MomentumOptions.com Pre-Market Update for 4/7/2020
Bulls Rebound to Push Late March Resistance
The market showed strength for the 2nd-straight Monday despite a warning from the White House over the weekend to prepare for the worst week yet to come from the coronavirus. However, there was a bullish tone in the market from the open on hopes that there’s light at the end of the tunnel as global reports showed the spread slowing.
The roll-out of the government’s support package and other assistance measures for small businesses also lifted sentiment. Oil prices remained under pressure after the OPEC meeting was delayed and President Trump warning that without output cuts there will still be import tariffs to protect the U.S. oil industry.
The Russell 2000 led the way higher after skyrocketing 8.2% and tapping a high of 1,139 just ahead of the closing bell. Lower resistance at 1,135-1,150 was cleared and held with continued closes above the latter getting 1,160-1,175 in focus.
The Dow was higher by 7.7% with the afternoon high reaching 22,783. Near-term and lower resistance at 22,750-23,000 was breached but held with continued closes above the the latter signaling momentum towards 23,250-23,500.
The Nasdaq zoomed 7.3% with the intraday peak reaching 7,938. Lower resistance at 7,900-7,950 was recovered with a close above the latter leading to a retest towards 8,000-8,100.
The S&P 500 soared 7% after trading to an intraday peak of 2,676. Prior and lower resistance from late March at 2,650-2,675 was cleared and with a move above the latter signaling additional strength towards 2,700-2,725.
Technology led sector strength after rallying 8.5% while Consumer Discretionary and Utilities were up 8.3% and 7.7%, respectively. There were no sector laggards.
The New York Fed’s Survey of Consumer Expectations reported that median expected year-ahead growth in income fell from 2.7% in February to 2.1% in March. With lower income, Americans also reported lower expectations for spending, which fell from 3.1% in February to 2.3% in March.
New York Fed researchers noted that a lot of the declines in consumer sentiment were not seen until later in March, when businesses across the country began closing en masse as people were directed to stay at home. Additionally, the average perceived risk of layoff continued to rise, while the probability of finding a job declined through March. Over 40% of survey respondents said they expect to be financially worse off a year from now, a significant uptick from levels reported in February.
St. Louis Fed Bullard said he did not believe the U.S. economy or jobs market was in free fall as the coronavirus sweeps the country. Bullard when on to say the uptake on the unemployment insurance program is a good thing because it means you’re getting the transfers to the people that are being disrupted by this health-ordered shutdown.
Bullard argued the large increases in jobless claims must be viewed through the lens of helping people who are facing economic hardship. He stressed the U.S. economy was actually doing quite well before the coronavirus pandemic intensified and added there’s nothing wrong with the economy itself.
When asked of projections that the U.S. economy would come roaring back once the coronavirus pandemic subsides was a perfect scenario, Bullard reiterated that he thought a recovery of that sort was possible, but it depends on how the nation’s response is implemented.
Former Fed Chair Janet Yellen indicated the recent jobless claims report was absolutely shocking and indicates the unemployment rate is probably about 12%-13% and is moving higher. She warned gross domestic product could contract at least 30% in the second quarter, on an annualized basis.
Yellen said the key to a quick recovery is making sure people’s incomes remain supported and their ties to employment stay intact during the shuttering of the economy. She said that there are likely to be lingering effects of the crisis for years, but that the economy’s strength before the pandemic should enable the unemployment rate to return to normal more quickly.
The iShares 20+ Year Treasury Bond ETF (TLT) had its 3-session winning streak snapped following the intraday pullback to $166.53. Prior and upper support at $166.50-$166 was challenged but held. A close below the latter would signal additional weakness towards $165-$164.50 with last Tuesday’s low at $164.56.
Lowered resistance is at $168.50-$169. Continued closes above the $170 level would be a renewed bullish signal with upside potential towards $172.50-$175.
The S&P 500 Volatility Index ($VIX) closed at its lowest level since early March with Monday’s low tapping 43.45. Prior and upper support at 45-40 was breached but held. A close below the latter would signal an ongoing backtest towards 38.50-38 and the 50-day moving average with the March low at 36.24.
The index is still double its 20 historical average, but is way down from the March peak north of 85. Lowered resistance is at 47.50-50 with backup help at 55-60.
The Invesco QQQ Trust (QQQ) was up for the 2nd-time in 3 sessions after soaring to an afternoon high of $197.65. Late March and lower resistance at $194.50-$195 was cleared and held. Continued closes above the $197.50 level would be an ongoing bullish signal with retest potential towards $198.50-$199 and the 200-day moving average.
Current but shaky support is at $194-$193.50 with stretch towards $192.50-$190 on a drop below the latter. A close below the $189 level would signal a false breakout with backtest potential towards $187.50-$185.
RSI is back in a uptrend after clearing key resistance at 50. Continued closes above this level would signal additional strength towards 55-60 and late January levels. Support is at 45-40 with weakness towards 35-30 on a move below the latter.
The Materials Select Sector (XLB) rebounded after testing an intraday high of $46.12. Key support from late March at $46 was breached but held. A close above this level would be an ongoing bullish development with additional strength towards $47.50-$48.
Current support is at $45-$44.50 with additional help at $43.50-$43 on a move below the latter.
RSI is in an uptrend with lower resistance at 45-50 getting cleared and holding. A close above the latter would signal additional strength towards 55-60 and the latter representing the January top. Support is at 40 and a level that has been holding since mid-March.
I have updated our current trades so let’s go check the tape.
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.
Boston Scientific (BSX, $32.88, up $1.71)
BSX May 35 calls (BSX200515C00035000, $1.00, up $0.45)
Entry Price: $0.75 (4/6/2020)
Exit Target: $1.50
Stop Target: None
Action: Monday’s peak reached $33.19 with lower resistance at $33-$33.25 getting cleared and holding. Current support is at $32.50-$32.25.
Dropbox (DBX, $18.06, up $0.10)
DBX May 20 calls (DBX200515C00020000, $1.05, up $0.10)
Entry Price: $1.05 (4/6/2020)
Exit Target: $2.10
Stop Target: None
Action: Shares tested a high of $18.78 with upper resistance at $18.50-$18.75 and the 50-day moving average getting cleared bull all level holding. Current support remains at $18-$17.75.
Limelight Networks (LLNW, $5.89, up $0.38)
LLNW June 5 calls (LLNW200619C00005000, $1.50, up $0.10)
Entry Price: $0.50 (3/18/2020)
Exit Target: $2
Stop Target: $1.05 (Stop Limit)
Action: Shares settled on the session high with near-term and lower resistance at $5.75-$6 getting recovered. Rising support is at $5.50-$5.25.