MomentumOptions.com Pre-Market Update for 4/16/2020

Bears Make an Appearance

8:00am (EST)

The market took a step back on Wednesday after a slew of weaker-than-expected economic reports and another drop in oil prices to below $20 a barrel led to some profit-taking. Lousy bank earnings weighed on the Financial sector along with a 10 basis point drop in the 10-year Treasury yield to 0.64%.

While the shutdown of economies and related social distancing measures appear to have flattened the coronavirus infection curve, as intended, a record plunge in retail sales provided a timely reminder of the damage being done. Volatility stayed slightly elevated throughout the session but held a key level of resistance. 

The Russell 2000 plummeted 4.3% after testing an intraday low of 1,176 while closing back below the 1,200 level. Prior and upper support at 1,190-1,175 was tripped and failed to hold with a move below the latter signaling additional weakness towards 1,165-1,150.

The S&P 500 was lower by 2.2% following the first half fade to 2,761. Current and upper support at 2,775-2,750 was violated but held with backup help at 2,725-2,700 on a close below the 2,750 level.

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The Dow declined 1.9% with the midday low tapping 23,233. Near-term support at 23,500-23,250 was breached but levels that held with a close below the latter reopening downside risk towards 23,000-22,750.

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The Nasdaq gave back 1.4% on the intraday backtest to 8,308. Near-term and upper support at 8,350-8,300 was breached but held on the close back below the 8,400 level and the 50/200-day moving averages.

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Energy and Materials paced sector weakness after sinking 4.7% and 4.6%, respectively, while Financials stumbled 4.3%. There was no sector strength.

In economic news, MBA Mortgage Applications rebounded 7.3% last week after dropping -17.9% in the prior week. The index is still up 59.1% year-over-year versus last week’s 44.7% clip. All the strength on the week was in refis, where the index bounced 10.1% versus -19.4% previously. It’s up 192.0% year-over-year. The purchase index dipped -1.8% after sliding -12.2% previously, and is down -35.1% year-over-year. The 30-year fixed rate slipped to 3.45%, down from 3.49% in the prior week, and compares to 4.44% a year ago. The 5-year ARM fell to 3.34% from 3.39%. Refinancings comprised 76.2% of applications for the week, with an average loan size of $307,900.

Empire State Manufacturing Survey sank -56.7 points to -78.2 in April after plunging -34.4 points to -21.5 in March. Forecasts were for a print of -35. New orders dropped to -66.3 from -9.3. Employment fell to -55.3 from -1.5 while the workweek declined to -61.6 from -10.6. Shipments fell to -68.1 versus -1.7. Prices paid slid to 5.8 from 24.5, with prices received skidding to -8.4 from 10.1. The 6-month general business index rose to 7 from 1.2. The future new orders index fell to 11.7 from 17.6, with employment dropping to 5.2 from 10.2. Prices paid were at 14.9 from 34.5, with prices received at 0.6 from 17.3. The capex index declined to -11 from 18.7.

Retail Sales for March plunged -8.7%, versus forecasts of -7%, and dropped -4.5% excluding autos, following respective February declines of -0.4%. The headline drop is the largest ever, not surprisingly. Sales excluding autos, gas and building materials, fell -3.5% following the -0.2% dip previously. Leading the declines were clothing which cratered -50.5% versus -1.6%. Eating and drinking took a big hit and were down -26.5% from -0.2%. Motor vehicle sales dropped -25.6% versus -0.5%. Furniture tumbled -26.8% versus -0.9%. Sporting goods were down -23.3% from -0.2%. Gas station sales fell -17.2% versus -2.9%. Miscellaneous sales dropped -14.3% from -0.7%. Meanwhile, general merchandise rose 6.4% from -0.1%. Health, personal care rose 4.3% from -0.4%. Non-store retailers rose 3.1% versus 0.7%.

Industrial Production declined -5.4% in March, the weakest since January 1946 at -5.6%, with the all time low from August 1945 at -10.4%. This follows February’s 0.5% gain. Capacity utilization declined to 72.7% versus 77% in February. Manufacturing production declined -6.3% following the prior month’s -0.1% dip. Motor vehicle production plunged -28% after rising 3.2% in February. Machinery production dropped -5.6% from -0.4%. Computer, electronics production fell -1.9% versus 1.3%. Production, excluding vehicles and tech, was down -4.1% from 0.3%. Utilities fell -3.9% from 7% while Mining slid -2% from -1.3%.

Business Inventories slipped -0.4% in February, with sales dropping -0.5%. This followed January’s -0.3% dip in inventories and the 0.5% jump in sales. Retailer inventories were down -0.3% from -0.1%, with wholesaler stocks falling -0.7% and manufacturers’ off -0.4%. For sales, retailers were down -0.5%, with wholesalers off -0.8% and manufacturers -0.2% lower. The inventory-sales ratio was unchanged at 1.37.

NAHB Housing Market Index cratered 42 points to 30 in April, the largest monthly drop on record, and the lowest print since June 2012. This follows the 2 point decline to 72 in March. The current single family sales index plunged to 36 from 79 and the future index skidded to 36 from 75. The index of prospective buyer traffic tumbled to 13 from 56 as the shutdowns limited house-hunting. The NAHB also noted that the demand for housing remains acute which is expected to factor in strongly to the post coronavirus rebound.

The Fed’s Beige Book was grim with the report saying economic activity contracted sharply and abruptly across all regions of the United States. Also, all Districts reported highly uncertain outlooks with most expecting conditions to worsen in the next several months. Singled out as the hardest hit industries were leisure and hospitality, and retail aside from essential goods. Employment declined in all Districts, steeply in many cases. There was strong demand for food and medial products but there were production delays and supply chain disruptions. Some manufacturing industries were mostly shut, including autos. The energy sector was also suffering from low prices, reduced investment, and demand. Loan demand was high from both companies accessing credit lines and from households looking to refinance. On prices, the general direction of inflation was down for both selling prices and non-labor input prices as Districts reported either slowing price growth, flat prices, or modest to moderate declines.

The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 2-session slide after surging to an intraday high of $168.60. Prior and lower resistance at $168.50-$169 was cleared but held. A close above the latter would be an ongoing bullish signal for additional strength towards $170-$170.50 with the monthly peak at $170.33.

New support is at $167.50-$167. A close below the latter would signal a false breakout with backtest potential towards $165.50-$165.

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The S&P 500 Volatility Index ($VIX) was up for the 1st time in 5 sessions with the intraday high reaching 43.23. Lower resistance at 42.50-45 was breached but held along with the 50-day moving average. A close above the 45 level would be a renewed bearish development with additional upside risk towards 47.50-50.

Current support is at 40.50-40 followed by 38-37.50.

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The iShares Russell 1000 (IWF) was down for the 2nd time in 3 sessions after trading to an intraday low of $162.88. Current and upper support at $163-$162.50 was tripped but held. The close back below the 50/200-day moving average was a slightly bearish signal with pullback potential towards $160.50-$160 if $162.50 fails to hold.

Near-term resistance is at $165-$165.50. Continued closes above the latter level would be a bullish signal for a retest towards $167-$167.50 with the previous session peak at $167.28.

RSI is back in a slight downtrend with upper support at 55-50 holding. A close below the latter would signal additional weakness towards 45-40. Resistance is at 60 with continued closes above this level signaling strength towards 65-70.

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The Spider Gold Shares (GLD) had its 3-session winning streak snapped following the intraday pullback to $160.81. Fresh support at $161-$160.50 was breached but held. A close below the $160 level would signal retest potential towards $158-$157.50.

Longer-term and 7-year resistance is at $162-$162.50. A close above the latter would be a signal a retest towards $164-$164.50 with Tuesday’s 52-week peak at $164.42.

RSI has level out and is showing signs of rolling over with key support at 60. A move below this level would be a bearish signal with additional weakness towards 55-50. Resistance is at 70 with a move above this level signaling additional momentum towards 75-80 and the latter representing the February peak.

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Wednesday’s action wasn’t too bearish but another leg lower today could sway momentum for the rest of the week. The near-term outlook remains bullish as long as the VIX continues to hold the 50 level.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 15-4 (79%). 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, $30.09, down $1.04)

T June 32 calls (T200619C00032000, $1.10, down $0.25)

Entry Price: $1.25 (4/14/2020)

Exit Target: $2.50

Return: -13%

Stop Target: 65 cents

Action: Wednesday’s low kissed $29.96 with prior and upper support at $30-$29.75 getting breached but holding. Lowered resistance is at $30.50-$30.75.

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Dropbox (DBX, $18.95, down $0.05)

DBX May 20 calls (DBX200515C00020000, $0.90, down $0.05)

Entry Price: $1.05 (4/6/2020)

Exit Target: $2.10

Return: -14%

Stop Target: None

Action: Lower support at $18.75-$18.50 and the 50-day moving average was challenged but held on the fade to the latter yesterday. Resistance remains at $19.25-$19.50 and the 200-day moving average.

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Limelight Networks (LLNW, $6.58, up $0.07)

LLNW June 5 calls (LLNW200619C00005000, $2.00, up $0.10)

Entry Price: $0.50 (3/18/2020)

Exit Target: $3

Return: 300%

Stop Target: $1.50 (Stop Limit)

Action: Shares traded to another fresh 52-week peak of $6.72 with new and lower resistance at $6.75-$7 getting challenged but holding. Support remains at $6.25-$6.

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