MomentumOptions.com Pre-Market Update for 4/21/2020
Oil Plummets Into Negative Territory
The market e started the week lower following an intraday plunge in crude oil prices into negative territory and the lowest level ever. At one point, the crude contract for May was down -300% a barrel, driven in large part by a lack of storage capacity for the commodity along with demand. Wow.
The major indexes were able to hold near-term support levels with Tech and the small-caps actually showing intraday strength. Volatility stayed slightly elevated while closing above a key level of resistance and possibly signaling additional selling pressure.
The Dow was down 2.4% after showing weakness throughout the session while testing a low of 23,627. Upper support at 23,750-23,500 was breached and failed to hold with a close below the latter signaling additional weakness towards 23,250-23,000.
The S&P 500 fell 1.8% following the late day fade to 2,820 and close back below the 50-day moving average. Current and upper support at 2,825-2,800 was breached and failed to hold with a close below the latter getting the 2,775-2,750 area back in focus.
The Russell 2000 was off 1.3% after testing a low of 1,202 shortly after the opening bell. Prior and upper support at 1,200-1,185 was challenged but held with a move below the latter signaling a further retreat towards 1,175-1,160.
The Nasdaq traded in a 131-point range before giving back 1% with the 1st-half low tapping 8,553. Near-term and upper support at 8,600-8,550 was clipped and failed to hold with a close below the latter reopening risk towards 8,400-8,350 and the 50/200-day moving averages.
Utilities and Real Estate were the weakest sectors after tumbling 3.8% and 3.7%, respectively, while Energy sank 3.1%. There was no sector strength.
In economic news, Chicago Fed’s national activity index cratered -4.25 points to -4.19 for March after the surprise 0.33 point rise to 0.06 in February. It’s the lowest print since the record -4.7 from January 2009. The 3-month moving average dropped to -1.47 from -0.20. All four broad categories that make up the index made negative contributions for March, and three of the four decreased from February. For the 85 indicators that make up the index, 65 contributed negatively while 18 made positive contributions.
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 3rd time in 4 sessions with the intraday high reaching $169.29. Current and lower resistance at $169-$169.50 was recovered. A close above the $170.50 level would be a more bullish signal for additional upside towards $172-$172.50.
Support is trying to move up to $168-$167.50. A close below the $166.75 level would be a slightly bearish signal with backtest potential towards $165-$163.50.
The S&P 500 Volatility Index ($VIX) was up for just the 2nd time in 8 sessions after closing on its session peak of 43.83. Prior and lower resistance at 43.50-44 was breached and failed to hold. A close above the latter would be a slightly bearish signal for the market with additional upside potential towards 45-47.50.
Near-term support is 43-42.50 and the 50-day moving average followed by 40.50-40. A move below the latter and breakdown out of the current 10-session trading range would signal a retest towards 36.50-36 with the late March low at 36.24.
The Russell 2000 ETF (IWM) was down for 3rd time in 4 sessions following the opening pullback to $119.04. Near-term and upper support at $119.50-$119 was tripped but held. A drop below the latter would signal additional weakness with retest potential towards $118-$117.50.
Lowered resistance is at $121.50-$122. A move above the $123 level would signal additional strength towards $124.50-$125 with last week’s peak at $124.88.
RSI has flatlined with key support at 50 holding. A close below the 45 level would signal additional weakness towards 40-35 and the latter representing the monthly low. Resistance is at 55-60 with the latter representing the February top.
The Consumer Discretionary Select Spiders (XLY) had its 2-session winning streak snapped following the pullback to $110.77 ahead of the closing bell. Near-term and upper support at $111-$110.50 was breached and failed to ho.d. A close below the latter reopens downside risk towards $110-$109.50 and the 50-day moving average.
Lowered resistance at $112.50-$113. Continued closes above the latter would be an renewed bullish signal for additional strength towards $114.50-$115.
RSI is in a slight downtrend with upper support at 55-50 holding. A move below the latter would be an ongoing bearish signal with risk towards 45-40. Key resistance is at 60 and prior support from early February.
Despite Monday’s madness, our current trades held up well. I was a tad hesitant in opening new positions because of the action in the VIX. A trading range could be developing and I don’t want the time premium in any options we buy start to erode while we wait to see how this week shakes out.
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, $30.98, down $0.25)
T June 32 calls (T200619C00032000, $1.35, down $0.05)
Entry Price: $1.25 (4/14/2020)
Exit Target: $2.50
Stop Target: 65 cents
Action: Earnings are due out Wednesday morning!
Shares tapped a high of $31.42 before settling slightly in the red. Lower resistance at $31.25-$31.50 was cleared but held. Upper support at $31-$30.75 failed to holf on the fade to $30.70 afterwards.
The stock could move 5%-10% on Wednesday’s open with earnings elevating the risk/ reward parameters of the trade. The company has topped estimates the past 2 quarters by 2 cents and a penny while matching estimates in the previous 2 quarters.
The biggest news will be if the company keeps its dividend at current levels as the yield is now approaching 7%. If AT&T can at least match forecasts and not cut the dividend, shares should move higher.
Dropbox (DBX, $20.34, up $1.16)
DBX May 20 calls (DBX200515C00020000, $1.60, up $0.60)
Entry Price: $1.05 (4/6/2020)
Exit Target: $2.10
Stop Target: $1.20 (Stop Limit)
Action: Set a Limit Order at $1.20 to start protecting initial profits and to avoid a loss.
Fresh resistance at $19.25-$19.50 was cleared and held with a close above the latter and the 200-day moving average signaling a possible breakout towards the $20 level. Rising support is at $18.75-$18.50 and the 50-day moving average.
Limelight Networks (LLNW, $6.25, up $0.29)
LLNW June 5 calls (LLNW200619C00005000, $1.80, up $0.20)
Entry Price: $0.50 (3/18/2020)
Exit Target: $3
Stop Target: $1.50 (Stop Limit)
Action: Lower resistance at $6.25-$6.50 was recovered following yesterday’s trip to $6.51. Support remains at $6-$5.75.