MomentumOptions.com Pre-Market Update for 4/10/2020
Bulls Get Double-Digit Weekly Win
The market showed strength for the 3rd time in 4 sessions while wrapping up a shortened week following an unprecedented move by the Fed that it will provide up to $2.3 trillion in additional aid to combat the effects of the coronavirus. The news overshadowed another weak jobless claims number and other disappointing economic news.
The Russell 2000 rallied 4.6% after trading to a high of 1,250. Fresh and lower resistance at 1,235-1,250 was recovered with a close above the latter signaling additional upside towards 1,260-1,275.
The Dow added 1.2% following the intraday push to 24,008. New resistance at 23,750-24,000 was tripped but levels that held with a move above the latter getting 24,250-24,500 back in focus.
The S&P 500 soared 1.5% with the intraday high peaking at 2,818. Early March and lower resistance at 2,800-2,825 was cleared but held with a close above the latter signaling momentum towards 2,850-2,875.
The Nasdaq was higher by 0.8% after testing an opening high of 8,227. Lower resistance at 8,200-8,250 was breached but held with a pop above the latter leading to a retest towards the 8,300-8,350.
For the week, the Russell 2000 zoomed 19.6% and the Dow soared 12.7%. The S&P 500 rose 12.1% and the Nasdaq gained 10.6%.
Financials paced sector strength after jumping 5.4% while Utilities and Materials were up 4.7% and 4.3%, respectively. Energy was the only sector laggard after giving back 0.9%.
In economic news, Jobless Claims fell 261,000 to 6,606,000 after the 3,560,000 surge to 6,867,000 in the prior week. The 4-week moving average jumped to 4,265,500 versus 2,666,750. Continuing claims zoomed 4,396,000 to 7,455,000 following the 1,245,000 jump to 3,059,000 in the March 21st week.
Producer Price Index slipped -0.2% in March, versus forecasts for a rise of 0.4%, and was up 0.2% excluding food and energy. This February declines of -0.6% for the headline and -0.3% for the core. On a 12-month basis, PPI decelerated to 0.7% year-over-year from 1.3%, with the core rate expanding at a 1.4% year-over-year pace, and matching February’s reading. Producer prices in the goods sector dropped -1% after falling -0.9% in February as energy prices plunged -6.7% after -3.6% previously. Food prices were flat (0.0%) versus the prior month’s -1.6% print. Service sector prices grew 0.2% from -0.3%.
Wholesale Trade declined -0.7% in February with sales dropping -0.8%. The inventory-sales ratio was 1.31, matching the 1.31 in January, and is the lowest since November 2018.
Consumer Sentiment plunged 18.1 points to 71 in the preliminary April report, the lowest since December 2011, after the 6.8 decline to 89.1 in March. The current conditions index took the biggest hit, sliding to 72.4 from 103.7, the weakest since August 2011. The expectations index fell to 70 from 79.7, tying the low from March 2014. The 12-month inflation rate slid to 2.1%, a new expansion low, versus the 2.3% from March. The 5-year index rose to 2.5% versus 2.3%.
The Fed announced new unprecedented facilities to deal with the coronavirus and the containment policies that have largely shut the economy. Under these new measures, that includes programs to support state and local governments, as well as small and mid-sized companies, the Fed will provide up to $2.3 trillion in additional aid. The Main Street lending program will see the Fed purchase up to $600 billion in loans. There will also be a Municipal Liquidity Facility which will provide up to $500 billion to states and municipalities by directly purchasing their debt.
The Fed is also boosting the size and scope, up to $850 billion, of the Primary and Secondary Market Corporate Credit Facilities and Term Asset Backed Securities. Additionally the Fed is going to help finance the Paycheck Protection Program Liquidity Facility to backstopping participating financial institutions through term financing backed by PPP loans.
Fed Chair Powell said the Fed is acting forcefully, pro-actively, and aggressively to help the U.S. recover from the coronavirus and the shutdowns. He also said the Fed was acting under its emergency powers and that the ability to create money and lend is limited by the law, adding these are lending powers of the Fed, not spending powers.
Powell said Q2 is going to be a very weak one but he’s expecting a fairly quick rebound once the virus runs its course, as most are expecting a rebound in the second half of the year as people go back to work. While below target inflation has been a global challenge over recent years, he said the threat that inflation will pop is not a first order concern for the Fed today.
Powell went on to say low interest rates are to aid the recovery once it begins, as opposed to being a stimulus. There isn’t any thought currently of more interest rate changes, he said, suggesting any shift to a yield-curve control strategy is not in the cards right now.
The Fed will be looking to see the economy is well on its way to a recovery before pulling back on its policies, Powell stated, as analysts will be in no hurry to pull back on our asset purchases or these programs. He added the pull backs will be well telegraphed and gradual and that the Fed won’t hesitate to move into new areas if necessary.
And finally, Powell noted that all eight of the largest systemically important financial institutions in the U.S. have suspended their stock buyback programs, but he does not see the need for them to suspend their dividends given that U.S. banks are well capitalized. Dividend changes are something the Fed will monitor going forward, but Powell said suspensions of dividends are not appropriate at this time.
The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 3-session slide after trading to an intraday high of $165.79. Near-term and lower resistance at $165.50-$166 was cleared but held. A close above the latter would be a bullish signal for a retest towards $167-$167.50.
Current support remains at $164.50-$164. A drop below the latter would signal additional risk towards $162.50-$162.
RSI has leveled out with resistance at 60. A move above this level would signal additional strength towards 65-70 with the latter representing the late January top. Key support is at the 50 level.
The S&P 500 Volatility Index ($VIX) fell for the 2nd-straight session and the 5th time in 6 following the late day fade to 41.39. Near-term and upper support at 42.50-40 was breached and held. A close below the latter and the 50-day moving average would be an ongoing bullish signal with additional backtest potential towards 37.50-35.
Resistance remains at 45-47.50. A close back above the 50 level would be a warning signal for the market with upside risk towards 55-60.
RSI has been in a downtrend since early March with key support at 40 and a level that has been holding since last July. A close below 40 would signal additional weakness towards 35-30. Resistance is at 45-50.
The Spider Small-Cap 600 ETF (SLY) extended its wining streak to 4-straight sessions after testing a high of $53.05. Current and lower resistance at $53-$53.50 was cleared but held with additional hurdles at $54.50-$55.
Near-term but shaky support is at $52-$51.50. A close below the latter would signal a false breakout with retest potential towards $50.50-$50.
RSI remains in an uptrend after clearing lower resistance at 50-55. A move above the latter would be a bullish signal for additional strength towards 60 and the mid-February peak. Support is at 45-40.
The iShares MSCI Emerging Markets Fund (EEM) had its 3-session winning streak snapped despite tapping an intraday high tapping $36.09. Key resistance at $36 was cleared but held. A close above the $36.25 level would be a renewed bullish signal for a run towards $37-$37.25.
Support is at $35.25-$35. A close back below the latter would be a slightly bearish signal with retest potential towards $34.25-$34.
RSI has leveled out with key resistance at 50 holding. Continued closes above this level would signal additional strength towards 55-60. Support is at 45-40 with the latter holding since late March.
I wanted to send out an update today instead of Monday so we could just enjoy a longer weekend although most of us remain on lockdown. The good news is the market is acting like better days are ahead for us and the rest of the world.
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, $36.83, up $1.70)
BSX May 35 calls (BSX200515C00035000, $3.25, up $0.85)
Entry Price: $0.75 (4/6/2020)
Exit Target: $3.50, raise to $4.50 (closed half at $3.15 on 4/9/20)
Stop Target: $2.30, raise to $2.80 (Stop Limit)
Action: I wanted to close half the trade ahead of the 3-day weekend as this has now become our biggest winner for 2020.
Raise the Exit Target on the other half from $3.50 to $4.50. Raise the Stop Limit from $2.30 to $2.80.
Shares rocketed to a high of $37.24 with late February and lower resistance at $37-$37.25 getting breached but holding. Rising support is at $36.50-$36.25 and the 50-day moving average.
Dropbox (DBX, $18.06, down $0.23)
DBX May 20 calls (DBX200515C00020000, $0.90, flat)
Entry Price: $1.05 (4/6/2020)
Exit Target: $2.10
Stop Target: None
Action: Shares tapped a high of $18.95 before closing in the red. Lower resistance at $18.75-$19 was cleared but held. Upper support at $18-$17.75 and the 50-day moving average held on the fade to $17.87 afterwards.
Limelight Networks (LLNW, $5.72, up $0.20)
LLNW June 5 calls (LLNW200619C00005000, $1.20, flat)
Entry Price: $0.50 (3/18/2020)
Exit Target: $2
Stop Target: $1.05 (Stop Limit)
Action: Shares tested a high of $5.76 with lower resistance at $5.75-$6 getting cleared and holding. Support remains at $5.50-$5.25.