MomentumOptions.com Pre-Market Update for 4/30/2020

Bulls Continue Assault to Higher Highs

8:00am (EST)

The market closed higher on Wednesday despite dour economic news as mostly upbeat earnings from the tech sector helped sentiment. Minutes from the latest Fed meeting and comments from Fed Chairman Powell were right on cue with the major indexes holding strong gains into the closing bell.

The Russell 2000 zoomed 4.8% after trading to a midday high of 1,373. Fresh and lower resistance at 1,350-1,375 was recovered with a close above the latter signaling additional strength towards the 1,400 level and prior support from early March.

sc.png

The Nasdaq rallied 3.6% with the late session high reaching of 8,957. Near-term and lower resistance at 8,950-9,000 was breached but held with a close above the latter signaling additional strength towards 9,075-9,150.

sc_1.png

The S&P 500 was up 2.7% after trading to an intraday high of 2,954. New and lower resistance at 2,950-2,975 was cleared but held with a move above the latter signaling momentum towards 3,000-3,025 and the 200-day moving average.

sc_2.png

The Dow gained 2.2% following the afternoon trip to 24,764. Prior and lower resistance from early March at 24,750-25,000 was breached but held with a close above the latter getting 25,250-25,500 in focus.

sc_3.png

Energy and Communication Services were the strongest sector after soaring 7.5% and 4.8%, respectively, while Technology and Financials were higher by 4.1% and 2.9%. Utilities and Consumer Staples were the only sector laggards after falling 0.9% and 0.4%.

In economic news, MBA Mortgage Applications fell -3.3% last week after slipping -0.3% previously. On a 12-month basis, applications are up 72.2% year-over-year, versus the 70% clip previously. Weakness in refinancings weighed on the headline as they fell -7.3% while the purchase index climbed 11.2%. Refis are still up 217.6% year-over-year, however, albeit a slightly slower pace than the prior 225.3% pace. The purchase index is contracting at a -20.2% year-over-year clip, versus -31.1% previously. The 30-year mortgage dipped to 3.43% from 3.45%, a new historic low, while the 5-year ARM was steady at 3.29%.

Q1 GDP plunged -4.8%, after Q4’s 2.1% gain, while missing estimates for a decline of 4%. It’s the first contraction since Q1 2014’s -1.1% and halts the longest expansion in U.S. history. It is the weakest since the record -8.4% drop from Q4 2008. Consumption plummeted -7.6% last month, the worst on record, following a 1.8% rate of growth in Q4. Fixed investment dove -5.6%, with business fixed investment tumbling -8.6% from -2.4% in Q4, and was offset by a 21% surge in residential. Inventories declined -0.53% after subtracting -0.98% previously. Net exports added 1.3% versus the prior 1.51% gain. Government spending increased 0.7% versus the prior 2.5% rise, supported by a 3.1% pop in nondefense spending. The chain price index was unchanged at the 1.3% clip from Q4 and is down from 1.8% in Q3. The core rate rose to 1.8% versus the prior 1.3% pace in Q4.

Pending Home Sales plummeted -20.8% to 88.2 in March. That’s the largest drop in a decade and is the lowest since May 2011 and follows the 2.3% increase in February to 111.4. The index is now down -14.5% year-over-year versus the 11.4% expansion pace previously. Pending sales in all four regions of the nation declined, with the West’s -26.8% tumble leading the way.

The FOMC left rates steady in the 0%-0.25% range, and reiterated it will keep rates there until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. The Fed said it is committed to using its full range of tools to support the economy as it noted that the outbreak is causing tremendous human and economic hardship. The Fed didn’t include any forward guidance but added they are monitoring public health to the economic factors that will impact policy.

Fed Chairman Powell said the Federal Reserve can be part of the answer, but elected officials will likely need to do more to support the economy with fiscal policy if the recovery from the pandemic is going to be robust. He noted that while the Fed will continue to purchase Treasuries and MBS to support the economy, it has slowed the rate as the asset purchases have helped the markets substantially in recent weeks. He reminded too, the Fed has lending powers, not spending powers. 

Powell reiterated the Fed is committed to using its full range of powers to ensure the recovery will be robust. He said there are a number of dimensions where the Fed can help as there is no limit to the dollar amount the Fed can provide. Powell added it may well be the case, however, that the economy will need more support from everyone if the recovery is to be a robust one.

The iShares 20+ Year Treasury Bond ETF (TLT) zigzagged for the 3rd-straight session with the first half high tapping $170.26. Current and lower resistance at $170-$170.50 was cleared but held. A close above the latter would signal another retest towards $172-$172.50.

Upper support at $168-$167.50 was breached but held on the fade to $167.96 afterwards. A close below the $167 level would signal a possible breakdown out of the current 11-session trading range with additional downside risk towards $165.50-$165.

sc_4.png

The S&P 500 Volatility Index ($VIX) fell for the 5th time in 6 sessions following the first half tumble to 30.71. Current and upper support at 30.50-30 was challenged but held for the 2nd-straight session. A close below the latter would signal additional weakness towards the 27.50-25 area.

Lowered resistance is at 32.50-33 followed by 34.50-35.

sc_5.png

The Invesco QQQ Trust (QQQ) was up for the 3rd-time in 4 sessions after soaring to an afternoon and fresh monthly high of $219.97. Prior and lower resistance from late February at $219.50-$220 was cleared but held. Continued closes above the latter would be an ongoing bullish signal with retest potential towards $222-$222.50.

Current support is at $217.50-$217 with additional help at $215.50-$215. The 50-day moving average remains on track to fall below the 200-day average. This would confirm a death cross and is typically a bearish technical signal for lower lows down the road.

RSI is back in an uptrend with key resistance at 60 getting cleared and holding. Continued closes above this level would signal additional strength towards 65-70 and early February levels. Support is at 55-50 on a move back below 60.

sc_6.png

The Utilities Select Spider (XLU) fell for the first time in 4 session despite tapping an intraday high of $60.14. Lower resistance at $60-$60.50 was cleared but held. Continued closes above the latter would be a bullish signal for a run towards $61.50-$62 and the 200-day moving average.

The pullback to $58.37 breached upper support at $58.50-$58 but a level that held. The close below the 50-day moving average was a slightly bearish signal with a move below $57.50 signaling a possible near-term top with additional backtest potential towards $57-$56.50.

RSI has flatlined with key resistance at 55. A close above this level would signal additional strength towards 60-65 and prior levels from mid-December. Support is at 50 and a level that has been holding for the past 3 weeks.

sc_7.png

The near-term outlook remains bullish as the major indexes look poised to join Tech and make a run at the 200-day moving averages. There was a number of positive earnings after Wednesday’s close that should help sentiment on today’s open. Additionally, I would like to see the VIX recover 30 today, and hold this level into Friday’s close, as it would confirm a continued run to higher highs.

On that note, I could have additional new trades today so stay locked-and-loaded.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 18-4 (82%). 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.

Western Union (WU, $19.96, up $0.83)

WU June 20 calls (WU200619C00020000, $1.20, up $0.40)

Entry Price: $0.80 (4/28/2020)

Exit Target: $1.60

Return: 50%

Stop Target: 95 cents (Stop Limit)

Action: Set an Stop Limit at 95 cents to start protecting initial profits.

Wednesday’s high tapped $20.18 with current and lower resistance at $20-$20.25 getting cleared but holding by a smidge. Rising support is at $19.75-$19.50.

sc_8.png

AT&T (T, $31.43, up $0.78)

T June 32 calls (T200619C00032000, $1.15, up $0.35)

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

Exit Target: $2.50

Return: -8%

Stop Target: 40 cents, raise to 85 cents (Stop Limit)

Action: Raise the Stop Limit from 40 cents to 85 cents. This trade has made a sweet comeback but we will need to see continued closes above $32 this week to keep the momentum going. These are also June options so we still have plenty of time for the trade to play out.

Lower resistance from mid-March at $31.75-$32 was cleared but held following Wednesday’s surge to $31.87. Rising support is at $31.25-$31.

sc_9.png