MomentumOptions.com Pre-Market Update for 5/5/2020
Bulls Mount Final Hour Rally
The market showed weakness throughout much of Monday’s action following a report new orders for U.S.-made goods fell more than expected in March and could sink further as the health crisis upends supply chains and exports.
Additionally, news that officials in the Trump administration said they are turbocharging an initiative to remove global industrial supply chains from China also weighed on sentiment. However, a final hour rally helped lift the major indexes into positive territory as strength in the Tech sector was evident throughout the session.
The Nasdaq jumped 1.2% with the late day peak reaching 8,715. Near-term and lower resistance at 8,700-8,750 was recovered with a close above the latter getting 8,800-8,850 back in focus.
The S&P 500 rose 0.4% after trading in a 47-point range with the morning low reaching 2,797. Current and upper support at 2,800-2,775 was cracked but held with a close below the latter signaling additional risk towards 2,750 and the 50-day moving average.
The Russell 2000 climbed 0.3% while closing on its session peak of 1,263. Fresh and lower resistance at 1,260-1,275 was cleared and held with a move above the latter signaling a retest towards 1,285-1,300.
The Dow edged up 0.1% despite trading to an opening low of 23,361. Near-term and upper support at 23,500-23,250 was breached but held with a close below the latter and the 50-day moving average signaling additional weakness towards 23,000-22,750.
Energy showed the most sector strength after rallying 3.5% while Technology and Utilities were up 1.3% and 0.8%, respectively. Industrials and Financials were the weakness sectors after falling 1.3% and 0.9%, respectively.
In economic news, Factory Orders dropped -10.3% in March, a new record decline, following the revised -0.1% slip in February. Expectations were for a drop of 9.5%. The -14.4% slide in durable orders in the Advance report was bumped slightly lower to -14.7%, also a historic drop. Transportation orders crashed -41.3% after bouncing 4.6% in February. Excluding transportation, factory orders fell -3.7% versus the prior -1.1% decline. Nondefense capital goods orders excluding aircraft dipped -0.1% versus -0.7% previously. Shipments tumbled -5.2% in March after dipping -0.3% in February. Nondefense capital goods shipments excluding aircraft were down -0.2% versus -0.9%. Inventories dropped -0.8% versus a revised -0.4% while the inventory-sales ratio jumped to 1.46 from 1.40.
The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 3rd time in 4-sessions after trading to an intraday low of $166.48. Current and upper support at $166.50-$166 was breached but held. A close below the latter would be a bearish development with additional downside risk towards $165.50-$165.
Lowered resistance at $167.50-$168 with additional hurdles at $169.50-$170.
The S&P 500 Volatility Index ($VIX) fell for the first time in 3 sessions despite testing a morning peak of 40.32. Current and lower resistance at 40-40.50 was breached but held with a move above the latter signaling additional strength towards 42-42.50.
Upper support at 35.50-35 was challenged but held on the afternoon fade to 35.53. A close below the latter would be a renewed bullish signal for a retest towards the 32.50-32 area.
The Spider Small-Cap 600 ETF (SLY) extended its losing streak to 3-straight sessions after trading to an intraday low of $51.08 while closing back below its 50-day moving average. Near-term and upper support at $51.50-$51 was breached but held. A close below the latter would be an ongoing bearish signal with additional pullback potential towards $50.50-$50.
Lowered resistance is at $52.50-$53 with additional hurdles at $54-$54.50.
RSI remains in a downtrend with upper support at 50-45 holding. A move below the latter would be a bearish signal for additional weakness towards 40-35 and early April levels. Resistance is at 55-60.
The Industrials Select Sector Spider (XLI) fell for the 3rd-straight session after testing an intraday low of $60.60. Prior and upper support at $61-$60.50 was tripped but held. A close below the $60 level and the bottom of the prior 14-session trading range would be an ongoing bearish signal with additional risk towards $58.50-$58.
Near-term and lowered resistance is at $61.50-$62 with more important hurdles at $62.50-$63 and the 50-day moving average.
RSI is trying to level out after holding upper support at 45-40 with the latter representing the early April low. Key resistance at 50. Continued closes back above above this level keeps upside strength towards 55-60 in play.
I was a tad hesitant to open fresh bearish trades yesterday as Tech’s strength kept the bulls in the game for another round or 2. The technical setups for the overall market remain nasty and volatility has been bubbling the past 3 sessions. The bid/ask spreads have also widened and slightly out-of-the-money remain on the expensive side.
The current environment remains a stock’s pickers market and there are still great setups on my Watch List. The real battle has been in the June option puts as slightly longer-term traders battle over where the market will be.
I’m still watching the VIX for the best bet to give us the next short-term trend. A close above 40 or a close below 30 should lead to a more defined market move and give a better feeling on how the month of May might unfold.
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.
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Carnival (CCL, $14.34, up $0.41)
CCL May 13 puts (CCL200515P00013000, $0.70, down $0.15)
Entry Price: $0.80 (5/1/2020)
Exit Target: $1.60
Stop Target: None
Action: Shares sank to a low of $12.75 with the options peaking at $1.25 at the start of trading. However, after the open the company said they are booking cruises in August.
Resistance is at $14.50-$14.75. I still think a retest to $12 is still in the cards and I was hoping that would occur by this Friday as these options expire a week afterwards. I would like to see $15 hold today with a close back below $14 being even better.