MomentumOptions.com Pre-Market Update for 4/17/2020

Small-Caps Slack for 2nd-Straight Session

8:00am (EST)

The market settled mostly higher on Thursday following another round of shocking economic news, though with silver linings that left a more mixed signal overall. First quarter earnings continue to be a disaster with the Financial sector setting aside billions of dollars for expected loan losses.

Meanwhile, the U.S. Small Business Administration announced that the $350 billion congressional funding for the Paycheck Protection Program has been fully allocated. Despite the noise, Tech showed strength throughout the session while the small-caps stayed southbound to give a neutral reading ahead of Friday’s options expiration for April.

The Nasdaq rallied 1.7% with the session high reaching of 8,560. Near-term resistance at 8,500-8,550 was recovered on the close back above the 50/200-day moving averages.

The S&P 500 added 0.6% after trading in a 42-point range and the session high tapping 2,806. Lower resistance at 2,800-2,825 was cleared but held by a half-point with more important hurdles at 2,850-2,875 and the 50-day moving average.

The Dow nudged up 0.1% despite testing a midday low of 23,211. Current and upper support at 23,250-23,000 was breached but held for the 2nd-straight session with a close below the latter signaling additional weakness towards 22,750-22,500.

The Russell 2000 fell 0.5% following the intraday pullback to 1,154. Prior and upper support from last week at 1,165-1,150 was breached but held with a move below the latter reopening downside risk towards 1,140-1,125.

Healthcare was the strongest sector after surging 2.2% while Technology and Consumer Discretionary and were higher by 1.2%. Energy led sector laggards for the 2nd-straight session after tumbling 4.3% while Financials sank 1.8%.

In economic news, Initial Jobless Claims fell -1,370,000 to 5,245,000 after easing -252,000 to 6,615,000 in the prior week. Claims surged 3,560,000 to 6,867,000. The 4-week moving average rose to 5,508,500 from 4,267,750. Continuing claims increased 4,530,000 to 11,976,000 after the 4,387,000 gain to 7,446,000 previously.

Philadelphia Fed Business Outlook Survey plummeted -43.9 points to a 40-year low of -56.6, versus forecasts for a print of -30. The record low is -57.9 from December 1974. The new orders index dropped to -70.9 from -15.5. Employment declined to -46.7 from 4.1. Prices paid slid to -9.3 from 4.8 and prices received declined to -10.6 from 6.8. The 6-month outlook general business index rose to 43 from 35.2, with new orders little changed at 36.5 from 36.7. Employment fell to 26.6 from 29.8, with the workweek improving to 26 from 14.5. The future prices paid component rose to 25.5 from 18.5, with prices received at 16.9 from 21.5. Capex edged up to 12.4 from 12, providing some hope for a recovery ahead.

Housing Starts dropped to 1,216,000 in March versus the decline to 1,564,000 in February, and from a 13-year high of 1,619,000 in January. Building permits fell by a more modest -6.8% to 1.353 million in March. The starts drop was skewed toward the multi-family sector, which fell -31.7%, alongside a -17.5% drop for single family homes. Starts fell in all four regions, but weakness was led by the northeast, with a -42.5% decline. Starts under construction, which drives the residential construction component of GDP, fell by a remarkably modest -0.2%, while housing completions fell -6.1%. 

Overall, the headline March starts drop was ugly, but the resilience in permits, and surprisingly firm figures for starts under construction and completions, suggest a concentration of the coronavirus hit for the construction sector in Q2 rather than Q1. 

Dallas Fed Robert Kaplan said his view on the economy hasn’t really changed over the past couple of weeks. He still sees a substantial contraction this quarter, with GDP falling around -4% to -5% in 2020, with the outlook for consumer spending a worry. U\he added the ubiquity in testing will be critical to restore consumer confidence, and consumers may not be back on their feet until next year. 

Kaplan went on to say the unemployment rate is likely to peak in the mid-teens, though end the year around 8%-10%. He is looking for a bounce in GDP in Q3 and expects growth back over 2% in 2021. However, he added potential growth could be lowered by the virus and various issues. 

Kaplan does expect a number of failures in the oil industry and said steps to restrain oil production, such as paying producers to stand down, could make sense. He said the recent supply cuts from OPEC won’t do much for current oversupply and that it will likely take several months before the excess supply is wound down.

New York Fed John Williams said the Fed is doing all in its power to support the economy, and added fiscal policy also has a role to play. He said market functioning has improved materially thanks to strong and timely action from the Fed. He said stresses still remain and they won’t abate until the virus runs its course. 

Williams said the coronavirus crisis has required innovative thinking and bold action but that there are limits to what the Fed can, and should, do in a crisis. He said it is still an unknown how much damage the economy can take and there’s still more pain ahead, and added the Fed’s work is not done. 

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session after testing to an intraday high of $170.32. Prior and lower resistance from the start of the month at $170-$170.50 was cleared and held. A close above the latter would be an ongoing bullish signal for additional strength towards $172-$172.50.

Rising support is at $169.50-$169 followed by $167.50-$167.

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The S&P 500 Volatility Index ($VIX) resumed its downtrend after falling for the 5th time in 6 sessions while testing an afternoon high of 43.02. Lower resistance at 42.50-45 and the 50-day moving average were breached but held. A close above the latter would be a slightly bearish development with additional risk towards 47.50-50.

Upper support is at 40.50-40 was recovered on the late day fade to 39.87. A close below the latter would be a bullish signal for the market with further weakness towards 38-37.50.

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The Wilshire 5000 Composite Index ($WLSH) is trying to hold a 5-session trading range with Thursday’s peak reaching 28,056. Near-term resistance at 28,000-28,250 was cleared but held. A move above the latter would signal a breakout of the current price range with retest potential towards 28,750-29,000 and the 50-day moving average.

Current support is at 27,750-27,500. A move below the 27,250 level would be a bearish signal with additional selling pressure towards 27,000-26,750.

RSI is trying to curl higher with key resistance at 55. A close above this level would signal additional strength towards 60-65. Crucial support is at 50 with a close below this level signaling weakness towards 45-40.

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The Consumer Staples Select Spiders (XLP) remained trapped between its 50/200-day moving averages for the 3rd-straight session following the intraday pop to $59.81. Current and lower resistance at $59.50-$60 was cleared and held. A close above the $60.50 level would be a more bullish signal with additional upside potential towards $61.50-$62.

Support is at $59-$58.50. A close below the latter and the 50-day moving average would signal additional downside risk towards $58-$57.50.

RSI is in a slight uptrend with key resistance at 60. A move above this level would signal additional towards 65-70 with the latter roughly representing the January peak. Support is at 50 and a level that has been holding for the past few weeks. 

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I could have new trades today so stay locked-and-loaded in case I take action. If you don”t hear from me by 3pm (EST), have a great and safe weekend.

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, $30.16, up $0.07)

T June 32 calls (T200619C00032000, $1.10, flat)

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

Exit Target: $2.50

Return: -13%

Stop Target: 65 cents

Action: Yesterday’s low tapped $29.70 with prior and upper support at $29.75-$29.50 getting breached but holding. Lowered resistance is at $30.25-$30.50.

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Dropbox (DBX, $18.74, down $0.22)

DBX May 20 calls (DBX200515C00020000, $0.85, down $0.05)

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

Exit Target: $2.10

Return: -17%

Stop Target: None

Action: Lower support at $18.75-$18.50 and the 50-day moving average held with yesterday’s low reaching $18.42. Lowered resistance is at $19-$19.25 and the 200-day moving average.

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Limelight Networks (LLNW, $6.90, up $0.32)

LLNW June 5 calls (LLNW200619C00005000, $2.30, up $0.30)

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

Exit Target: $3

Return: 360%

Stop Target: $1.50 (Stop Limit)

Action: Shares traded to another fresh 52-week peak of $6.99 with fresh and lower resistance at $7-$7.25 getting challenged but holding. Rising support is at $6.75-$6.50.

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