MomentumOptions.com Pre-Market Update for 5/11/2020

Tech Powers Bullish Week

8:00am (EST)

The market closed higher on Friday to wrap up a solid week of gains while snapping a 2-week losing streak despite a dismal April employment report. However, there was a silver lining as analysts noted that of the 20 million jobs lost last month, 18 million, were deemed temporary.

Growing optimism that the economy will gradually restart offset the weak jobs news as the major indexes held strong gains throughout the session while rallying another leg higher into the close. Volatility plunged to its lowest level since early March to confirm the breakout in the iverall market.

The Russell 2000 zoomed 3.6% following the late day push 1,330 and close back above the 1,300 level. Mid-March and lower resistance at 1,325-1,340 was cleared and held with a close above the 1,350 level signaling additional momemtum towards 1,360-1,375.

The Dow jumped 1.9% with the afternoon peak reaching 24,349. Late April and lower resistance at 24,250-24,500 was recovered with a move above the latter likely leading to a retest towards 24,750-25,000.

The S&P 500 was higher by 1.7% after tapping a high of 2,932 ahead of the closing bell. Prior and lower resistance at 2,925-2,950 was cleared and held with a close above the late April high of 2,954 signaling additional strength towards 2,975-3,000 and the 200-day moving average.

The Nasdaq jumped 1.6% to extended its winning streak to 5-straight with the session high kissing 9,125. Prior and lower resistance from late February at 9,100-9,175 was reclaimed with a move above the latter setting a possible run towards 9,250-9,325.

For the week, the Nasdaq rocketed 6% and Russell 2000 rallied 5.7%. The S&P 500 was up 3.5% and the Dow gained 2.6%.

Energy led sector strength for the 2nd-straight session after rising 4.6% while Industrials and Materials were higher by 2.5% and 2.4%, respectively.

There were no sector laggards on Friday.

Over the past 5 sessions, all S&P 500 sectors have posted gains with Energy (8.2%), Technology (6.6%) and Communication Services (4.6%) the best performers.

In economic mews, Nonfarm payrolls collapsed -20,500,000 in April and the unemployment rate jumped to 14.7%. Expectations were for a loss of 21,250,000 with the rate at 16.3%. This follows revised figures with March payrolls bumped to -870,000 and February to 230,000 with the March unemployment rate unrevised at 4.4%. The U6 unemployment rate was 22.8% from 8.7%. The labor force declined -6,432,000 from -1,633,000, with household employment dropping -22,369,000 from -2,987,000. The workweek edged up to 34.2. Average hourly earnings rose 4.7% versus 0.5% and are up at a 7.9% year-over-year rate versus 3.3% previously. Private payrolls tumbled -19,520,000, with the goods producing sector sinking -2,355,000 and construction down -975,000. Manufacturing fell -1330,000. The service sector dropped -17,165,000 and Government jobs were down -980,000. The labor market participation rate fell to 60.2% from 62.7%.

Wholesale Trade for March fell -0.8% with sales plunging -5.2%. This follows a -0.7% decline in February inventories, and a -0.7% slide in sales. Leading the weakness in inventories were declines in drugs (-2.3%), with only modest offset from autos (4.4%). The sales drop was paced by petroleum (-26.1) amid the massive price drop. The smaller decline in inventories than sales saw the inventory-sales ratio rise to 1.37 from 1.31.

Baker-Hughes Rig Count reported the U.S. rig count was down 34 rigs from last week to 374, with oil rigs off 33 to 292, gas rigs down 1 to 80, and miscellaneous rigs unchanged at 2. The U.S. Rig Count is down 614 rigs from last year’s count of 988, with oil rigs down 513, gas rigs down 103, and miscellaneous rigs up 2 to 2. The U.S. Offshore Rig Count is down 1 rig from last week to 15 and down 5 year-over-year.

The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 3rd time in 4 session following the pullback $163.68. Current and upper support at $164-$163.50 was breached and failed to hold. A close below the latter and the 50-day moving average would signal a retest towards $162.50-$162.

Lowered resistance is at $165-$165.50 with additional hurdles at $167-$167.50. 

RSI is back in a slight downtrend with support at 45. A close below this level would signal additional weakness towards the 40 area and the mid-March low. Resistance is at 50-55.

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The S&P 500 Volatility Index ($VIX) fell for the 4th time in 5 sessions after tapping a late day low of 27.89. Late February and upper support at 27.50-27 was challenged but held. A close below the latter would be an ongoing bullish signal for further weakness towards 25.50-25.

Lowered resistance is at 29.50-30 with a close back above the latter being a cautious signal for the market.

RSI is showing oversold conditions with key support at 35 holding. A close below this level could signal additional weakness towards 33-32 and levels from July 2019. Resistance is at 40-45.

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The Wilshire 5000 Composite Index ($WLSH) was up for the 2nd-straight session and for the 4th time in 5 after trading to a high of 29,683. Near-term and lower resistance from late April at 29,750-30,000 was challenged but held. A close above the latter would be a bullish signal for a possible push towards 30,250-30,500 and the 200-day moving average.

Current support is at 29,500-29,250. A move back below the 29,000 level would be a slightly bearish signal with additional selling pressure towards 28,750-28,500.

RSI is in an uptrend with key resistance at 60. A close above this level would signal additional strength towards 65-70 and prior peaks from February. Support is at 55-50.

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The Spider Gold Shares (GLD) have been rangebound for 10 sessions following the intraday pullback to $160. Upper support at $160-$159.50 was kissed but held. A close below the latter would signal a retest towards $158.50-$158 and the bottom of the current trading range.

Near-term resistance is at $161.50-$162. A close above the latter and the top of the range would signal a possible breakout towards $164-$164.50.

RSI is rolling over with key support at 50 holding since late April. A move below this level would be a bearish signal with additional weakness towards 45-40. Resistance is at 55-60.

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The percentage of Nasdaq 100 stocks trading above the 50-day moving 

closed at 94.17% on Friday, up 8.74%. Overbought levels from February 2012 and lower resistance at 92.5%-95% was cleared and held with the all-time high around the 97.5% level. Support is at 90%-87.5%. A close below the latter reopens downside risk towards 85%-80%. 

The percentage of S&P 500 stocks trading above the 200-day moving average settled at 27.32%, up 2.57%. Current and lower resistance at 27.5%-30% was challenged but held. A close above the latter would signal additional strength towards 32.5%-35%. Support is at 25%-22.5%.

The Q1 earnings season is rapidly coming to a close as results from more than 85% of S&P 500 members have been released. The results thus far have given Wall Street a better understanding of the pandemic’s economic and earnings impact. 

The positive momentum the market has shown is not because investors don’t thing the data is bad, but rather because they are looking past that. The market is essentially looking ahead to the day when the pandemic will be in the rearview mirror.

Specifically, Q1 results from 434 S&P 500 members or 86.8% of the index’s total membership, have been announced. Total earnings are down -10.6% from the same period last year on 1.1% higher revenues, with 67.7% beating EPS and 58.3% topping revenue estimates.

The Q1 results show the opposing effects that results from the two largest sectors in the S&P 500 index are having on the aggregate growth picture. These two largest sectors are Finance and Technology, with Finance dragging it down and Technology pushing it higher.

Had it not been for the Finance sector drag, Q1 earnings growth for the remaining S&P 500 companies at this stage would have been a lot better, thanks primarily to the Technology sector results.

Excluding the Finance sector, Q1 earnings for the companies that have reported already are down -33.2% on 2.4% higher revenues. Earnings for the rest of S&P 500 companies that have reported would be down only -2.8% versus -10.6% with Finance.

Excluding the Technology sector results, Q1 earnings are up 6.2% on 4.2% higher revenues. Earnings for the rest of S&P 500 companies that have reported would be down -15.3% versus -10.6% with Technology.

The upcoming week features almost 500 companies, including 20 S&P 500 members. By the end of the week, Q1 results from a little over 90% of the index’s total membership will be in the books.

The main focus this week will be how Tech holds up at extremely oversold levels. While markets can stay overbought for extended periods of time, at some point, the fluff will come off the top. As for volatility, I’m expecting a possible test to 25, maybe 22.50 on a stretch, before the bears step back in.

Otherwise, the argument can be made the Dow and S&P 500 remain at slightly oversold levels. This means there will be opportunity for both bullish and bearish trades over the near-term. Although longer-term options remain extremely expensive, the regular June options are starting to show some more reasonable values.

I would like to add a few more trades to the portfolio as soon as this morning so stay locked-and-loaded in case I take action.

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.

Western Union (WU, $19.93, up $0.48)

WU June 21 calls (WU200619C00021000, $0.50, up $0.15)

Entry Price: $0.50 (5/9/2020)

Exit Target: $1.00 

Return: 0%

Stop Target: None

Action: Shares tested a high of $20.11 on Friday with lower resistance at $20-$20.25 and the 50-day moving average getting breached but holding. Rising support is at $19.75-$19.50.

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Limelight Networks (LLNW, $5.11, up $0.16)

LLNW June 5 calls (LLNW200619C00005000, $0.60, up $0.05)

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

Exit Target: $1.20 

Return: 0%

Stop Target: None

Action: Friday’s peak reached $5.20 with lower resistance at $5.20-$5.30 holding. Rising support is at $5-$4.90.

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