MomentumOptions.com Pre-Market Update for 5/12/2020
Nasdaq Up 6-Straight Sessions
The market showed overall weakness throughout the first half of Monday’s action following heightened fears over a second wave of coronavirus infections. Concerns over the ramping back up of lockdowns as economies begin to reopen weighed on sentiment but were offset by the strength in Tech.
All of the major indexes turned positive midday after volatility held a key level of resistance. The mixed close, however, was a sign of possible choppiness over the near-term as Wall Street awaits this week’s ongoing 1Q earnings announcements and along with another round of economic news.
The Nasdaq was up 0.8% after extending its winning streak to 6-straight sessions with the afternoon peak reaching 9,241. Late January and lower resistance at 9,200-9,275 was recovered with a close above the latter signaling ongoing momentum towards 9,350-9,425.
The S&P 500 edged up a half-point, or 0.01%, following the late day trip to 2,944. Key resistance at 2,950 was challenged but held with a close above this level getting 2,975-3,000 and the 200-day moving average in focus.
The Russell 2000 traded in a 30-point range before declining 0.6% with the intraday high tapping 1,333. Current and lower resistance at 1,335-1,350 was challenged but held with a close above the latter signaling additional strength towards 1,360-1,375.
The Dow declined 0.5% after tapping an opening low of 24,070. Near-term and upper support at 24,250-24,000 was breached but held with a close below the latter signaling a further retest towards 23,750-23,500.
Healthcare and Technology paced sector strength after rising 1.7% and 0.7%, respectively. Financials and Energy were the weakest sectors after falling 2% and 1.8%, respectively.
In Fed news, Chicago Fed Charles Evans said he sees interest rates staying near zero for quite some time to support the economy, but does not expect to resort to negative interest rates as central banks in other countries have done.
Evans also said a rise in inflation is unlikely over the next several years, and that with interest rates as low as they are, it is the right time for the Fed to borrow and spend to support businesses, households and local governments.
Atlanta Fed Raphael Bostic said he is not a big fan of negative interest rates, saying they are among the weaker tools in the toolkit. He reiterated the broad view among Fed officials that the U.S. is unlikely to use a policy approach currently used in Europe and Japan.
The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 2nd-straight session and for the 4th time in 5 after testing an intraday low of $162.10. Current and upper support at $162.50-$162 was breached but held. A close below the latter and last week’s low of $162.05 would signal additional weakness towards $160.50-$160 and late March levels.
Lowered resistance is at $163.50-$164 following the close back below the 50-day moving average.
The S&P 500 Volatility Index ($VIX) extended its losing streak to 3-straight sessions despite soaring to a morning high of 31.46. Current and lower resistance at 31-31.50 was breached but held with a close back above the 32.50 level being a slightly bearish development for the market.
Late February and lower support at 27.50-27 was cleared but held on the midday fade to 26.97 and close below the former. A close below 26.50 would signal additional weakness towards 25.50-25.
The Invesco QQQ Trust (QQQ) was up for the 6th-straight session after kissing to an afternoon high of $227.93. Early February and lower resistance at $227.50-$228 was cleared but held. Continued closes above the latter would be an ongoing bullish signal for additional upside towards $229.50-$230.
Current and rising support is at $225-$224.50 with backup help at $223.50-$223. The 50-day moving average is showing signs of moving back above the 200-day average. This would form a golden cross and is typically a bullish technical signal for higher highs.
RSI remains in an uptrend with lower resistance at 65-70 getting cleared and holding. Continued closes above the latter would signal additional strength towards 75-80 and levels from February and January. Support is at 60 with risk towards 55-50 on a close back below this level.
The Consumer Staples Select Spiders (XLP) was down for the 3rd time in 4 sessions despite trading to an intraday high of $58.49. Lower resistance at $58-$58.50 was cleared and held. A close above the $59 level would be a more bullish signal for a retest towards $59.50-$60 and the 200-day moving average.
Current support is at $57.50-$57. A close below the latter and the 50-day moving average would signal additional downside risk towards $56-$55.50.
RSI is showing signs of leveling out with lower resistance at 55-60 holding. A move above the latter and the April high would signal additional strength towards 65-70. Support is at 50-45.
I stayed in a wait-and-see mode yesterday following the opening weakness but had a feeling Tech’s strength could lead to a mixed session. The Nasdaq remains in overbought territory but can remain that way as long as overall strength picks up in other sectors.
I still have both bullish and bearish trade setups so stay on your toes in case a clearer trend for the week emerges. In the meantime, I have updated our current positions.
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, $19.31, down $0.62)
WU June 21 calls (WU200619C00021000, $0.35, down $0.15)
Entry Price: $0.50 (5/9/2020)
Exit Target: $1.00
Stop Target: None
Action: Shares tested a low of $19.24 with prior and upper support at $19.25-$19 getting breached but holding. Lowered resistance is at $19.75-$20 and the 50-day moving average.
Limelight Networks (LLNW, $5.18, up $0.07)
LLNW June 5 calls (LLNW200619C00005000, $0.65, up $0.05)
Entry Price: $0.60 (5/6/2020)
Exit Target: $1.20
Stop Target: None
Action: Yesterday’s high tapped $5.38 with lower resistance at $5.30-$5.40 getting cleared but holding. Rising support is at $5.10-$5.