MomentumOptions.com Pre-Market Update for 5/8/2020

Nasdaq Back in Black for 2020

8:00am (EST)

The market showed strength throughout Thursday’s session following reports that China and U.S. trade officials are expected to meet next week. The news offset the fact that there were another 3 million U.S. jobless claims last week.

The gains helped push the Nasdaq back into positive territory for the year with the breakeven point at 8,972 and a level that held into the close. Small-caps showed the most strength while volatility fell to its lowest intraday level in 2 months.

The Russell 2000 rallied 1.6% after testing a midday high 1,289. Current and lower resistance at 1,285-1,300 was cleared but held with a close above the latter signaling additional strength towards 1,310-1,325.

The Nasdaq jumped 1.4% following the intraday run to 9,015. Prior and lower resistance at 9,000-9,050 was cleared but held with a close above the latter and the early March high of 9,070 getting 9,100-9,150 in focus.

The S&P 500 soared 1.2% with the afternoon high tapping 2,901. Near-term and lower resistance at 2,900-2,925 was tripped but held with a close above the latter signaling additional momentum towards 2,950-2,975.

The Dow was up 0.9% after trading to a 1st half peak of 24,094. 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 play.

Energy was the strongest sector after zooming 2.6% while Financials and Materials were higher by 2.4% and 2.1%, respectively. Consumer Staples and Healthcare were the only sector laggards after falling 0.3% and 0.01%, respectively.

In economic news, Challenger Job-Cut Report announced layoffs surged a record 448,841 to 671,129 in April, the highest on record, with COVID-19 responsible for 633,082 of them. That’s up 1,576.9% year-over-year. Most of the cuts, 318,319 came from the entertainment/leisure sector that includes bars, restaurants, hotels and amusement parks. Retailers announced the second highest planned reductions at 84,502. Announced hirings dropped -538,971 to 285,637.

Initial Jobless Claims fell -677,000 to 3,169,000 last week, versus forecasts for a print just north of 3 million, and follows the -596,000 decline to 3,846,000 in the previous week. This represented the 5th-straight week of pullback from the 6,867,000 record high in the last week of March. The 4-week moving average dipped to 4,173,500 from 5,035,000. Continuing claims rose 4,636,000 to 22,647,000 after surging 2,192,000 to 18,011,000 previously.

Q1 nonfarm productivity contracted at a -2.5% rate, the lowest since Q4 2015, after growing at a 1.2% pace in Q4.. The record low of -11.7% was hit in Q3 1947 and was quickly followed in Q4 by the record 17.9% bounce. Output dropped -6.2% last quarter versus the 2.4% clip in Q4. Hours worked slid -3.8% from 1.2% previously. Q1 unit labor costs rose to a 4.8% pace versus the 0.9% pace from Q4, and the highest since the 5.7% from Q1 2019. On a 12-month basis, Q1 productivity slowed to 0.3% year-over-year versus 1.8% previously.

Concerning Fedspeak, San Francisco Fed Mary Daly believes the economy will post negative growth for 2020, and doesn’t expect positive growth again until 2021. She said none of her contacts are anticipating a V-shaped recovery, though they are more optimistic than you might think and are ready to reopen and reengage.

Daly went on to say the elevated coronavirus uncertainties are making forecasting very difficult. She sidestepped a question on negative interest rates, which Fed funds futures are reflecting for early 2021, but she hasn’t voiced support for such in the past.

Atlanta Fed Raphael Bostic reiterated the Fed will deploy its full arsenal to support the economy and it will be in no hurry to take back its emergency measures. Je said the the Fed should err on the side of being too engaged and providing too much support in order to avoid the chances the data are misinterpreted and it turns out less was done than actually needed. 

Bostic also stressed a full virus response requires fiscal participation too as the path of the recovery is very uncertain and will depend on the virus. He did say the risks of an outright depression have declined while adding the reopened parts of the economy are seeing mixed performances.

The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 3-session slide after trading to an intraday high of $166.37. Lower resistance at $166-$166.50 was cleared and held with additional hurdles $167.50-$168.

Current support is at $165.50-$165 followed by $163.50-$163 and the 50-day moving average.

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The S&P 500 Volatility Index ($VIX) fell for the 3rd time in 4 sessions after tumbling to a morning and fresh monthly low of 30.37. Upper support from early March and late April at 30.50-30 was tripped but held. A close below the latter would be a significant and bullish signal for further weakness towards 28-27.50.

Lowered resistance is at 32-32.50 followed by 34.50-35.

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The iShares Russell 1000 (IWF) was up for the 4th-straight session after trading to an intraday and monthly high of $175.38. Key resistance at $175 was cleared but held. Continued closes above this level would be a bullish signal for a retest towards $177-$177.50 and levels from early March.

Current and rising support is at $174-$173.50. A close back below the latter would signal retest potential towards $172.50-$172. 

RSI remains in an uptrend with resistance at 60 getting cleared and holding. Continued closes above this level would signal additional strength towards 65-70 with the latter representing the early February high. Support is at 55-50.

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The Real Estate Select Sector Spider (XLRE) was up for just the 2nd time in 6 sessions with the intraday high reaching $33.16. Prior and lower resistance at $33-$33.25 and the 50-day moving average were cleared but levels that held. A close above the $33.50 level would be a more bullish development of a near-term bottom with additional hurdles at $34-$34.25.

Current support remains at $32.50-$32.25. A close below the $32 level would be a renewed bearish signal with additional downside weakness towards $31.75-$31.50.

RSI is in a slight uptrend with key resistance at 50. A close above this level would signal additional momentum towards 55-60 and the latter representing the mid-April peak. Support is at 45-40 with the latter holding since early April.

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The Nasdaq is now positive in positive territory for 2020 and is down roughly 10% from its February all-time high. The beautiful thing about the stock market is that it is always forward looking and provides both bullish and bearish clues. Although the past few months have been gloomy and dooming, this was a big deal.

I will be focusing on the VIX (volatility index) once again ahead of the weekend as we came within spitting distance of getting a close below the 30 level on Thursday. Tech is once again hitting extremely oversold levels and the small-caps have failed 1,300 for 3-straight days. 

A short-covering rally could be in the works if the aforementioned levels are recovered with the major indexes gapping up to higher highs. This would be continued signs of a possible economic recovery and another beautiful development. However, if there is selling pressure ahead of the weekend, and would likely come from another lousy jobs report due out this morning, another pullback for the major indexes could be in the cards.

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, $4.94, up $0.04)

LLNW June 5 calls (LLNW200619C00005000, $0.55, unchanged)

Entry Price: $0.60 (5/6/2020)

Exit Target: $1.20 

Return: -11%

Stop Target: None

Action: Shares reached a peak of $5.01 with lower resistance at $5-$5.10 getting cleared but holding. Support is at $4.90-$4.80.

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Carnival (CCL, $13.53, up $0.71)

CCL May 13 puts (CCL200515P00013000, $0.70, down $0.35)

Entry Price: $0.80 (5/1/2020)

Exit Target: $1.60 (Limit Order on half)

Return: -13%

Stop Target: None

Action: Lower resistance is at $13.50-$13.75 was cleared and held on Thursday’s trip to $13.74. Support is at $13.25-$13. I would like to see shares heading towards a close below $12.50 in the final hour of trading. If not, I could exit the position so stay locked-and-loaded.

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