MomentumOptions.com Pre-Market Update for 5/27/2020
Multi-Month Resistance Levels Back in Play
The market showed continued momentum on Tuesday following positive developments and more clarity between China and Hong Kong concerning a controversial national security law. The continued reopening of states here at home and another possible coronavirus cure also kept bullish sentiment intact.
The major indexes closed at multi-month highs although the fade in Tech during the final hour of action was a drag. Volatility remained tamed but failed to set a new low despite the mini breakout and market gap higher to start the shortened week.
The Russell 2000 rallied 2.8% after trading to an intraday high of 1,406. Fresh and lower resistance at 1,400-1,415 was breached but held with a close above the latter keeping upside strength towards 1,420-1,435 in focus.
The Dow snapped a 2-session slide after rising 2.2% while topping out at 25,176. Early March and lower resistance at 25,000-25,250 was cleared but held with a close above the latter being a bullish development for additional upside towards 25,500-25,750.
The S&P 500 soared 1.2% following the morning push to 3,021. Prior and lower resistance from early March at 3,000-3,025 and the 200-day moving average were breached but levels that held with a close above the latter signaling additional strength towards 3,050-3,075.
The Nasdaq edged up 0.2% with the intraday peak reaching 9,501. Prior and lower resistance from early February 9,500-9,550 was cleared but held with a move above the latter signaling additional momentum towards 9,600-9,650.
Financials led sector strength after skyrocketing 5.2% while Industrials and Real Estate surged 4.2% and 3.2%, respectively. Healthcare and Technology were the only sector laggards after slipping 0.2% and 0.1%, respectively.
In economic news, Chicago Fed national activity index dropped 11.77 points to -16.74 in April, a new record low, after tumbling 5.02 points to -4.97 in March. The index has been in negative territory in 6 of the last 8 months. Of the 85 components that make up the index, 79 made negative contributions, with 6 making positive contributions.
Case Shiller home price index rose 1.1% to 222.2 in the March 20-City index, a record high, after rising 0.5% to 219.9 in February. The 12-month pace accelerated to 3.9% year-over-year versus 3.5%. The 10-City March index rose 1% to 234.8 versus February’s 0.5% gain to 232.5. The 12-month pace rose to a 3.4% year-over-year clip from 3% previously. All 20 cities surveyed posted 12-month gains, led by Phoenix (8.2%) and Seattle (6.9%), with Chicago bringing up the rear (1.6%).
March FHFA home price index increased 0.1% to 287.9, a fresh record high, after rising 0.8% to 287.4 in February. Six of the 9 Census Divisions surveyed posted gains on the month, led by New England. Two regions declined, led by the West South Central. For Q1, the index increased 1.7% following Q4’s 1.4% rise, and climbed to a 5.7% year-over-year clip versus 5.3% previously.
New Home Sales bounced 0.6% to 623,000 in April versus forecasts for 495,000. That follows the -13.7% crash to 619,000 in March and the -7.4% decline in February to 717,000. Sales were at a 664,000 pace a year ago. The months’ supply of homes dipped to 6.3 from 6.4, with 325,000 homes for sale, versus 331,000 in March. The median sales price slumped -5.2% to $309,900 after declining -1.4% to $326,900. Prices hit a record high of $343,400 in November 2017. Compared to last year, prices are down -8.6% year-over-year versus the prior 5.2% pace.
Consumer Confidence ticked up to 86.6 in May after diving a whopping -33.1 points to 85.7 in April. Expectations were for a print of 88.3. The present situation index fell to 71.1 after crashing 93.7 points to 73. The expectations component rose to 96.9 after bouncing to 94.3 in April. The labor market differential improved to -10.4 from a 6-year low of -15.7. The 12-month inflation gauge surged further to a 6.2% rate after jumping to 5.4% in April.
St. Louis Fed James Bullard said a prolonged shutdown of the U.S. economy could trigger a second Great Depression while adding the nation needs to adapt to the new risk in the era of the coronavirus pandemic.
Bullard went on to say what we are risking is that this morphs into a financial crisis and that could make this so much worse. He said the outside could morph into a depression scenario, in which healthcare outcomes, as well as economic outcomes, would be terrible.
The iShares 20+ Year Treasury Bond ETF (TLT) had its 4-session winning streak snapped following the 2nd-half pullback to $162.98. New support at $163-$162.50 was breached but held. A close below the $162 level and the monthly low at $162.05 reopens downside risk towards $160.50-$160.
Lowered resistance is at $164-$164.50 followed by $165 and the 50-day moving average.
The S&P 500 Volatility Index ($VIX) was down for the 2nd-straight session following the afternoon fade to 27.18. Near-term and upper support at 27.50-27 was tripped but held. A close below the latter would signal further weakness towards 26-25.50 with the former representing the monthly low.
Lowered resistance is at 28.50-29 followed by 30-30.50.
The S&P 400 Mid Cap Index ($MID) was up for the 4th-straight session and for the 7th time in 8 after tagging an intraday high of 1,765. Downside resistance from the start of March at 1,750-1,775 was recovered. Continued closes above the latter would be an ongoing bullish signal for a retest towards 1,825-1,850 and the 200-day moving average.
Fresh and rising support is at 1,725-1,700 with backup help at 1,675-1,650.
RSI is in an uptrend with resistance from late April at 60 getting cleared and holding. Continued closes above this level would signal additional strength towards 65-70 and the highs from January. Support is at 55-50.
The Materials Select Sector (XLB) snapped a 2-session slide after trading to a late session high of $54.67. Current and lower resistance at $54.50-$55 was cleared but held. A close above the latter would be a bullish signal for a run towards $55.25-$55.75 and the 200-day moving average.
New support is at $54-$53.50 with backup help at $53-$52.50.
RSI is back in an uptrend after clearing and holding key resistance at 60. Continued closes above this level would signal additional strength towards 65-70 with the latter representing the late December peak. Support is at 55-50.
I wanted to add new trades yesterday but wanted to see the VIX close below 26 before adding more bullish trades. In the meantime, our current trades got a nice boost yesterday so let’s go check the action.
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, $9.26, up $0.52)
FCX June 10 calls (FCX200619C00010000, $0.30, up $0.05)
Entry Price: $0.40 (5/19/2020)
Exit Target: $0.80
Stop Target: None
Action: Prior and lower resistance at $9.40-$9.50 was challenged but held with yesterday’s high reaching $9.34. If shares can clear and hold $9.50, we could see a quick run at $10. New support is at $9.20-$9.10.
Western Union (WU, $19.82, up $0.81)
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 surged to a high of $20.01 with prior and lower resistance at $19.75-$20 getting recovered. Fresh support is at $19.50-$19.25 and the 50-day moving average.
Limelight Networks (LLNW, $5.54, up $0.23)
LLNW June 5 calls (LLNW200619C00005000, $0.70, up $0.15)
Entry Price: $0.60 (5/6/2020)
Exit Target: $1.20
Stop Target: None
Action: Key resistance at $5.50 was cleared and held with continued closes above this level keeping $5.65-$5.75 in play. New support is at $5.40-$5.30 and the 50-day moving average.