MomentumOptions.com Pre-Market Update for 5/6/2020
Bulls Get 2nd-Straight Win
The market showed continued strength on Tuesday as the continued easing of lockdowns underpinned optimism that the worst may be behind us while offsetting another round of disappointing economic news. The first dosing participates in a coronavirus vaccine development program also lifted sentiment.
The Nasdaq was higher by 1.1% after testing a midday high of 8,909. Prior and lower resistance at 8,900-8,950 was cleared but held with a move above the latter signaling strength towards 9,000-9,050 and levels from early March.
The S&P 500 rose 0.9% following the intraday push to 2,898. Current and resistance at 2,875-2,900 was cleared but held with a close above the latter signaling additional strength towards 2,925-2,950.
The Russell 2000 was up 0.8% with the morning peak reaching 1,302. Prior and lower resistance at 1,300-1,315 was cleared but held with a close above the latter signaling a retest towards 1,320-1,335.
The Dow was higher by 0.6% with the session high tapping 24,169. Near-term and lower resistance at 24,000-24,250 was breached but held with a close above the latter keeping upside potential towards 24,500-24,750 in focus.
Healthcare was the strongest sectors after surging 2.1% while Technology and Utilities added 1.4% and 0.9%, respectively. Financials were the only sector laggard after slipping 0.2%.
In economic news, the U.S. March trade deficit widened 11.6% to -$44.4 billion, matching forecasts, following the -12.2% narrowing in February to -$39.8 billion. Exports declined -9.6% to $187.7 billion after sliding -0.4% previously to $207.7 billion. Imports slumped -6.2% to $232.2 billion following the prior -2.5% decline to $247.6 billion. The real goods trade deficit jumped to -$75.3 billion versus -$68.8 billion with real goods exports falling 5.1% after rebounding 2.6% in February and real goods imports sliding -0.6% versus -2.3% previously. Excluding petroleum, the red ink was -$46.5 billion versus -$40.7 billion. The trade shortfall with China shrunk further to -$11.8 billion versus -$16 billion and is down from -$20.7 billion a year ago. The deficit with Canada was a little larger at -$1.6 billion versus -$1.1 billion.
PMI Services Index was bumped down to 26.7 in the final April print versus the 27 flash reading, and is down 13.1 points from March’s 39.8. Employment fell to 35.6 from 47.5, a historic low. The final April composite dropped to 27 versus the 27.4 flash, and has tumbled 13.9 points from March’s 40.9. This was also is the lowest on record, as is the new orders index which declined to 26.4 from 40.9.
ISM Non-Manufacturing Index slumped -10.7 points to 41.8 in April following the -4.8 point drop in March to 52.5. This represented the lowest print since April 2009, with the all-time low at 37.8 from November 2008. The business activity index plunged another -22 points to of 26 after the -9.8 decline to 48 previously. This is both a record drop and a record low. New orders dove another -20 points to 32.9 following March’s -10.2 point tumble to 52.9. Employment plummeted -17 points to 30. New export orders declined -9.6 to 36.3, while imports rose 9.1 ticks to 49.3. Prices paid also moved up 5.1 points to 55.1.
U.S. IBD/TIPP economic optimism index edged UP 1.9 points in May to 49.7 after falling to 47.8 in April, the first time in pessimistic territory since late 2016). Though that’s still below the neutral 50 reading, the direction is encouraging and was supported by the PPP and other relief measures, the gains on Wall Street, and the widening reopening plans. The report noted consumers are holding onto small seeds of hope. Meanwhile, the 6-month index bounced 4.3 points to 42.3 after slumping to the lowest level since October 2011. Also, the personal finances index climbed after posting its largest monthly drop ever in April, helped by the best month for the Dow since 1987. Other indexes showed financial stresses eased with the gauge falling -5.8 ticks to 64 after surging to the highest level since December 2008. The personal finances subindex was at 50.2 in April, still in positive territory but the lowest reading since October 2013. the federal policies subindex dipped 1.3 points to 53.8 in May poll, but remained positive. Approval of President Trump continued to benefit from support for the federal coronavirus response.
Redbook Store Sales were down -9.3% for the year in the week ending May 2nd.
The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 2nd-straight session following the intraday backtest to $165.27. Prior and upper support from mid-April at $165.50-$165 was breached but held. A close below the latter would be a bearish signal with additional pullback potential towards $163-$162.50 and the 50-day moving average.
Lowered resistance at $166.50-$167.
The S&P 500 Volatility Index ($VIX) was down for the 2nd-straight after testing an intraday low of 31.95. Prior support at 32.50-32 breached but levels that held. A close below the latter would signal a retest towards 30.50-30 with the late April low at 30.54.
Lowered resistance is at 34.50-35 followed by 37-37.50.
The Spiders Dow Jones Industrial Average ETF (DIA) was up for the 2nd-straight session with the intraday high tapping $241.74. Lower resistance at $241.50-$242 was cleared but held. Continued closes above the latter would signal a retest towards $244.50-$245 with the late April peak at $247.67.
Current support is at $238.50-$238 with backup help at $236.50-$236.
RSI is trying to curl higher with lower resistance at 55-60 holding. Continued closes above the latter and the late April high would signal additional strength towards 65 and the mid-February peak. Support is at 50 and a level that has been holding since early April.
The iShares MSCI Emerging Markets Fund (EEM) extended its winning streak to 2-straight sessions after gapping to an intraday high of $36.24. Key resistance at $36 and the 50-day moving average were cleared and held. Continued closes above the $36.25 level would be an ongoing bullish signal for a retest towards $37-$37.25.
Fresh support is at $35.75-$35.50. A close back below the latter would be a slightly bearish signal with risk towards $35-$34.75.
RSI is in a slight uptrend after clearing and holding key resistance at 50. Continued closes above this level would signal additional strength towards 55-60 and the latter representing the late April peak. Support is at 45-40 with the latter holding since late March.
I have updated our current positions so let’s go check the tape. I could also have a New Trade, or 2, if the VIX can get below 30 today.
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.
Carnival (CCL, $13.09, down $1.25)
CCL May 13 puts (CCL200515P00013000, $1.00, up $0.30)
Entry Price: $0.80 (5/1/2020)
Exit Target: $1.60 (Limit Order on half)
Stop Target: None
Action: Set a Limit Order to close half the trade at $1.60.
Tuesday’s low tapped $12.93 with upper support at $13-$12.75 getting breached but holding. Lowered resistance is at $13.50-$13.75.