MomentumOptions.com Pre-Market Update for 5/7/2020
Tech Stays Strong Despite Choppy Session
The market showed strength on Wednesday’s open despite a woeful employment report that showed over 20 million jobs were lost in April. Some selling pressure followed shortly afterwards when Secretary of State Mike Pompeo reiterated the coronavirus disease came from a research laboratory in Wuhan, China.
President Donald Trump also took aim at China, urging it to be transparent about the origins of the coronavirus outbreak, and worrying Wall Street tensions between the two countries will remain elevated. Financials were a drag after the Treasury Department said it would launch a long-planned 20-year bond to meet record government borrowing needs amid the outbreak.
The Nasdaq gained 0.5% with the intraday peak reaching of 8,933. Prior and lower resistance at 8,900-8,950 was cleared but held for the 2nd-straight session with a close above the latter signaling strength towards 9,000-9,050.
The Dow was down 0.9% following the late day fade to 23,661. Near-term and upper support at 23,750-23,500 was breached and failed to hold with a close below the latter signaling additional weakness towards 23,250-23,000 and the 50-day moving average.
The Russell 2000 was off 0.8% with the afternoon low tapping 1,262. Upper support at 1,265-1,250 was tripped and failed to hold with a move below the latter signaling a further retreat towards 1,240-1,225.
The S&P 500 fell 0.7% after trading down to 2,847 ahead of the closing bell. Current and upper support at 2,850-2,825 failed to hold with a close below the latter signaling additional risk towards 2,800-2775.
Technology was the only sector that showed strength after rising 0.8%.
Utilities paced sector weakness after sinking 3.4% while Energy and Financials gave back 2.6% and 2.2%, respectively.
In economic news, MBA Mortgage Applications rebounded 0.1% last week after falling -3.3% in the prior week. The index is still up 67.8% year-over-year though it’s eased from 72.2% previously. Strength on the week remained in purchases, with the index rising another 5.8% following a 11.6% climb in late April. Refis declined for the 3rd-straight week, slipping -1.7% after dropping -7.3% previously. Compared to last year, however, the refi index is still 209.7% year-over-year higher, while purchases are down -18.8% year-over-year. The 30-year mortgage rate fell to 3.40%, a new record low, and was at 4.41% a year ago. The 5-year ARM declined to 3.20% from 3.29%, and was at 3.88% last year.
ADP Employment Report revealed private payrolls plunged -20,236,000 in April following a downward revision to -149,000 in March. The service sector lost -16,000,000 jobs, led by leisure/hospitality which was down -8,600,000. There was a -3,400,000 decline in trade/transport, along with a -1,200,000 slide in professional business services. Employment in the goods sector declined -4,200,000 with a -2,500,000 drop in construction and -1,700,000 in manufacturing. Large firms shed -9,000,000 jobs, followed by a -6,000,000 decline in small business and -5,300,000 from medium sized firms.
St. Louis Fed James Bullard expects Q3 to be a transition quarter with most of the pandemic and shutdown impacts hitting this quarter. He said unemployment could hit 20% or higher and the April jobs report will be one of the worst ever.
Bullard said there should be a relatively rapid pick-up in growth in Q4 and the unemployment rate could get back below double digits by the end of the year. He didn’t discuss much about policy, and whether the FOMC would be shifting to a yield curve control strategy, but said rates are low and are expected to stay low.
Richmond Fed Tom Barkin said the mountain of debt will have to be addressed at some point, but it’s not now. Analysts have to do what analysts are doing now, he said, but at some point there will be a need for real conversations about how analysts land in the right place. Other policymakers have indicated now’s not the time to worry about the deficit, debt, and inflation, as stabilizing the economy, mitigating the collapse in employment, and getting the economy reopened are the priorities.
Barkin also added that getting the fiscal situation under more control will require whatever combination of less spending, higher revenues or increased growth.
Dallas Fed Robert Kaplan could see Q2 GDP crashing -25% to -30% on an annualized basis, with the unemployment rate peaking around 20%. But, like other Fed officials, he could see the economy growing again in Q3 and Q4. But he also expects a very phased and very gradual reopening in the economy.
Kaplan also confirmed the Fed will keep policy very accommodative for an extended period of time. He said the rebound in consumer confidence should hinge on tackling the unemployment problem while the surge in corporate and consumer debt is a big concern.
The iShares 20+ Year Treasury Bond ETF (TLT) extending its losing streak to 3-straight sessions following the intraday plunge to $162.05.Prior and upper support from late March at $162.50-$162 was breached but held along with the 50-day moving average. A close below the latter would be an ongoing bearish development with additional downside risk towards $161-$160.50.
Lowered resistance at $163.50-$164 followed by $164.50-$165.
The S&P 500 Volatility Index ($VIX) fell for the 3rd-straight session despite tagging an intraday high of 35.69. Current and lower resistance at 35.50-36 was breached but held with a close above 37.50 being a cautious signal for the market.
Current support remains at 32.50-32 with Wednesday’s low tapping 31.68.
The Spider S&P 500 ETF (SPY) was down for the first time in 3 sessions following the pullback to $283.78. Near-term and upper support at $284-$283.50 was clipped but held. A close back below the latter would reopen downside risk towards the $282.50-$280 area.
Lowered resistance is at $285-$285.50. A close back above the $287.50 level would signal a possible retest towards $288.50-$289.
RSI is back in a slight downtrend with key support at 50. A close below this level would be a bearish signal for additional weakness towards 45-40 with the latter representing the early April low. Resistance is at 55-60.
The Technology Select Sector Spiders (XLK) extended its winning streak to 3-straight sessions after trading to a high of $92.92. Lower resistance from early March at $92.50-$93 was cleared but held. A close above the latter would signal a fresh breakout with upside potential towards $94.50-$95.
Rising support is at $91.50-$91. A move below the latter would be a slightly bearish signal with backtest potential towards $90.50-$90.
RSI remains in an uptrend with key resistance at 60 holding. Continued closes above this level would signal additional momentum towards 65-70 with the latter representing the February peak. Key support is at 55-50 with the latter holding since early April.
I mentioned earlier in the week the VIX needs to close below 30, or clear 40, for the next major trend to possibly be established. This week’s peak has been 40.32 with the low at 31.68 that was tagged yesterday. Today will likely be a good clue on how the rest of the week, and next, might unfold so stay on your toes for more new trades.
On that note, I have updated our latest position so let’s go check the tape.
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.
Limelight Networks (LLNW, $4.90, down $0.06)
LLNW June 5 calls (LLNW200619C00005000, $0.55, unchanged)
Entry Price: $0.60 (5/6/2020)
Exit Target: $1.20
Stop Target: None
Action: Shares traded to a high of $5.12 before the negative close with lower resistance at $5.10-$5.20 getting cleared and holding. Upper support at $4.90-$4.80 held on the session low.
Carnival (CCL, $12.82, down $0.27)
CCL May 13 puts (CCL200515P00013000, $1.05, up $0.05)
Entry Price: $0.80 (5/1/2020)
Exit Target: $1.60 (Limit Order on half)
Stop Target: None
Action: Shares kissed a low of $12.58 with upper support at $12.75-$12.50 getting breached but holding. Lowered resistance is at $13-$13.25.