MomentumOptions.com Pre-Market Update for 4/22/2020
Bears Get 2nd-Straight Win as Volatility Heightens
The market settled lower on Tuesday despite Senate Minority Leader Schumer saying he believes congress is close to a deal to provide another round of aid to small businesses. A vote in the Senate after the market closed is expected to pass with the House taking up the proposal as early as Wednesday.
The 2nd-day of heavy selling pressure was a bearish signal for lower lows, especially with Technology starting to roll over, as it has paced the rebound off the March lows. Volatility also remained elevated and is continuing to break key levels of resistance.
The Nasdaq was down 3.5% with the intraday low reaching 8,215 and close back below the 50/200-day moving averages. Upper support at 8,250-8,200 failed to hold with a close below the latter being an ongoing bearish development with risk towards 8,100-8,050.
The S&P 500 sank 3.1% after testing an afternoon low of 2,727. Prior and upper support from last week at 2,750-2,725 was clipped and failed to hold with a move below the latter opening up weakness towards 2,700-2,675.
The Dow lost 2.7% with the intraday low reaching 22,941. Current and upper support at 23,000-22,750 was breached but held with a close below the latter signaling additional downside risk towards 22,500-22,250.
The Russell 2000 was off 2.3% following the intraday pullback to 1,173. Near-term and upper support at 1,175-1,160 was tripped but held with a fall below the latter setting up additional weakness towards 1,150-1,135.
Technology paced sector weakness after falling 4.2% while Financials and Communication Services were down 3.2%. There was no sector strength for the 2nd-straight session.
In economic news, Redbook reported sales for the week were down -6.9% year-over-year versus -2% previously. Month-to-date sales dropped -4.4% year-over-year, more than doubling the prior -2% pace. There was some improvement in home improvement stores with boosted demand for lawn and garden supplies. Cleaning products also remained hot.
Existing Home Sales were down -8.5% in March to 5,270,000, below expectations for a print of 5,335,000, following the 6.3% February bounce to 5,760,000. This was the largest monthly decline since November 2015, and the slowest pace since April 2019. Single family sales declined -8.1% to 4,740,000 versus the 7.1% jump to 5,160,000 previously. Condo/coop sales fell -11.7% to 530,000 after an unchanged reading at 600,000 in February. The months’ supply of homes rose to 3.4 from 3. The median sales price rose to $280,600 from $270,400.
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session following the 1st half surge to $172.15. Current and lower resistance at $172-$172.50 was cleared but held. A move above the latter would be an ongoing bullish signal with retest potential towards $175-$177.50, depending on momentum.
New support is at $171-$170.50. A close back below the $170 level would signal a false breakout with backtest potential towards $167.50-$167.
The S&P 500 Volatility Index ($VIX) also showed strength for the 2nd-straight session with the midday high tapping 47.77. Prior and lower resistance at 47.50-50 was breached but held. A close above the 50 level would likely signal another round of panic selling with upside risk towards 55-60.
Current and rising support is at 44-43.50 and the 50-day moving average followed by 42.50-42.
The S&P 400 Mid Cap Index ($MID) fell for the 2nd-straight session and for the 4th time in 5 following the intraday plunge to 1,481. Near-term and upper support at 1,500-1,475 was tripped and failed to hold. There is wiggle room towards 1,450 and prior resistance from earlier this month. A close below this level would be an ongoing bearish development with additional weakness towards 1,425-1,400.
Current and lowered resistance is at 1,500-1,525. Continued closes above the 1,550 would keep the current 10-day trading range intact with retest potential towards 1,575-1,600.
RSI is in a downtrend with support at 45-40 and the latter representing the start of the month low. Resistance is at 50.
The Health Care Select Sector Spider (XLV) extended its losing streak to 2-straight sessions following the 2nd half pullback to $96.79. Upper support at $97-$96.50 was breached but held. A close below the latter would confirm a near-term top with additional selling pressure towards $95.50-$95. A death cross has formed with the 50-day moving average falling below the 200-day moving average. This is typically a bearish development for lower lows.
Fresh resistance is at $97.50-$98 with additional hurdles at $99.50-$100.
RSI is in a downtrend upper support at 55-50 holding. A close below the latter would be an ongoing bearish signal with additional risk towards 45-40. Resistance is at 60-65.
The Stop Limits for DBX and LLNW held up yesterday. AT&T has probably announced earnings by the time you read this. I could have new trades if the VIX cracks 50 today so stay locked-and-loaded.
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.
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AT&T (T, $29.87 down $1.11)
T June 32 calls (T200619C00032000, $1.00, down $0.35)
Entry Price: $1.25 (4/14/2020)
Exit Target: $2.50
Stop Target: 65 cents
Action: Tuesday’s low tapped $31.42 with prior and upper support at $30-$29.75 failing to hold. Lowered resistance is at $30.25-$30.50.
Earnings are due out this morning and yesterday’s action wasn’t too encouraging.
Dropbox (DBX, $19.66, down $0.68)
DBX May 20 calls (DBX200515C00020000, $1.40, down $0.20)
Entry Price: $1.05 (4/6/2020)
Exit Target: $2.10
Stop Target: $1.20 (Stop Limit)
Action: Upper support at $19.50-$19.25 held on yesterday’s backtest to $19.38. resistance at $20-$20.25.
A close below the 200-day moving average will likely trigger the Stop Limit at $1.20 with Tuesday’s low at $1.25.
Limelight Networks (LLNW, $5.91, down $0.34)
LLNW June 5 calls (LLNW200619C00005000, $1.60, down $0.20)
Entry Price: $0.50 (3/18/2020)
Exit Target: $3
Stop Target: $1.50 (Stop Limit)
Action: Upper support at $6-$5.75 failed to hold on the pullback to $5.72. Resistance remains at $6.25-$6.50.