MomentumOptions.com Pre-Market Update for 4/3/2020
Bulls Rebound to Snap 2-Session Slide but Remain Vulnerable
The market showed resiliency on the open following the worst jobless claims number in history. The slightly lower open turned positive within minutes with the major indexes gaining strength after President Trump tweeted about a production cut in oil that may be coming from Saudi Arabia and Russia.
Russian president Vladimir Putin reportedly hasn’t spoken to the crown prince of Saudi Arabia, but reports following the President’s tweet indicated a possible OPEC meeting is going to be called to discuss pulling back on oil production. The action mimicked the prior session’s trading ranges for the major indexes with the higher closes giving a neutral reading heading into Friday.
The S&P 500 was up 2.3% following the morning run to 2,533 and closing back above the 2,500 level. Prior and lower resistance at 2,525-2,550 was cleared and held with a move above the latter signaling additional strength towards 2,575-2,600.
The Dow gained 2.2% after testing a morning of 21,477 while closing back above the 21,000 level. Near-term and lower resistance at 21,250-21,500 was recovered with continued closes above the the latter keeping a return trip towards 21,750-22,000 in play.
The Nasdaq rose 1.7% with the intraday peak reaching 7,501. Lower resistance at 7,500-7,550 was cleared but held with a close above the latter leading to a retest towards 7,600-7,650.
The Russell 2000 rallied 1.3% after tapping a session high of 1,102. Key resistance at 1,100 was challenged but held with more important hurdles at 1,110-1,125.
Energy led sector strength after skyrocketing 9.2% while Utilities and Healthcare were up 3.1% and 2.8%. There were no sector laggards.
In economic news, Initial Jobless Claims spiked 3,341,000 to 6,648,000 versus estimates for a print of 3,350,000, with the prior week’s surge revised to 3,025,000. The 4-week moving average climbed to 2,612,000 versus 1,004,250 previously. Continuing claims increased 1,245,000 to 3,029,000 following the 82,000 increase to 1,784,000 previously. The insured unemployment rate rose to a 2.1% pace versus 1.2%.
Challenger Job-Cut Report announced job cuts spiked 222,288 in March to 165,628. Announced layoffs are up 346,683 year to date. The report noted the numbers do not include the hundreds of thousands of workers who were furloughed last month. The entertainment/leisure industry announced the most layoffs with 91,849, followed by services at 36,702, and automotive at 12,710.
U.S. Trade Deficit narrowed -12.2% to -$39.9 billion in February after the -6.4% slide to -$45.5 billion in January. Imports tumbled -2.5% to $247.5 billion after falling -1.7% to $253.8 billion in January. Exports dropped -0.4% to $207.5 billion following January’s -0.6% dip to $208.3 billion. The petroleum surplus increased to $0.9 billion. Excluding petroleum, the trade deficit dropped to -$40.8 billion compared to January’s -$45.4 billion. The “real” goods balance slid to -$69 billion versus -$78 billion, with real imports dropping -2.3% and real exports rising 2.5%. The trade balance with China dropped to -$16 billion versus -$26.1 billion, and slid to -$1.2 billion with Canada versus -$2.8 billion. The deficit with Mexico rose to -$9.7 billion versus -$7.5 billion.
Factory Orders were unchanged in February, versus estimates for a 0.2% rise, after falling -0.5% in January. Excluding transportation factory orders declined -0.9% versus -0.4% previously. Nondefense capital goods orders excluding aircraft also fell -0.9% from the 1% gain in January. Shipments dipped -0.2% versus -0.6%. Non-defense capital goods shipments ex-aircraft were down -0.8% versus the prior 1.1% increase. Inventories fell -0.4% versus -0.3%. The inventory-shipment ratio held at 1.40 for the 6th-straight month.
Dallas Fed Robert Kaplan said unemployment will peak in the low to mid-teens before falling to about 8% by the end of 2020. He added, from there, the recovery likely will be more U-shaped as consumers struggle to recover from an economic near-stoppage brought on by efforts to contain the coronavirus, the central bank.
Kaplan said he anticipates a severe contraction in the second quarter spilling into the third quarter before a recovery begins. He said there is an open question about what the strength of the consumer is going to be once we get past this virus and we get into the fourth quarter. He stated this was a big challenge and question mark for the economy.
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session after trading to an opening high of $169.22. Current and lower resistance at $169-$169.50 was cleared but held for the 3rd time in 4 sessions. A move above the $170 level would signal renewed momentum with upside potential towards $172.50-$175.
Current support is trying to move up to $167-$166.50 with additional help at $165.50-$165.
The S&P 500 Volatility Index ($VIX) traded in negative territory throughout much of the session after a slight pop higher to 57.24 shortly after the open. Near-term and lower resistance at 57.50-60 was breached but held for the 3rd-straight session. A close above the latter reopens upside risk towards 62.50-65.
Current support at 52.50-50 was recovered on the late day fade to 50.45. A close below the 50 level ahead of the weekend would be a slightly bullish signal heading into next week.
The iShares Russell 1000 (IWF) snapped a 2-session slide after trading to a 1st half high of $147.17. Lower resistance at $147-$147.50 was cleared but held. Continued closes above the $148 level would be a bullish signal for a retest towards $149.50-$150.
Current support is at $146.50-$146 followed by $143-$142.50. A close below the $142 level would be a renewed bearish signal with pullback potential towards $140.50-$140.
RSI is back in a slight uptrend with lower resistance at 45-50 holding. A close below the latter would signal additional strength towards 55-60 with the latter representing the late January peak. Support is at 40 and a level that has been holding since late March.
The Communication Services Select Sector Spider (XLC) rebounded to end a 2-session losing streak after testing an intraday high of $43.29. New and lower resistance at $43-$43.50 was cleared and held. A move above the latter would signal additional strength towards $44.50-$45.
Current support is at $42.50-$42. with backup help at $41.50-$41. A death cross has formed with the 50-day moving average falling below the 200-day moving average and is a bearish technical signal for lower lows.
RSI is trying to curl higher with key resistance at 45 holding. A close above this level would signal additional strength towards 50-55. Support is at 40-35 with risk towards 30-25 on a move below the latter.
While yesterday’s action was encouraging for the bulls, I have said we need to see the VIX clear and hold the 50 level before adding new bullish positions. The charts are showing w-shape patterns for the major indexes following the midweek gap lower that ruined the momentum of a v-shape recovery off the lows.
The numbers of death-crosses that have formed across the board also remain bearish clues. Friday’s have been nasty for the market since mid-February as money continues to move to the sidelines. However, technical setups can change quickly and the market often sees into the future faster than investors tend to react.
Futures were pointing towards a lower open when I was wrapping up late night research so we still need to be cautious and nimble. While I have 5-7 new trades ready to deploy, both bullish and bearish, we may need to see how much of today’s session plays out.
There is a chance for a late day trade if we get the clues on how next week might unfold. It is also important to remember 1Q earnings season will starts next week so the return of much larger point swings will likely be back in vogue.
If you don’t hear from me by 3:30pm (EST), enjoy the weekend, wash your hands frequently, stay home, and be safe!
Momentum Options Play List
Closed Momentum Options Trades for 2020: 14-4 (78%). 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, $5.65, down $0.01)
LLNW June 5 calls (LLNW200619C00005000, $1.40, flat)
Entry Price: $0.50 (3/18/2020)
Exit Target: $2
Stop Target: $1.05 (Stop Limit)
Action: Shares tapped a low of of $5.47 with upper support at $5.50-$5.25 getting challenged but holding for the 3rd-straight session. Resistance remains at $5.75-$6.