MomentumOptions.com Pre-Market Update for 3/26/2020
Tech Lags as Bulls Get 2nd-Straight Overall Win
The market recorded overall back-to-back wins for the 1st time in over a month following the announcement of a phase three deal on a $2 trillion relief package by the Senate. However, the full details of the bill are still unclear and Congress will still need to pass the measure.
While House Republicans are falling in line behind the Senate and are willing to allow quick passage of the plan, Bernie Sander has threatened to put a hold on the coronavirus package with others likely to follow. Volatility stayed elevated and the closes off the session highs continue to bear caution despite this week’s rebound.
The Dow was up 2.4% after testing an intraday high of 22,019. Near-term and lower resistance at 22,000-22,250 was cleared but held with continued closes above the 22,500 level signaling a possible run towards 22,750-23,000.
The Russell 2000 was higher by 1.3% after trading to a midday high of 1,146. Current and lower resistance at 1,135-1,150 was breached but held with a close above the latter signaling additional momentum towards 1,160-1,175.
The S&P 500 gained 1.2% with the intraday high reaching 2,571. New and lower resistance at 2,550-2,575 was cleared but held with a move above the latter signaling additional upside towards 2,600-2,625.
The Nasdaq bucked the trend after falling 0.5% and trading in a 395 point range. Current and lower resistance at 7,650-7,700 was breached but held on the afternoon trip to 7,671 and the opening pullback to 7,276.
Industrials led sector strength after rising 5.3% while Energy and Real Estate were up 4.7% and 4.4%. Communication Services Paced sector weakness after sinking 1.5% while Consumer Staples and Technology were lower by 0.3% and 0.1%.
In economic news, MBA Mortgage Applications dropped -29.4% last week, the largest slide since 2009, and follows the prior week’s -8.4% decline. However, the index is still up 72.3% year-over-year. The refi index declined -33.8%, and the purchase index fell -14.6%, following respective declines -10.4% and -0.9%. Nevertheless, refis are up 195.4% year-over-year while the purchase index is now down -11.2 year-over-year. Refis comprised 69.3% of the loans last week, compared to 74.5% previously. The 30-year mortgage rate rose to 3.82% from 3.74%.
Durable Goods Orders increased 1.2% in February after edging up 0.1% in January. Transportation orders climbed 4.6%, versus the prior -0.9% slide. Excluding transportation, orders were down -0.6% versus a 0.4% bounce, previously. Nondefense capital goods orders excluding aircraft fell -0.8% following the prior 1% January rebound. Shipments were up 0.8% versus -0.1%. Nondefense capital goods shipments excluding aircraft dropped -0.7% after rising 1.1% previously. Inventories were unchanged in February following a -0.1 dip in January. The inventory-shipment ratio fell to 1.72 in February versus 1.74 in the prior two months.
FHFA House Price Index rose 0.3% to 284.4 in January, missing forecasts for a rise of 0.4%, and follows the 0.7% December increase to 283.5. The index is up 5.2% year-over-year, down from the 5.4% clip previously. The 12-month changes were all positive for the nine census divisions, paced by a 6.4% year-over-year rate for the South Atlantic division, with the Middle Atlantic bringing up the rear with a 4.1% year-over-year pace.
The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 2nd-straight session despite trading to an intraday high of $166.68. Near-term and lower resistance at $166.50-$167 was cleared but held. A close above the latter would be a bullish signal for a retest toward $167.50-$168.
Current support is at $162.50-$162 followed by $163-$162.50. A close back below the $160 level would signal another near-term top.
The S&P 500 Volatility Index ($VIX) extended its winning streak to 2-straight sessions after tapping an opening high of 68.86. Lower resistance at 67.50-70 was breached but held. A close above the latter would be a renewed bearish development for a retest towards 75-80.
The midday fade to 58.03 challenged upper support at 57.50-55 but a level that held. Continued closes below the 50 level would be a very bullish signal for a continued market rebound.
The Invesco QQQ Trust (QQQ) had its 2-session winning streak snapped on the opening fade to $179.98. Current and upper support at $180-$179.50 was breached but held. A close below the latter would signal additional weakness with backtest potential towards $177-$175.
Near-term and lower resistance at $189.50-$190 was cleared but held on the midday rebound to $189.51. Continued closes above the latter would be a slightly bullish signal with retest potential towards $195-$197.50 and the 200-day moving average.
RSI has leveled out with current resistance at 45-50. A move above the latter and key support throughout the back half of January would signal additional strength towards 55-60. Support is at 40 with weakness towards 35-30 on a move back below this level.
The Consumer Discretionary Select Spiders (XLY) extended its winning streak to 3-straight sessions following the intraday surge to $101.07. Current and lower resistance at $101-$101.50 was cleared and held. A close above the $102.50 level would be an ongoing bullish signal for additional strength towards the $105 area.
Near-term support is at $97-$96.50. Another move below the $95 level would signal additional weakness towards $92.50-$90.
RSI remains in a slight uptrend with resistance at 45-50. A move above the latter would signal additional momentum towards 55-60. Support is at 40 with risk towards 35-30 on a close back below this level.
The fade of yesterday’s highs was a concerning signal and late night futures were showing a slightly lower to start today’s session. Although news that the Senate passed the bill late last night, all the stimulus in the world isn’t going to restart the global economy. National lockdowns, which now cover a third of the world’s population, persists so choppiness will likely comtinue.
This isn’t necessarily a bad thing, it just means we have to take profits when we can while continuing to use tight Limit Orders and Stop Limits. AT&T is a prime example on how we can use the current trading environment to make super quick profits while exercising strict trading discipline.
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.
AT&T (T, $28.40, up $0.31)
T June 30 calls (T200619C00030000, $1.60, up $0.35)
Entry Price: $1.05 (3/24/2020)
Exit Target: $3 (closed half at $2.30 on 3/25)
Stop Target: $1.50 (Stop Limit)
Action: The calls peaked at $2.57 yesterday and I wanted to take advantage of the triple-digit profits by closing half of the trade. The current market environment was also another reason and I wasn’t happy with the pin action in the stock after we locked-in profits.
Wednesday’s peak reached $29.93 with fresh and lower resistance at $29.75-$30 getting cleared but holding. Shares lost a lot of steam into the closing bell with current support now at $28.25-$28.
If shares fall below $28.25 today, the Stop Limit on the other half of the trade will trigger. If you don’t have a Stop Limit in place, close the trade, regardless, if shares fail to hold the $28 level.
Limelight Networks (LLNW, $4.68, down $0.23)
LLNW June 5 calls (LLNW200619C00005000, $0.65, down $0.10)
Entry Price: $0.50 (3/18/2020)
Exit Target: $1.00
Stop Target: 50 cents (Stop Limit)
Action: Shares traded down to $4.59 with upper support is at $4.60-$4.50 getting tripped but holding. Lowered resistance is at $4.80-$4.90.
Rambus (RMBS, $11.41, up $0.60)
RMBS April 15 calls (RMBS200417C00015000, $0.25, up $0.05)
Entry Price: $0.45 (3/2/2020)
Exit Target: $0.90
Stop Target: None
Action: Lower resistance at $11.75-$12 was cleared but held on yesterday’s pop to $11.99. Rising support is at $11.25-$11.