the only sector that closed higher.

Over the past 5 sessions, there were no sectors that showed strength. Energy (-19.7), Industrials (-18.3%), Utilities (-17.1%) and Technology (-15.2%) were the worst performing sectors.

In economic news, Existing Home Sales rebounded 6.5% to 5,770,000 in February, topping forecasts of 5,500,000, following January’s -2% drop to 5,420,000. Single family sales climbed 7.3% after -1.8% January’s decline. Condo/coop sales were unchanged versus the -3.2% January drop. The monthly supply of homes was steady at 3.1, and up from 3 in December. The median sales price rose to $270,100 after falling in January to $266,200 and is up 8% year-over-year versus 6% previously.

New York Fed’s GDP Nowcast now stands at 1.49% for Q1, and 0.13% for Q2. These estimates were revised lower from the prior week projections of 1.59% and 1.08%, respectively.

Baker-Hughes reported the U.S. rig count was down 20 rigs from last week to 772, with oil rigs off 19 to 664, gas rigs down 1 to 106, and miscellaneous rigs unchanged at 2. The U.S. Rig Count is down 244 rigs from last year’s count of 1,016, with oil rigs lower by 160, gas rigs down 86, and miscellaneous rigs up 2 to 2. The U.S. Offshore Rig Count is unchanged at 19 and down 1 year-over-year.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session after closing on its session high of $159.43. Prior and lower resistance at $159-$159.50 was cleared and held. A close back above the $160 level would signal a retest towards $162-$162.50.

Current and rising support is at $158.50-$158. A move back below the $157.50 would signal another backtest towards $155-$152.50.

RSI is in an uptrend with resistance at 55 and the mid-month high. A move above this level would signal additional strength towards 65-70. Support is at 50 with weakness towards 45-40 on a move below this level.

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The S&P 500 Volatility Index ($VIX) traded in negative territory throughout the session with the morning low tapping 57.42. Key support at 55 held with continued closes below this level signaling weakness towards 50-45. Continued closes below the 40 level and resistance from late February would be a more bullish development for the market.

Lowered resistance is at 70. A close above the 75 level would signal a retest towards 80-85 with the latter holding for 4th-straight sessions last week.

RSI is in a downtrend with key support at 60 holding. A move below this level would signal additional weakness towards 55-50 with the latter representing support throughout the middle of February, for the most part. Resistance is at 65-70.

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The Spider S&P 500 ETF (SPY) zigzagged for the 7th-straight session after testing a morning high of $244.47. Near-term and lower resistance at $244.50-$245 was challenged but held with more important recovery hurdles at $247.50-$250.

Current and upper support at $228.50-$228 held on the late day low. A close below the latter and last week’s 52-week low at $228.02 would signal additional towards $225-$222.50 and levels from May 2017.

RSI is in a slight downtrend with key support at 30 holding into the close. A move below this level would signal weakness towards 25-20 with the latter representing the late February oversold low. Resistance is at 35-40.

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The Spider Gold Shares (GLD) snapped a 2-session slide after rebounding to test an intraday high of $141.17. Near-term and lower resistance at $141-$141.50 and the 200-day moving average were cleared but levels that held. A close above the latter would be a renewed bullish signal with upside potential towards $142-$142.50.

Current support is at $139-$138.50. A close below the $138 level would signal a retest towards $136.50-$136 with the latter holding since mid-November.

RSI is in a slight uptrend with lower resistance at 35-40 getting cleared and holding. A move above the latter would signal additional strength towards 45-50. Current and key support is at 30 and the monthly low. A move below this level would be a bearish signal with additional weakness towards 25-20 and oversold levels from August 2018.

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The percentage of S&P 500 stocks trading above the 200-day moving average closed at 2.97% on Friday, down 1.98%. Support at 2.50% held with risk towards 0% on continued weakness and a level last seen in early 2009. Resistance is at 5%-7.50%.

The percentage of Nasdaq 100 stocks trading above the 50-day moving average average settled at 2.91%, unchanged. Support is at 2.50% with risk towards 0% and the August and December 2015 low on continued weakness. Resistance is also at 5%-7.50%. 

A closer look at the numbers reveal the Dow is off 35.1% from its February 12th all-time high, while the S&P 500 is down 32% and the Nasdaq has lost nearly 30% from its peak. While these numbers alone suggest a buying opportunity, it wouldn’t be surprising to see another 10%-20% market pullback from current levels. 

It is important to remember the market can remain at oversold levels for weeks and months, just like it can remain at overbought levels. Heading into 2020, the latter was true and why I warned of the historical February fade. Although we haven’t made as much money trading the downside as I would have liked, going into straight cash in mid-February was the best advice I could have given you.

The market hasn’t had back-to-back winning sessions since mid-February and the lower Friday and Monday’s over the past 6 weeks have signaled money continues to move to the sidelines. These simple facts need to improve until a true bottoming process start to take place and some of the clues to look for in the coming weeks.

The good news is that all of this will get better. Fear and panic will subside and brighter days are ahead. In the meantime, stay healthy and stay focused.

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, $4.37, down $0.31)

LLNW June 5 calls (LLNW200619C00005000, $0.65, down $0.10)

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

Exit Target: $1.00

Return: 30%

Stop Target: None

Action: Shares tested a low of $4.26 with upper support at $4.30-$4.20 getting breached but holding. Lowered resistance is at $4.50-$4.60.

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Rambus (RMBS, $9.79, down $1.08)

RMBS April 15 calls (RMBS200417C00015000, $0.15, down $0.10)

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

Exit Target: $0.90

Return: -67%

Stop Target: None

Action: Prior and upper support at $9.75-$9.50 was breached but held on the backtest to $9.66. Lowered resistance is at $10-$10.25.

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