MomentumOptions.com Pre-Market Update for 5/26/2020

Bulls Win Big Week Despite Friday’s Timid Action

8:00am (EST)

The market was opened slightly lower to start Friday’s after digesting the latest round of corporate earnings while monitoring overseas news concerning China’s push on a controversial national security law in Hong Kong. President Trump stated he would react strongly if Beijing proceeds with its plan, which will threaten democracy and break the 50-year one country, two systems agreement.

The major indexes got a lift midday after Dr. Anthony Fauci suggested states must take precautions, but now is the time to start reopening the economy in the proper way to protect people’s health. The mostly higher close wrapped up a bullish week, and easily recovered the prior week’s nasty losses, with all of the 50-day moving averages now showing signs of curling higher.

The Russell 2000 gained 0.6% while closing on its session peak at 1,355. Current and lower resistance at 1,350-1,365 was recovered with a move above the the latter signaling additional momentum towards 1,370-1,385.

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The Nasdaq rose 0.4% after tapping an afternoon high of 9,328. Near-term and lower resistance 9,300-9,350 was cleared and held with a close above the 9,400 level and last week’s high at 9,405 getting 9,500-9,550 in play.

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The S&P 500 climbed 0.2% with the session high reaching 2,956. Prior and lower resistance at 2,950-2,975 was breached and held with a move above the latter signaling additional upside towards 3,000-3,025 and the 200-day moving average.

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The Dow was down for the 2nd-straight session after slipping 9 points, or 0.04%, with the morning low hitting 24,294. Current and upper support at 24,250-24,000 was challenged but held with a close below the latter being a slightly bearish development with additional weakness towards 24,000- 23,750.

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For the week, the Russell 2000 zoomed 7.8% and the Nasdaq Composite jumped 3.4%. The Dow was up 3.3% and the S&P 500 advanced 3.2%.

Real Estate led sector winners after rising 2.2% while Utilities and Communication Services were higher by 1.1% and 0.6%, respectively. Energy and Financials were the biggest losers after falling 0.6% and 0.4%, respectively.

Over the past 5 sessions, Energy (7.2%), Industrials (7.1%), Consumer Discretionary (6.4%) and Communication Services (5.8%) were the strongest sectors. Healthcare (-0.2%) was the only sector that settled lower.

In economic news, Baker-Hughes Rig Count reported the U.S. rig count was down 21 rigs to 318 with oil rigs lower by 21 to 237, gas rigs unchanged at 79, and miscellaneous rigs unchanged at 2. The U.S. Rig Count is down 665 rigs from last year’s count of 983, with oil rigs off 560, gas rigs lower by 107, and miscellaneous rigs up 2 to 2. The U.S. Offshore Rig Count was unchanged at 12 and down 10 year-over-year.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 4th-straight session following the intraday run to $165.68. Current and lower resistance from mid-month at $165.50-$166 was recovered. A close above the latter would signal additional momentum towards $167.50-$168.

Rising support is at $165-$164.50 and the 50-day moving average.

RSI remains in an uptrend after clearing key resistance at 50. Continued closes above this level would signal additional strength towards 55-60 and the latter representing the April top. Support is at 45-40.

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The S&P 500 Volatility Index ($VIX) zigzagged for the 4th-straight session with the session low tapping 28.03. Near-term and upper support at 28-27.50 was challenged but held for the 3rd-time in 5 sessions. A close below the latter would signal further weakness towards 26-25.50 with the former representing the monthly low.

Resistance remains at 29.50-30. A close back above the 30.50 level would be a slightly bearish development with additional upside risk towards 32-32.50.

RSI has been flatlining and hovering around 40 with a close below this level signaling a retest towards 35 and the monthly low. Resistance is at 45-50 with the latter holding since early April.

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The Russell 2000 ETF (IWM) was up for the 3rd-straight session and for the 4th time in 5 following the intraday trip to $135.05. Lower resistance at $135-$135.50 was cleared but held. A close above the $136.50 level and the late April peak at $136.85 could lead to a gap higher towards the $140 area and prior one-day support from early March.

Current support is at $134.50-$134 with backup help at $132.50-$130. A close below the latter would signal a breakdown out of the current 5-session trading range and would be a slightly bearish signal for a retest towards the $127.50-$125 zone.

RSI continues to struggle with resistance at 60 with a more important hurdle at 65 and the late April high. A close above this level would signal additional strength towards 70-75 with the latter representing the January top.

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The Utilities Select Spider (XLU) rebounded after testing an intraday high of $56.63. Lower resistance at $56.50-$57 was breached but held. Continued closes above the $57.50 level and last Monday’s peak at $57.42 would be a more bullish signal for a possible run towards $58-$58.50 and offset lower lows throughout last week afterwards.

Support is at $56-$55.50 and the 50-day moving average. A move below the latter would confirm a possible near-term top with additional backtest potential towards $54.50-$54.

RSI has leveled out with lower resistance at 50-55 holding and the latter representing the April high. A close above double-nickels would signal additional strength towards 60-65 and prior levels from mid-December. Support is at 45 and a level that has been holding throughout the month.

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

closed at 91.26%, unchanged, on Friday. Lower resistance at 92.5%-95% was challenged but held for the 2nd-straight session. A close above the latter and monthly peak would signal strength towards 97.5%-100% and extremely overbought levels. Current support is at 90%-87.5%.

The percentage of S&P 500 stocks trading above the 200-day moving average average remain in slightly oversold territory after settling at 31.28%, up 1.19%. Lower resistance at 32.5%-35% was nearly cleared but held. A move above the latter and the monthly top would signal ongoing strength towards 37.5%-40%. Support is at 30%-27.5%.

The 1Q earnings season is rapidly coming to a close with results from 480 S&P 500 companies, or 96%, having reported numbers. Total earnings are down -12.7% from the same period last year on 1.3% higher revenues, with 66.4% beating EPS and 58% topping  revenue estimates.

The Q1 results continue to show the opposing effects that the Finance and Tech sectors in the S&P 500 index are having on the aggregate overall growth picture. These two largest sectors are dragging it down and Technology is pushing it higher. Had it not been for the Finance sector drag, Q1 earnings growth would have been a lot better, thanks primarily to the Technology sector results. 

Excluding the Finance sector, whose Q1 earnings are down -33.1% on 2.4% higher revenues, earnings for the rest of S&P 500 companies would be down only -6.4% versus down -12.7% with Finance.  

Excluding the Technology sector results, whose Q1 earnings are up 5.1% on 4.6% higher revenues, earnings for the rest of S&P 500 companies would be down -17.7% versus down -12.7% with Technology.

The S&P 500 is less than 2% away from clearing its 200-day moving average  and would join the Nasdaq in doing so if the index can clear and hold the 3,000 level this week. This would be a very bullish signal that could keep momentum going and lift the blue-chips and small-caps to higher highs.  

Another important signal this week will be the action in the VIX and if a new monthly low south of 26 can be tapped. Continued closes below the 25 level would likely confirm another leg higher for the major indexes.  

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.

Freeport McMoRan (FCX, $8.74, down $0.16)

FCX June 10 calls (FCX200619C00010000, $0.25, down $0.05)

Entry Price: $0.40 (5/19/2020)

Exit Target: $0.80

Return: -38%

Stop Target: None

Action: Prior and upper support at $8.70-$8.60 was breached but held on the Friday’s backtest to the latter. Lowered resistance is at $8.80-$8.90.

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Western Union (WU, $19.01, up $0.12)

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: Friday’s peak reached $19.16 with lower resistance at $19.25-$19.50 holding. Support is at $18.75-$18.50.

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Limelight Networks (LLNW, $5.31, down $0.04)

LLNW June 5 calls (LLNW200619C00005000, $0.60, unchanged)

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

Exit Target: $1.20 

Return: 0%

Stop Target: None

Action: Upper support at $5.20-$5.10 was breached but held on the backtest to $5.18 and close on the 50-day moving average. Lowered resistance is at $5.40-$5.50. 

I would like to see a close above the $5.50 level this week to keep the faith in this trade going.

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