MomentumOptions.com Pre-Market Update for 5/19/2020
Market Pushing Late April Resistance
The market started the week off higher following comments from Fed Chairman Powell about the economy and a time frame for recovery while positive data for an experimental coronavirus vaccine also lifted sentiment.
The gains pushed the major indexes to fresh monthly highs with 3-session winning streaks intact. Meanwhile, volatility fell below a key level of support and is on track to trade to fresh monthly lows on continued market strength.
The Russell 2000 zoomed 6.1% after trading to a first half high of 1,338. Prior and lower resistance from late April at 1,335-1,350 was cleared but held with a close above the latter signaling additional momentum towards 1,365-1,375.
The Dow rallied 3.9% after trading to an afternoon peak of 24,708. Late April and lower resistance at 24,500-24,750 was breached and held with a move above the latter getting 25,000-25,250 back in focus.
The S&P 500 soared 3.2% following the late day run to 2,968. Current and lower resistance at 2,950-2,975 was cleared and held with a close above the latter signaling additional upside towards 3,000-3,025 and the 200-day moving average.
The Nasdaq jumped 2.4% with the final hour high reaching 9,267. Near-term and lower resistance 9,250-9,300 was tripped but held with continued closes above the latter likely leading to a retest towards 9,300-9,350.
Energy was the strongest sectors after rocketing 8.2% while Industrials and Financials gained 6.6% and 5.1%, respectively. There was no sector weakness.
In economic news, NAHB Housing Market Index rebounded 7 points to 37 in May after the record -42 point plunge to 30 in April, which was the weakest reading since June 2012. All of the components increased with the current single family component rising 6 points to 42 after the -43 point drop to 36 last month. The future sales index popped 10 points to 46 from the -39 point plummet to 36. The index of prospective buyer traffic bounced 8 points to 21 following the -43 point slump to 13. Home building was deemed an essential service, helping underpin record low mortgage rates and supplies of existing homes for sale.
Fed Chairman said the U.S. economy will recover from the coronavirus and we will get through this although it may take a while. He said the recovery could stretch through the end of next year but that we really don’t know.
Although the economy may begin to recover in the second half of 2020 so long as there is not a second wave of the novel coronavirus, Powell said it may not return to pre-crisis levels until a vaccine is delivered.
Atlanta Fed Raphael Bostic said Q2 is going to be tough, a result he said the markets have long ago priced in. He expects more bad news on jobs in May and June. However, a lot of the job losses will be temporary.
Bostic said the key to the reopening of the economy and the recovery will be the return of confidence. He is cautiously optimistic, but warned analysts must be thoughtful on how states reopen. The Fed will act again to aid the economy, if needed, he confirmed, and the rebound in the economy will vary by speed and the region.
The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 2nd-straight session after plummeted to an afternoon low of $162.42. Prior and upper support at $162.50-$162 was breached but held. A close below the latter keeps downside risk towards $160.50-$160 in play.
Lowered resistance is at $164-$164.50 and the 50-day moving average.
The S&P 500 Volatility Index ($VIX) extended its losing streak to 3-straight sessions with the intraday low tapping 28.35. Prior and upper support from last week at 28.50-28 was breached but held. A close below the latter would likely signal a retest towards 26-25.50 with the former representing the monthly low.
Lowered resistance is at 29.50-30 with wiggle room up to 31-31.50.
The Spider S&P 500 ETF (SPY) extended its winning streak to 3-straight sessions following the intraday push to $296.75. Prior and lower resistance from late February at $296.50-$297 was breached but held. A close above the $297 level and the 200-day moving average would signal ongoing strength towards $299.50-$300.
Fresh support is at $294.50-$294 followed by $293-$292.50.
RSI remains in an uptrend with key resistance at 60 holding. A move above this level would be a bullish signal for additional strength towards 65-70 with the latter representing the mid-February top. Support is at 55-50.
The iShares PHLX Semiconductor ETF (SOXX) was up for the 2nd time in 3 sessions after testing a 2nd half high of $243.08. Near-term and lower resistance at $243-$243.50 was cleared but held. A close above the latter would signal additional strength towards $244.50-$245 with the late April high at $244.63.
New support is at $241.50-$241 followed by $239-$238.50. A close back below $237 would signal a false breakout.
RSI is back in an uptrend with key resistance at 60. Continued closes above this level would signal additional strength towards 65-70 and January highs. Support is at 55-50 with the latter holding since early April.
Monday’s breakout to higher highs was a very bullish signal and set the tone for continued strength. The upcoming testimony from Fed Chairman Powell and the FOMC minutes on Wednesday will either help or hinder the current rally so we still need to stay a tad cautious.
On that note, I do have new bullish trades I like, especially CSCO, so stay-locked-and-loaded in case I take action this morning.
Momentum Options Play List
Closed Momentum Options Trades for 2020: 19-6 (76%). 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, $19.40, up $0.83)
WU June 21 calls (WU200619C00021000, $0.25, up $0.10)
Entry Price: $0.50 (5/9/2020)
Exit Target: $1.00
Stop Target: None
Action: Shares tapped a high of $19.51 with lower resistance at $19.50-$19.75 getting breached but holding. Fresh support is at $19.25-$19.
Limelight Networks (LLNW, $5.29, up $0.12)
LLNW June 5 calls (LLNW200619C00005000, $0.60, up $0.05)
Entry Price: $0.60 (5/6/2020)
Exit Target: $1.20
Stop Target: None
Action: Monday’s peak reached $5.41 with lower resistance at $5.30-$5.40 getting cleared but holding. Rising support is at $5.20-$5.10.