MomentumOptions.com Pre-Market Update for 6/2/2020

Major Indexes Near-Top of Trading Ranges

8:00am (EST)

The market opened slightly lower following a 6th-straight day of protests and riots across the country before quickly reversing course while holding positive territory throughout the session. The chaos prompted fresh concerns over a possible surge in coronavirus infections but was overlooked as more states start to begin to fully reopen despite the weekend disruption.

A report China has ordered firms to stop importing some U.S. farm goods was also brushed aside and comes after President Trump’s commitment to keep the trade deal with China intact. However, volatility continues to show a possible upside breakout despite the overall market strength on Monday.

The Russell 2000 snapped a 2-session slide after rallying 0.8% while tagging a midday high of 1,419 and closing back above the 1,400 level. Prior and lower resistance at 1,410-1,425 was cleared but held with a move above the latter signaling a retest towards 1,435-1,450.

The Nasdaq gained 0.7% after showing strength for the 5th time in 6 sessions and trading to an intraday high of 9,571. Fresh and lower resistance at 9,550-9,600 was cleared and held with a move above the latter signaling additional momentum towards 9,700-9,750.

The S&P 500 was up for the 2nd-straight session after adding 0.4% following the afternoon push to 3,062. New and lower resistance at 3,050-3,075 was pierced and held with a close above the latter signaling additional strength towards 3,100-3,125.

The Dow also rose 0.4% with the intraday high reaching 25,508. Lower resistance from last week at 25,500-25,750 was breached but held with a close above the latter being a bullish development for additional strength towards 26,000-26,250.

Real Estate and Energy led sector strength after jumping 2% and 1.8% while Utilities and Financials advanced 1.2%. Healthcare and Technology were the only sector laggards after giving back 1% and 0.03%, respectively.

In economic news, Construction Spending dropped -2.8% in April after an unchanged reading in March. Forecasts were at a -5.5% contraction. All the components posted declines with residential construction tumbling -4.5% from March’s -0.1% dip. Nonresidential construction fell -1.8% versus the 0.1% gain in March gain. Private construction declined -3% from -0.7% and public construction was down -2.5% after a 2.2% rise previously.

ISM Manufacturing Index was up 1.6 points to 43.1 in May, topping expectations for a print of 42.7, and follows the -7.6 point decline to 41.5 in April which was an 11-year low. Most of the sub-indexes improved with the employment component rising to 32.1 from 27.5 and new orders increasing to 31.8 from 27.1. Production rose to 33.2 from the historic low of 27.5 set in April. New export orders also increased to 39.5 from 35.3 while imports dipped to 41.3 from 42.7. Prices paid were up 5.5 points to 40.8 from 35.3.

PMI Manufacturing Index for May checked in at 39.8, matching the flash reading. Though it’s a little better than the all-time low of 36.1 in April, it represented the second lowest level on record. Output prices declined and are at the lowest since the data began in 2017.

The iShares 20+ Year Treasury Bond ETF (TLT) fell for the 4th time in 5 sessions following the fist half fade to $161.67. Upper support at $162-$161.50 was clipped but held. A close below the latter would be a bearish development with additional downside risk towards $160.50-$160.

Lowered resistance at is $162.50-$163 followed by $165-$165.50 and the 50-day moving average.

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The S&P 500 Volatility Index ($VIX) settled higher for the 2nd time in 3 sessions after tapoing a morning high of 30.60. Upper resistance at 30-30.50 was tripped but has held into the closing bell for 8-straight sessions. A close above the 31.50 level would be a more bearish development with additional upside potential towards 32.50-35.

Support has moved up to 28-27.50. A close back below the latter would be a more bullish signal for the market with retest potential towards 26-25.50.

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The iShares Russell 1000 (IWF) extended its winning streak to 6-straight sessions after trading to a high of $185.75. Early February and lower resistance at $185.50-$186 was cleared but held by a penny. Continued closes above the latter would be an ongoing bullish signal for additional momentum towards $187.50-$188.

Current support is at $184-$183.50. A close back below the latter would signal additional pullback potential towards $182-$181.50. The 50-day moving average remains on track to clear the 200-day moving average and would form a golden cross if cleared. This is usually a bullish technical signal for higher highs.

RSI remains in an uptrend with lower resistance at 70-75 holding. Continued closes above the latter signal additional strength towards 80 and the January peak. Support is at 65-60.

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The Technology Select Sector Spiders (XLK) held positive territory for much of the session with the intraday reaching $98.14. Lower resistance from last week at $98-$98.50 was breached but held. A close above the latter would signal a fresh breakout with upside potential towards $100.50-$101.  

Near-term and upper support at $97-$96.50 was challenged but held on the fade to $97.08 with backup help at $95-$94.50.

RSI has flatlined with key resistance at 65 holding. A close above this level would signal additional momentum towards 70 and the February peak. Support is at 60-55 with the latter holding since late April.

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Monday’s action remains encouraging but Tech continues to trade at way overbought levels. I mentioned the VIX pushing the top of its current trading range and it remains would of the best market indicators, in my opinion, for predicting market direction. 

We still need to watch the 30.50 and 31.50 levels on the VIX while keeping our fingers crossed for a close below 25 at some point this month. This would confirm another possible breakout for the overall market if the bulls can recover the 25 level.

We got some super sweet pin action concerning our WU position after some M&A mews after Monday’s close.

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, $9.34, up $0.27)

FCX June 10 calls (FCX200619C00010000, $0.25, flat)

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

Exit Target: $0.80

Return: -38%

Stop Target: None

Action: Lower resistance at $9.40-$9.50 was tripped but held with a close above the later being a very bullish development. Current support is at $9.20-$9.10.

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Western Union (WU, $20.71, up $0.69)

WU June 21 calls (WU200619C00021000, $0.50, up $0.20)

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

Exit Target: $1.00 

Return: 0%

Stop Target: None

Action: Shares rebounded 3.4% to test a high of $20.88 with early April resistance at $20.75-$21 getting breached but holding. Support is at $20.50-$20.25.

After the close, there was news Western Union (WU) has made a bid to purchase MoneyGram (MGI). An acquiring company usually sees a slight decrease in its stock price on merger news but shares of WU were surging 5% and at $21.80 in after-hours on Monday. Shares of MGI were zooming 27% and pushing $3.30 so let’s hope both gains hold into this morning’s opening bell.

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Limelight Networks (LLNW, $5.10, up $0.16)

LLNW June 5 calls (LLNW200619C00005000, $0.40, flat)

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

Exit Target: $1.20 

Return: -33%

Stop Target: None

Action: Fresh and lower resistance at $5.10-$5.20 was recovered on Monday’s rebound to $5.16. Current support is at $5-$4.90.

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