MomentumOptions.com Pre-Market Update for 5/1/2020
Jobless Claims Weigh on Market
The market from the Tech sector as another round of disappointing economic news outweighed the good results. Despite the losses, the major indexes posted a solid April to snap multi-month losing streaks while holding near-term support levels.
The Russell 2000 tanked 3.5% while settling on the session low 1,310. New and upper support at 1,315-1,300 was breached and failed to hold with a close below the latter setting up additional weakness towards 1,290-1,275.
The Dow lost 1.2% with the intraday low reaching 24,186. Current and upper support at 24,250-24,000 was breached but held with a close below the latter signaling a further retest towards 23,750-23,500 and the 50-day moving average.
The S&P 500 was off 0.9% after testing an afternoon low of 2,892. Fresh and upper support at 2,900-2,875 was clipped but held with a move below the latter opening up weakness towards 2,850-2,825.
The Nasdaq was slipped 0.3% with the intraday low reaching 8,825. Near-term support at 8,850-8,800 was split but held with a close below the latter being a slightly bearish development with additional downside risk towards 8,750-8,700.
For the month of April, the Nasdaq zoomed 15.6% while the Russell 2000 rocketed 14.3% higher. The S&P jumped 12.8% and the Dow rallied 11.2%.
Materials and Financials were the weakest sectors after giving back 3% and 2.5%, respectively, while Utilities were lower by 2.3%. There was no sector strength.
Over the past 30 days, all S&P 500 sector posted gains, led by Energy (37.2%); Materials (20.8%); Consumer Discretionary (19.7%); and Communication Services (18.1%).
In economic news, Initial Jobless Claims fell -603,000 to 3,839,000 in the week versus expectations of 3,500,000, and follows the -795,000 drop to 4,442k,000 in the prior week. The 4-week moving average declined to 5,033,000 versus 5,790,000 previously. Continuing claims increased 2,174,000 to 17,992,000 after the prior week’s 3,904,000 jump to 15,818,000. Despite the slippage in claims during the past two weeks, levels remain at lofty levels consistent with massive layoffs amid the near shutdown of the U.S. economy.
U.S. spending tanked -7.5% in March with income falling -2%. It represented the steepest spending drop on record, and the biggest income decline since January 2013. In February, spending edged up 0.2%, while income had jumped 0.6%. Compensation declined -2.8% from 0.5%. Wages and salaries dropped -3.1% after rising 0.5% previously. Disposable income was down -2% versus 0.5%. The savings rate surged 13.1% after the 8% rise in February. The headline chain price index fell -0.3%, the largest drop since January 2015, following February’s 0.1% gain, with the core rate sliding to -0.1%, the weakest since March 2017, from 0.2%. On a 12-month basis, the headline slowed to 1.3% year-over-year versus 1.8%, and was 1.7% year-over-year for the core versus 1.8%.
The employment cost index (ECI) rose 0.8% in Q1, stronger than expected, versus the 0.7% gain in Q4 and Q3 2019. Wages and salaries grew at a 0.9% rate versus 0.7% previously. On a 12-month basis ECI accelerated to a 2.8% year-over-year pace versus 2.7%. Wages and salaries also climbed to a 3.1% year-over-year rate versus 2.9% previously. Benefit costs slowed further to 2.1% year-over-year from 2.2% in Q4.
Chicago PMI for April fell another -12.4 points to 35.4 following the -1.2 point drop to 47.8 in March. The index has been below the 50-breakeven since July 2019, and it’s been on a rather precipitous decline from the 66.5 print from July 2018. The 3-month moving average declined to 44.1 from 46.6.
The Fed announced an expansion to the scope of its Main Street Lending program designed to help mid-sized companies. However, the start date is still uncertain. The minimum size loan was trimmed to $500,000 from $1,000,000, while maximums were also increased to now include businesses with up to 15,000 employees (previously the maximum was $10,000), or $5 billion in annual revenue (was $2.5 billion) now eligible. Also added was an additional loan option for leveraged companies, on top of the new loans and priority loans. The Fed is still evaluating options for non-profit companies.
The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 2nd-straight session following the 2nd half fade to $166.71. Near-term and upper support at $167-$166.50 was breached and failed to hold. A close below the latter would start to signal a breakdown out of the current 12-session trading range with additional downside risk towards $165.50-$165.
Lowered resistance is at $167.50-$168 followed by $169.50-$170.
The S&P 500 Volatility Index ($VIX) was up for just the 2nd time in 7 sessions after testing an intraday high of 35.94. Lower resistance at 35.50-36 was breached but held with a close above the latter signaling additional upside risk towards 37.50-40.
Current support is now at 32.50-32 followed by 30.50-30.
The Russell 2000 ETF (IWM) had its 6-session winning streak snapped following the midday pullback to $130.14. Near-term and upper support at $130.50-$130 was breached and failed to hold. A drop below the latter would signal additional weakness towards $127.50-$127.
Current and lowered resistance is at $131.50-$132 followed by $133-$133.50.
RSI is back in a downtrend with upper support at 55-50 holding and the latter sticking for the past 3 weeks. A close below 50 would signal additional weakness towards 45-40. Resistance is at 60-65.
The Materials Select Sector (XLB) was also lower for the first time in 7 sessions after trading to an intraday low of $51.80. Fresh and upper support at $52-$51.50 was breached and failed to hold. A close below the latter would be an ongoing bearish signal for additional weakness towards $50.50-$50.
Lowered resistance is now at $52.50-$53. A close above the $54 level would be a renewed bullish signal for a retest towards $55.50-$56 and the 200-day moving average.
RSI is in a downtrend with upper support at 55-50 holding. A close below the 50 level would signal additional weakness towards 45-40 with the latter representing the beginning of April low. Resistance is at 60-65.
Aside from yesterday’s Profit Alert for Western Union (WU), we also had our Stop Limit on AT&T trip. The AT&T trade was the first loss (-36%) for the portfolio since the start of March but we can’t complain as AT&T has been super good to us this year, and especially last year when we went 13-0. As of yesterday’s close, our track record is now at 19-5 and the website should be updated by the start of next week.
This leaves the portfolio with no trades and something that is rare. I usually have 3-5 open weekly trades throughout the years and since our 2008 inception for MomentumOptions.com, I don’t recall the portfolio without an open trade. However, these are volatile times for the market so I have been very nimble.
The good news, is the first 4 months of the year have been incredible as we have profited on 8 out of 10 trades, on average, with four 200%-300% winners and a number of other 100+% winners. Yipee!
I hope to have new trades today, especially if the VIX trips 35 again. However, I usually don’t like opening new positions on a Friday and I don’t want to push the action. The weekend will give me the time to research new trades, as usual, and a chance to continue to stay one step ahead of the market.
Momentum Options Play List
Closed Momentum Options Trades for 2020: 19-5 (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, $30.46, down $0.96)
T June 32 calls (T200619C00032000, $0.80, down $0.35)
Entry Price: $1.25 (4/14/2020)
Exit Target: $2.50
Stop Target: 85 cents (Stop Limit)