MomentumOptions.com Pre-Market Update for 5/13/2020
Bulls Hit a Roadblock
The market showed continued choppiness on Tuesday before finishing lower while snapping multi-session winning streaks for the major indexes. Testimony From Dr. Fauci’s didn’t offer up anything new although he said premature reopening of the economy may lead to outbreaks.
Fauci doesn’t see a vaccine by the Fall while saying the drug, remdesivir, is a modest success. He also added the coronavirus deaths are likely higher than the official count. The testimony weighed on the market into the close with volatility edging higher for the first time in 4 sessions.
The Russell 2000 dropped 3.5% after closing on its session low 1,275. Prior and upper support at 1,285-1,270 was breached and failed to hold with a close below the latter setting up additional weakness towards 1,265-1,250.
The S&P 500 had its 3-session winning streak snapped after sinking 2.1% while testing a low of 2,869 ahead of the closing bell. Current and upper support at 2,875-2,850 failed to hold with a move below the latter opening up weakness towards 2,825-2,800.
The Nasdaq fell for the first time in 7 sessions after giving back 2.1%, as well, with the intraday low reaching 9,000. New and upper support at 9,000-8,925 was kissed but held with a close below the latter signaling additional downside risk towards 8,825-8,750.
The Dow lost 1.9% with the late day low reaching 23,761. Near-term and upper support at 23,750-23,500 was challenged but held with a close below the latter signaling a further retest towards 23,250-23,000 and the 50-day moving average.
Real Estate was the weakest sectors after tanking 4.3% while Industrials and Financials were lower by 2.8% and 2.6%, respectively. There was no sector strength.
In economic news, Consumer Price Index fell -0.8% in April, while the core rate slid -0.4%, and follows March declines of -0.4% and -0.1%, respectively. The core rate is at a record low with data going back to 1947. The headline ties the lowest since December 2008, with the -1.8% from November 2008 the all-time low. The 12-month rates slowed as a result of the monthly declines, with the headline down to 0.3% year-over-year versus 1.5%, and the ex-food and energy component falling to 1.4% year-over-year from 2.1%. Most of the components weakened. Energy prices dove -10.1% following the -5.8% tumble previously, while gas prices dropped -20.6%. Transportation tumbled -5.9% from -2.9% and services costs slipped -0.3% from -0.1%. Housing remained unchanged, with owners equivalent rent at 0.2% from 0.3%. Apparel prices were down -4.7% from -2%. Food/beverage prices increased 1.4% from 0.3% while medical care costs rose 0.4%, as they did in March.
U.S. chain store sales declined -1.5% last week, after dropping -12.6% for the five weeks of April through May 2. The monthly year-over-year pace of contraction eroded to -7.5%, down from -6.6% previously. The weekly year-over-year rate improved slightly, however, to -7.5% versus -9.3%. According to the report, May sales are estimated declining -0.8% versus April, and be down -6.8% year-over-year. Not surprising, department store and apparely specialty store sales continue to struggle amid slowing foot traffic, and a rise in on-line shopping, curbside pick-up, and home delivery.
Redbook Store Sales were down -7.5% for the year in the week ending May 9th.
NFIB Small Business Optimism Index level checked in at 90.9 for April versus forecasts for a print of 84.8.
In Fed news, Minneapolis Fed Neel Kashkari repeated that the economy is not likely to bounce back quickly from the coronavirus crisis, and may not fully recover until a vaccine is discovered. He said the U.S. government is able to issue large amounts of debt cheaply, and should do so to support the economy.
St. Louis Fed James Bullard expressed optimism that the U.S. economy could return pretty close to normal by the fourth quarter of this year. He said his optimism is dependent on getting the coronavirus under control and has repeatedly said that widespread testing is key. He added the government should pay all costs for any firm that develops a coronavirus test that restores public confidence, saying it would create a gold rush of testing and end the crisis.
Bullard said GDP will be hit hard, way outside of anything that the U.S. macroeconomy has ever experienced, and the unemployment rate will surpass the already staggering 14.7% reported. However, he predicted an upswing will begin afterwards with the probability of seeing the best growth number ever seen as well, noting that the 1918 and 1957-1958 influenza pandemics were followed by some of the greatest decades the U.S has ever had.
Dallas Fed Robert Kaplan became the latest U.S. central banker to unequivocally reject negative interest rates as a monetary policy tool after saying he would be against negative interest rates. He cited the effect it would have on the financial system, on intermediaries, and on money markets.
The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 2-session slide after trading to an intraday high of $164.93. Lower resistance at $164.50-$165 was cleared and held with a close above the latter being a bullish signal for a retest towards $166-$166.50.
Current but shaky support is at $164-$163.50 and the 50-day moving average. A close below the latter would signal additional weakness towards $162.50-$162.
The S&P 500 Volatility Index ($VIX) fell for the first time in 4 sessions despite testing a morning low of 26. Key support at 26.50 was breached but held. Continued closes below this level would signal additional weakness towards 25.50-25 with the early March low at 24.93.
The rebound and close on the session high of 33.04 cleared and held lower resistance at 33-33.50. A close above the latter would signal additional upside risk towards 34.50-35.
The Russell 2000 ETF (IWM) was down for the 2nd-straight session following the late day pullback to $126.84. Near-term and upper support at $127-$126.50 was breached and failed to hold. A move below the latter would signal additional weakness towards $125.50-$125.
Current resistance is at $127.50-$128 followed by $129.50-$130.
RSI is in a downtrend with key support at 50 holding. A close below 50, and a level that has been holding since late April, would signal additional weakness towards 45-40. Resistance is at 55-60.
The Dow Jones Transportation Average ($TRAN) extended its losing streak to 2-straight after tapping a low of 7,999. Near-term and upper support at 8,000-7,900 was breached but held by a half-point. A close below the latter and the 50-day moving average would be an ongoing bearish development with additional pullback potential towards 7,800-7,700.
Lowered resistance is at 8,100-8,200 followed by 8,300-8,400.
RSI is back in a downtrend with upper support at 45-40 holding and the latter representing the early April low. Lowered resistance is at 50-55 with the late April peak at 60.
Yesterday’s action is signaling additional weakness and I could have a new trade if Tech starts to crack by using the Technology Select Spiders (XLK). 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, $18.87, down $0.44)
WU June 21 calls (WU200619C00021000, $0.25, down $0.10)
Entry Price: $0.50 (5/9/2020)
Exit Target: $1.00
Stop Target: None
Action: Shares tested a low of $18.86 with prior and upper support at $19-$18.75 getting breached and failing to hold. Lowered resistance is at $19.25-$19.50.
I still like the trade out until June as long as the $18 level holds.
Limelight Networks (LLNW, $5.18, unchanged)
LLNW June 5 calls (LLNW200619C00005000, $0.65, unchanged)
Entry Price: $0.60 (5/6/2020)
Exit Target: $1.20
Stop Target: None
Action: Tuesday’s high tapped $5.37 with lower resistance at $5.30-$5.40 getting cleared but holding. Support is at $5.10-$5.