MomentumOptions.com Pre-Market Update for 3/30/2020
Bulls Get Weekly Win Despite Friday Pullback/ Profit Alert (T)
The market closed lower for the 5th time over the past 6 Friday’s after three strong sessions that had, at one point, witness the Dow and S&P bounce 20% from their lows from the start of the week. Despite the pullback, and brief relief from bear market territory, the major indexes had a very strong week as the $2.2 trillion stimulus plan to combat the fallout from the coronavirus was approved ahead of the closing bell.
The Russell 2000 fell 4.1% following the first half pullback to 1,125. Current and upper support at 1,125-1,110 was breached but held with a move below the latter reopening risk towards 1,100-1,085.
The Dow was also down 4.1% after testing an intraday low of 21,469. Prior and upper support at 21,500-21,250 was tripped but held with a close below the latter signaling additional weakness towards 21,000-20,750.
The S&P 500 declined 3.4% with the opening low tapping 2,520. Near-term and upper support at 2,525-2,500 was breached but held with a move below the latter keeping downside risk towards 2,475-2,450 in play.
The Nasdaq gave back 3.8% following the backtest to 7,491 shortly after the open. New and upper support at 7,500-7,450 was punctured but held with a drop below the latter signaling additional risk towards 7,400-7,350.
For the week, the Dow zoomed 12.8% and the S&P 500 jumped 10.3%. The Russell 2000 rallied 10.1% and Nasdaq soared 9.1%.
Utilities and Real,Estate showed sector strength after rising 0.5% and 0.3%, respectively. Energy was the weakest sector after sinking 6.8% while Technology and Industrials were lower by 4.5% and 4.2%, respectively.
Over the past 5 sessions, Energy (18.7%), Utilities (16.4%), Industrials (14.6%) and Consumer Discretionary (12.1%) were the best performing sectors. There were no sectors that closed lower.
In economic news, Personal Income climbed 0.6% in February, with spending rising 0.2% versus January gains of 0.6% and 0.2%, respectively. Compensation increased 0.5% last month, as it did in January. Wages and salaries were up 0.5% as well, versus the prior 0.5% rise. Disposable income also increased 0.5% after the 0.6% January pop. The savings rate rose to 8.2% from 7.9% and is the highest since March 2019. The chain price index rose 0.1%, the same as in January. The core rate was up 0.2% after a 0.2% prior gain. On a 12-month basis, the headline was steady at 1.8% year-over-year, while the core rate accelerated slightly to 1.8% year-over-year versus 1.7%.
Consumer Confidence for March was revised down sharply to 89.1 versus the 95.9 preliminary print, and has dropped 11.9 points versus the 101 reading from February. The current conditions index declined to 103.7 (112.5 preliminary March) from February’s 114.8. The expectations component dropped to 79.7 (85.3 preliminary March) versus 92.1 last month. The 12-month inflation gauge slowed to 2.2% (2.3% preliminary) compared to February’s 2.4% print. The 5-year March inflation rate was steady at 2.3% (2.3% preliminary), as in February, though it was at a 2.5% pace in January.
Baker-Hughes reported the U.S. rig count was down 44 rigs to 728, with oil rigs lower by 40 to 624, gas rigs declining 4 to 102, and miscellaneous rigs unchanged at 2. The U.S. Rig Count is down 278 rigs from last year’s count of 1,006, with oil rigs off 192, gas rigs down 88, and miscellaneous rigs up 2 to 2. The U.S. Offshore Rig Count is down 1 to 18 and down 5 year-over-year.
Dallas Fed Robert Kaplan said all the bills, packages, and actions are for relief but he is not sure how inflationary this will be since it’s not really stimulus. He is not really worried about inflation and is more concerned the outcome of the coronavirus will be more deflationary.
Kaplan expects a substantial contraction in Q2. On an annualized basis, he thinks the unemployment rate might peak in the low to mid teens, but should quickly decline to about 7%-8% by the end of the year. He added a lot of this is too soon to gauge, but analysts will climb out of this. As for oil, which is big in his district, he now suspects production from the Permian Basin will shrink, rather than just slow.
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session and is showing signs of another breakout after testing a high of $168.25. Prior and lower resistance from earlier in the month at $168-$168.50 was cleared but held. Continued closes above the $170 level would be a more bullish signal for higher highs with additional momentum towards $172.50-$175.
Near-term and rising support is at $167.50-$167 with backup help at $165-$164.50. A close back below the latter would signal a false attempt of another breakout with additional weakness towards $162.50-$162.
RSI is curling higher after clearing key resistance at 60. Continued closes above this level would signal additional strength towards 65-70. Support is at 55-50.
The S&P 500 Volatility Index ($VIX) was up for the 3rd time in 4 sessions
with the intraday high reaching 69.10. Key resistance at 70 was challenged but held for the 3rd-straight session. A close above this level would be a bearish signal for a retest towards 75-80.
Current support has moved up to 62.50-60. A close below the 57.50 level to start the week would be a bullish signal for additional weakness towards 55-50.
Last week’s intraday plunge towards the 50-day moving average and low of 36.24 was an anomaly but an area that ultimately needs to be recovered before “normal” can possibly be considered – as far as volatility goes.
RSI has been flatlining with resistance at 60. Continued closes above this level would signal additional strength towards 65-70. Support is at 55-50 with a move below the 45 level being a more bullish signal for continued market strength.
The S&P 400 Mid Cap Index ($MID) had its 3-session winning streak snapped following the intraday fade to 1,403. Mid-month and prior support at 1,400-1,375 was challenged but held. A close below the latter would signal additional weakness towards 1,350-1,325.
Near-term resistance is at 1,450-1,475. Continued closes above the latter and the prior session high of 1,472 would be an ongoing bullish development of a bottom with additional hurdles at 1,500-1,525.
RSI is back in a slight downtrend with support at 40. A close below this level would signal a retest towards 35-30. Resistance is at 45-50.
The Spiders S&P Homebuilders ETF (XHB) fell for the 1st time in 4 sessions with the intraday low kissing $30.05. Current but shaky support at $30.25-$30 was breached but held. A close below the latter would signal additional weakness with backtest potential towards $28.50-$28.
Near-term resistance is at $31-$31.25. A close above the $31.50 level would signal additional upside towards $31.75-$32 with last Thursday’s peak at $32.06. The 50-day moving average has crossed below the 200-day moving average to form a death cross. This is typically a bearish signal for lower lows down the road.
RSI is showing signs of rolling over with support at 35-30. Key resistance is at 40 with a move above this level signaling a run towards 45-50 and the highs from earlier this month.
The percentage of S&P 500 stocks trading above the 200-day moving average closed at 5.94% on Friday, down 2.37%, and the session low. Upper support at 7.5%-5% was challenged but held with the latter representing the late 2008 and early 2009 low. Resistance is at 10%.
The percentage of Nasdaq 100 stocks trading above the 50-day moving average average settled at 3.88%, down 4.85%, and the session low. Upper support at 5%-2.5% was breached and failed to hold. The percentage remains near 0% and represents the August and December 2015 bottoms. Resistance remains at 7.5%-10%.
Volatility settled higher on Friday and remains extremely elevated but has traded in a tighter range over the past 3 sessions. Another cautious signal are the death-crosses forming with the 50-day moving averages falling below the 200-day moving averages. This technical development occurred on the Dow earlier in the week with the S&P 500 at a 3-point difference before a death-cross forms.
Futures were showing another lower Monday open while I was wrapping up my research Sunday night. This means a possible continued backtest to lower lows could be in play to start the week and we will have to see how the VIX responds.
We will have to continue to be nimble with our trades as the whipsaw action will likely continue into April and only 2 trading sessions left for March. On that note, I have another triple-digit Profit Alert for 2020, our 5th of the year as AT&T pulled back on Friday. I have also made adjustments to our LLNW position so let’s go check the tape.
Momentum Options Play List
Closed Momentum Options Trades for 2020: 14-3 (82%). 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, $29.84, down $0.76)
T June 30 calls (T200619C00030000, $2.25, down $0.45)
Entry Price: $1.05 (3/24/2020)
Exit Target: $3 (closed half at $2.30 on 3/25)
Stop Target: $2.20 (Stop Limit)
Action: The Stop Limit at $2.20 tripped on Friday with the calls testing a low of $2.16.
If shares fall below $29, a put option play might be in order for a quick backtest towards the $26 level. Stay tuned…
Limelight Networks (LLNW, $5.25, up $0.25)
LLNW June 5 calls (LLNW200619C00005000, $1.00, up $0.20)
Entry Price: $0.50 (3/18/2020)
Exit Target: $1.00, raise to $1.50
Stop Target: 50 cents, raise to 60 cents (Stop Limit)
Action: Raise the Exit Target from $1 to $1.50. Raise the Stop Limit from 50 cents to 60 cents.
Friday’s high tapped $5.43 with prior and lower resistance at $5.25-$5.50 getting cleared and holding. Rising support is at $5-$4.75.
Rambus (RMBS, $11.29, down $0.83)
RMBS April 15 calls (RMBS200417C00015000, $0.20, down $0.10)
Entry Price: $0.45 (3/2/2020)
Exit Target: $0.90
Stop Target: None
Action: New and upper support at $11.25-$11 was breached but held on the pullback to $11.03. Lowered resistance is at $11.50-$11.75.