MomentumOptions.com Pre-Market Update for 4/27/2020
Bears Get Weekly Win/ Profit Alert (GLD)
The market was flat throughout Friday’s first half of action following another round of disappointing economic news and lingering disappointment over the efficacy of an anti-viral drug concerning the coronavirus. However, a second half rally and strength into the closing bell followed on optimism that the worst of the pandemic is over and that some regions of the country could begin to gradually reopen their economies soon.
The gains weren’t enough to offset the overall weekly loss for the major indexes, excluding the small-caps. Volatility continued to ease after tapping a monthly low and comes ahead one of the busiest weeks for 1Q earnings.
The Nasdaq showed the most strength after soaring 1.7% while tapping a 1st half high of 8,642. Current and lower resistance at 8,600-8,650 was recovered with more important hurdles at 8,700-8,750 and the monthly high at 8,684.
The Russell 2000 jumped 1.6% after trading to a late day high of 1,238. Prior and lower resistance at 1,235-1,250 was cleared but held with the April peaks at 1,250 and 1,251 that were reached 3 sessions apart.
The S&P 500 added 1.4% following the intraday trip to 2,842. Key resistance at 2,800 and the 50-day moving average were cleared and held with continued closes above the 2,850 level signaling ongoing strength towards 2,875-2,900.
The Dow extended its winning streak to 3-straight after rallying 1.1% with the session high at 23,826. Current and lower resistance at 23,750-24,000 was recovered with a close above the latter and the 50-day moving average signaling a retest towards 24,250-24,500.
For the week, the Dow lost 1.9% and the S&P 500 gave back 1.3%. The Nasdaq shed 0.2% while the Russell 2000 climbed 0.3%.
Technology was the sector standout after zooming 2.1% while Consumer Discretionary and Materials rose 1.7% and 1.6%, respectively. There were no sector losers.
Over the past 5 sessions, Energy (2%) and Communication Services (0.5%) were the best performing positive sectors. Real Estate (-4.2%), Utilities (-3.7%) and Consumer Staples (-3%) were the weakest sectors.
In economic news, March Durable Goods Orders plummeted -14.4%, the largest decline since August 2014’s -18.4% record drop, and were weighed down by a -41% plunge in transportation. This follows February’s reading of a 1.1% headline gain and a 4.6% rise in transportation. Excluding transportation, orders slid -0.2% from -0.7%. Nondefense capital goods orders excluding aircraft inched up 0.1% from -0.8% previously. Shipments dropped -4.5% from February’s 0.8% gain. Nondefense capital goods shipments excluding aircraft fell -0.2% versus -0.9%. Inventories jumped 0.6% following an unchanged reading. This boosted the inventory-shipment ratio to 1.82 from 1.72.
April Consumer Sentiment edged up to 71.8 in the final print from the University of Michigan survey, versus 71 in the preliminary reading, and representing a 17.3 point dive from March’s 89.1 reading. Expectations were at 68. The current conditions index took most of the hit, dropping to 74.3 in the final (72.4 preliminary) from March’s 103.7. The April expectations index slid to 70.1 (70 preliminary) from 79.7 in March. The 12-month inflation gauge was steady at 2.1% preliminary reading and is down from 2.2% in March. The 5-year index also was steady at the 2.5% preliminary and is firmer than the 2.3% print last month.
Baker-Hughes Rig Count reported the U.S. rig count dropped 64 rigs from the prior week to 465, with oil rigs down 60 to 378, gas rigs lower by 4 to 85, and miscellaneous rigs unchanged at 2. The U.S. Rig Count declined 526 rigs from last year’s count of 991, with oil rigs down 427, gas rigs falling 101, and miscellaneous rigs up 2 to 2. The U.S. Offshore Rig Count is unchanged at 17 and down 4 year-over-year.
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session after closing on the session high of $170.84. Near-term and lower resistance at $170.50-$171 was cleared and held with more important hurdles at $172-$172.50.
Support is trying to move up to $170-$169.50 with backup help at $168-$167.50.
RSI has been flatlining just above the 60 level over the past couple of weeks with upside towards 65-70 on new highs in the stock. Continued closes below 60 keep support at 55-50 in play with the latter representing the monthly low.
The S&P 500 Volatility Index ($VIX) extended its losing streak to 3-straight sessions after trading to a low of 35.60 ahead of the closing bell. Fresh and upper support at 36-35.50 was breached and held. The close below the late March low at 36.24 was a slightly bullish signal for the market with the next major recovery level at 35.
Lowered resistance is at 37-37.50 followed by 39.50-40.
RSI remains in a downtrend with key support and the monthly low at 40 holding. A move below 40, and a level that has been holding since last July, would signal additional weakness towards 35-30. Resistance is at 45-50.
The Spider S&P 500 ETF (SPY) was up for the 2nd time in 3 sessions following the late day push to $283.70. Mid-month and lower resistance at $283.50-$284 was cleared but held. A close above the latter would signal additional strength towards $287-$287.50 with the monthly high at $287.30.
Fresh support is at $$282.50-$282 followed by $279.50-$279 and the 50-day moving average. A close back below the latter would reopen downside risk towards $277.50-$275.
RSI is back in a slight uptrend with key resistance at 55 getting cleared and holding. Continued closes above the 60 level would be a more bullish signal for additional strength towards 65-70 with the latter representing the mid-February peak. Support is at 50 with weakness towards 45-40 on a move back below this level.
The Spider S&P Retail ETF (XRT) is trying to break out of an 11-session trading range with Friday’s high reaching $34.74. Lower resistance at $34.50-$34.75 was cleared and held. A close above $35 and the 50-day moving average would be an ongoing bullish signal for continued strength towards $35.50-$36.
Current support at $34.25-$34. A close below the $33.50 would signal a breakdown out of the current range with additional downside risk towards $32.50-$32.
RSI is in a slight uptrend with lower resistance at 55 getting recovered and February’s peak at 60. Key support is at 50 and a level that has been holding the past couple of weeks.
The percentage of Nasdaq 100 stocks trading above the 50-day moving
closed at 64.07% on Friday, up 9.71%, and a fresh monthly peak. Lower resistance at 62.5%-65% was cleared and held. A close above the latter would signal strength towards 67.5%-70% with the latter representing mid-February support. Current support is at 62.5%-60%.
The percentage of S&P 500 stocks trading above the 200-day moving average average also settled on the session high at 21.78%, up 2.58%. Lower resistance at 22.5%-25% was challenged but held with a move above the latter signaling a retest towards 27.5%-30%. Support is at 20%-17.5%.
The Q1 earnings season will be busy over the next 2 weeks, with almost 700 companies on deck to report results, including 154 S&P 500 members. Tech stocks have led the market’s strong rebound from the March 23rd low, with Wall Street looking for the leading companies as least affected, if not benefiting, from the post-outbreak locked-down operating environment.
In effect, some Tech stocks appear to have become the new go-to defensive plays of the current market environment. This week’s results will likely show if confidence in these companies was largely justified.
So far, there has has been Q1 results from 122 S&P 500 members, or nearly 25% of the index’s total membership, with another 154 index members on deck to report results this week. Total earnings for the 122 index members that have reported are down -16.2% from the same period last year on 2.5% higher revenues, with 64.8% beating EPS and 63.1% beating revenue estimates.
If not been for the Finance sector drag, Q1 earnings growth for the remaining S&P 500 companies at this stage would have been positive. Excluding the Finance sector, whose Q1 earnings for the companies that have reported are down -48.3% on 1.7% higher revenues, earnings for the rest of S&P 500 companies that have reported would be up 8.4%.
For Q1 as a whole, combining the 122 companies that have reported results already with estimates for the wide majority of still-to-come results, total earnings are expected to be down -15.3% on 1.2% higher revenues.
For Tech sector as a whole, Q1 earnings are expected to be down -0.7% on 4.6% higher revenues.
We were stopped out of GLD on Friday for a slight profit. I still want to be nimble given the current environment but I should have a few new trades this week. I would love to see the VIX recover the 35 level to start the week as it would likely signal another leg up for the market. If not, I also have a few bearish names on my Watch List to play a pullback.
Momentum Options Play List
Closed Momentum Options Trades for 2020: 17-4 (81%). 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.
Spider Gold Shares (GLD, $162.64, down $0.70)
GLD May 170 calls (GLD200515C00170000, $1.55, down $0.45)
Entry Price: $1.55 (4/22/2020)
Exit Target: $3.10
Stop Target: $1.60 (Stop Limit)
Action: The Stop Limit at $1.60 tripped on Friday’s pullback in GLD. If shares clear $164, we could get back into GLD with June calls.
AT&T (T, $29.71, up $0.21)
T June 32 calls (T200619C00032000, $0.65, flat)
Entry Price: $1.25 (4/14/2020)
Exit Target: $2.50
Stop Target: 40 cents (Stop Limit)
Action: Friday’s high tapped $29.95 with lower resistance at $30-$30.25 getting challenged but holding. Support remains at $29.25-$29.
Dropbox (DBX, $20.20, up $0.37)
DBX May 20 calls (DBX200515C00020000, $1.50, up $0.10)
Entry Price: $1.05 (4/6/2020)
Exit Target: $2.10
Stop Target: $1.20 (Stop Limit)
Action: Lower resistance at $20-$20.25 was cleared and held with Friday’s peak reaching $20.24. A close above the latter would be a renewed bullish signal for a breakout towards $20.75-$21. Support remains at $19.75-$19.50.