MomentumOptions.com Pre-Market Update for 5/18/2020

Bulls Win Another Choppy Session

8:00am (EST)

The market had another rocky start to Friday’s session amid renewed U.S./China trade worries following a report that the U.S. is looking to block global chip makers from supplying a major Chinese company. Disappointing economic news also weighed on sentiment although some of the data was better-than-expected.

Technology and the small-caps showed some midday strength that got stronger into the close with all of the major indexes settling higher. Volatility eased a bit but remains well above the monthly low.

The Russell 2000 rallied 1.6% with the session high reaching 1,259. Lower resistance at 1,250-1,265 was recovered with a close above the the latter signaling additional strength towards 1,270-1,285. Below is a chart of the IWM.

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The Nasdaq added 0.8% after testing a late day high of 9,018. Near-term and lower resistance 9,000-9,050 was cleared and held with a move above the latter getting 9,150-9,200 back in play.

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The S&P 500 climbed 0.4% with the session high tapping 2,865 ahead of the closing bell. Prior and lower resistance at 2,875-2,900 was challenged but held with a close above the latter signaling additional upside towards 2,925-2,950.

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The Dow advanced 0.3% following the late day push to 23,730. Current and lower resistance at 23,750-24,000 was nearly cleared but held with a move above the latter leading to a retest towards 24,250-24,500.  

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For the week, the Russell 2000 plummeted 5.7% and the Dow fell 2.7%. The S&P 500 sank 2.3% and the Nasdaq gave back 1.2%.

Communication Services and Consumer Discretionary were sector standouts after rising 1.4% and 1.2%. Utilities and Financials were the weakest sectors  with losses of -1.3% and -0.7%.

Over the past 5 sessions, Healthcare (1%) has been the only sector that has shown strength. Energy (-7.2%), Real Estate (-7.1%), Industrials (-5.8%) and Financials (-5.6%) were the weakest sectors.

In economic news, Retail Sales plummeted another -16.4% in April, and -17.2% excluding autos, both all time lows. This follows the -8.3% headline decline in March and the -4% decline ex-autos. Excluding autos, gas, and building materials, the control measure declined -17.2% after sliding -2.9% previously. Weakness was broadbased, with only one category, non-store retailers, rising 8.4% after a 4.9% prior gain. Leading the headline weakness were clothing sales which plunged -78.8% from -49.4%. Gas station sales slid -28.8% from -16.5%, hit by both the drop in gas prices and the travel restrictions. Motor vehicles and parts sales declined -12.4% from -25.7%. Furniture was down -58.7% from -21.1%. Sporting goods tumbled -38% from -17.8% while Department store sales dropped -28.9% from -22.2%. Food/beverage sales declined -13.1% after rising 26.9% while sales at eating and drinking establishments were down -29.5% versus -29.7%. Health/ personal care sales fell -15.2% from a 5% gain.

Empire State Manufacturing Survey index improved 29.7 points to -48.5 in May following the record -56.7 point drop to a historic low of -78.2 in April. New orders firmed to -42.4 from -66.3. The employment component jumped higher to -6.1 from -55.3, with the workweek rising to -21.6 versus -61.6. Shipments were at -39 from -68.1. Prices paid dipped to 4.1 after dropping to 5.8 previously, with prices received edging up to -7.4 from -8.4. The 6-month general business index came in at 29.1 after rising to 7 in April. The future orders index rose to 35 versus 11.7, with employment better at 10.4 from 5.2. The 6-month prices paid index moved higher to 20.3 from 14.9 with prices received rising to 2 compared to 0.6. Capex was modestly less negative at -8.1 from -11.0, and technology spending moved upwards to -8.1 from -11.

Industrial Production posted a record decline of -11.2% in April with the March decline trimmed to -4.5% from -5.4%. Mining output fell -6.1%, utility output fell -0.9%, and business equipment output fell 17.3%. Capacity utilization fell to an all-time low of 64.9%.

Business Inventories fell -0.2% in March, as forecast, following the -0.5% decline in February. Declines in wholesalers and manufacturers outweighed a gain from retailers. Sales plunged -5.2% versus -0.5% previously, amid broadbased declines. The inventory-sales ratio climbed to 1.45 from 1.38.

The JOLTS report showed job openings dove -813,000 to 6,191,000 in March versus forecasts for a loss of 5.9 million. The rate fell to 3.9% from 4.4%. Hirings declined -658,000 to 5,206,000, versus February’s -61,000 drop to 5,864,000. The hire rate slowed to 3.4% from 3.8%. Quitters fell -654,000 to 2,782,000 after the -138,000 decline to 3,436,000 previously. The rate decelerated to 1.8% from 2.3%, the weakest since early 2014.

Consumer Sentiment rose 1.9 points to 73.7 in the preliminary report, topping expectations for a print of 66. The current conditions index climbed to 83 from 74.3 while the expectations component dropped to 67.7 from 70.1. The 12-month inflation gauge popped up to 3.0% from 2.1%, and ties the highest since August 2018. The 5-year price index rose to 2.6% from 2.5, tying August’s rate. The 2.2% from December was an historic nadir.

Baker-Hughes reported the U.S. rig count was down 35 rigs to 339, with oil rigs lower by 34 to 258, gas rigs down 1 to 79, and miscellaneous rigs unchanged at 2. The U.S. Rig Count is down 648 rigs from last year’s count of 987, with oil rigs lower by 544, gas rigs down 106, and miscellaneous rigs up 2 to 2. The U.S. Offshore Rig Count is down 3 rigs from last week to 12 and down 10 year-over-year.

The iShares 20+ Year Treasury Bond ETF (TLT) had its 3-session winning streaked snapped following the intraday pullback to of $166.33. Current and upper support at $166.50-$166 was breached but held. A close below the latter reopens downside risk towards $164.50-$164 and the 50-day moving average.

Lowered resistance is at $167.50-$168 followed by $169.50-$170.

RSI has flatlined with key support at 50 holding. A close below this level would signal additional weakness towards 45-40 with the latter representing the March low. Resistance is at 55-60 and the latter representing the peak throughout April.

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The S&P 500 Volatility Index ($VIX) fell for the 2nd-straight session after trading to a low of 31.04. Current and upper support at 31.50-31 was recovered. A close below the latter would likely signal a retest towards 30-27.50.

Lowered resistance is at 33-33.50 with backup help at 34.50-35.

RSI is in a slight downtrend with support at 40-35 and the latter representing the monthly low. Resistance is at 45-50. 

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The Spiders Dow Jones Industrial Average ETF (DIA) was up for the 2nd-straight session with the intraday high tapping $237.25. Resistance at $237-$237.50 was split but held. Continued closes above the latter would signal a possible retest towards $240-$242.50 with the monthly peak at $244.14.

Current support is at $235.50-$235 with backup help at $234-$233.50.

RSI is giving a neutral reading with lower resistance at 55-60 holding. Continued closes above the latter and the late April high would signal additional strength towards 65 and the mid-February peak. Support is at 50-45.

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The Spiders S&P Homebuilders ETF (XHB) extended its winning streak to 2-straight sessions with the intraday high tapping $36.49. Lower resistance at $36-$36.50 was cleared and held. A close above the latter would signal additional upside towards $37.50-$38 with the monthly high at $38.07.

Current support is at $35.50-$36. A close below the latter would signal additional weakness towards $34.50-$34.

RSI is in an uptrend with lower resistance at 55-60 holding. A move above the latter would signal a run towards 65 and the prior peak from February. Support is at 50-45.

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

closed at 83.49% on Friday, up 1.94%. Overbought levels remain in play with lower resistance at 82.5%-85% getting cleared and holding. A move above the latter would signal strength towards 87.5%-90%. Support is at 80%-77.5%. A close below the latter reopens downside risk towards 75%-72.5%.

The percentage of S&P 500 stocks trading above the 200-day moving average settled at 25.19%, up 0.19%. 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%.

I have updated our current trades 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.

Technology Select Spiders (XLK, $93.47, up $0.47)

XLK June 85 puts (XLK200619P00085000, $1.45, down $0.10)

Entry Price: $1.75 (5/13/2020)

Exit Target: $3.50 

Return: -17%

Stop Target: $1.00

Action: Friday’s high reached $93.49 with lower resistance at $93.50-$94 getting challenged but holding. Support is at $93-$92.50. 

I still like the trade as long as $95.50 holds this week. A close above this level could lead to an early exit.

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Western Union (WU, $18.57, up $0.19)

WU June 21 calls (WU200619C00021000, $0.15, flat)

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

Exit Target: $1.00 

Return: -70%

Stop Target: None

Action: Shares traded up to $19.10 with lower resistance at $19-$19.25 getting breached but holding. Support remains at $18.25-$18 with backup help at $17.75-$17.50.

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Limelight Networks (LLNW, $5.17, up $0.12)

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: Lower resistance at $5.20-$5.30 was challenged but held on the run to $5.19. New support is at $5.10-$5.

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