MomentumOptions.com Pre-Market Update for 6/4/2020
Blue-Chips and Small-Caps Pushing 200-Day MA’s/ Profit Alert (WU)
The market showed continued strength on Wednesday despite an 8th-straight night of protests in major cities around the country. The property damage was limited in most cases and comes ahead of a number of states joining others in entering Phase 2 of the reopening process this week.
Better-than-expected economic news also helped sentiment as manufacturing and employment data came in better-than-expected. Volatility tagged a fresh multi-month low with key and longer-term support holding into the closing bell.
The Russell 2000 led the charge higher after gaining 2.4% with the morning peak reaching 1,463. Fresh and lower resistance at 1,450-1,465 was recovered with a close above the latter and the 200-day moving average getting 1,475-1,490 in focus.
The Dow extended its winning streak to 3-straight sessions after rising 2.1% while trading to an intraday high of 26,337. Upper resistance from early March at 26,250-26,500 was cleared and held with continued closes above the latter and the 200-day moving average keeping additional upside towards 26,750-27,000 in play.
The S&P 500 was up for the 4th-straight session after adding 1.4% with the afternoon peak tapping 3,130. Fresh and upper resistance at 3,100-3,125
was cleared but held with a close above the latter signaling additional momentum towards 3,150-3,175.
The Nasdaq was higher by 0.8% to extend its winning streak to 4-straight with the session high tagging 9,707. Late January and lower resistance at 9,700-9,750 was tripped but held with a move above the latter leading to a run at 9,800-9,850 with the all-time high at 9,838.
Industrials and Financials were sector standouts after zooming 3.9% and 3.7%, respectively. Healthcare was the only sector laggard after slipping 0.2%.
In economic news, MBA Mortgage Applications declined -3.9% following the prior week’s 2.7% increase. Much of the weakness came from an -8.6% decline in refinancings, while the purchase index increased 5.3%. The market index is up 67.9% year-over-year versus 75.1% last week. The refi index is now at a 137.1% year-over-year clip versus 176.1% preciously. However, the purchase index is at a 17.5% year-over-year rate, a little better than the prior 8.7% print. The 30-year index fell to 3.37%, besting the prior 3.4% low set several weeks ago. The 5-year ARM dropped to 3.05% versus 3.08% last week. The housing market is holding up well and may even improve as the pandemic could discourage high density living in favor of more single family homes.
ADP Employment Report revealed private payrolls declined -2,760,000 in May after dropping -19,557,000 in April. Expectations were for a loss of -9 million. Job losses in the services sector totaled -2 million while the goods producing sector lost -794,000. Much of the weakness was paced by the trade/transport sector due to the shutdowns, with an -826,000 drop. Professional/business service employment declined 250,000. Education/health services employment was down -168,000 while leisure/hospitality jobs fell -105,000.
PMI Services Index was revised up to 37.5 versus 36.9 in the flash May reading and was up 10.8 points from the 26.7 print in April. The employment component improved, as well, to 37.8 from 35.6 in April. The composite index was bumped up to 37 versus the 36.4 flash print, and is up from 27 in April. And like the services index, it also represented the 4th-straight month of contraction, though the rate is slowing. Both new orders and employment improved, but remain in contraction, adding to the view that April might have been the worst hit from the pandemic.
Factory Orders plummeted a record -13% in April, versus forecasts for a decline of -14%, after plunging -11% in March. Nearly all of the components dropped, led by transportation orders which were down a whopping -48.3% (-47.3% in durables), on top of the -43.2% in March. Excluding transportation, factory orders declined -8.5% versus -4% previously. April durable orders were revised down to -17.7% versus -17.2% in the Advance data. Nondefense capital goods orders excluding aircraft declined -6.1% versus -1.3% in March. Factory shipments tumbled -13.5% versus March’s -5.5% slide. Nondefense capital goods shipments excluding aircraft dropped -5.7% from -1.3% previously. Inventories slipped -0.4% from -1.1% while the inventory-shipment ratio jumped to 1.69 from 1.46.
ISM Services Index rose 3.6 points to 45.4 in May, rebounding from the historic -10.7 point plunge to 41.8 in April, while topping forecasts for a reading of 44. The employment component inched up 1.8 ticks to 31.8 after tumbling -17 points to 30. New orders bounced 9 points to 41.9, recouping about half of its 20 point drop to 32.9. New export orders rose 5.2 points to 41.5 from 36.3. Imports declined -5.6 points to 43.7 after April’s 9.1 point pop to 49.3. Prices paid edged up to 55.6 after rising 5.1 ticks to 55.1 previously.
The iShares 20+ Year Treasury Bond ETF (TLT) fell for the 3rd-straight session with the intraday low reaching $158.94. Prior and upper support from mid-March at $159-$158.50 was tripped but held. A close below the latter would signal additional weakness towards $157.50-$157.
Lowered resistance at is $160-160.50 followed by $161.50-$162.
The S&P 500 Volatility Index ($VIX) closed lower for the 2nd-straight session following the intraday drop to 25.04. Prior and upper support from early March at 25-24.50 was challenged but held. A close below the latter and the 200-day moving average would signal additional weakness towards 23-22.50.
Lowered resistance is at 26.50-27 followed by 28-28.50.
The Invesco QQQ Trust (QQQ) extended its winning streak to 4-straight sessions and was up for the 5th time in 6 after matching the all-time high of $237.47. Mid-February and lower resistance at $237-$237.50 was cleared but held. A close above the latter would be an ongoing bullish signal for additional upside towards $238.50-$239.
New support is at $236-$235.50. A close below the $232.50 level would suggest a possible near-term top with further backtest potential towards $230.50-$230.
RSI remains in a slight uptrend with key resistance at 70 holding. A move above this level would signal additional strength towards 75-80 and the highs from February and January. Support is at 65-60.
The Spider Gold Shares (GLD) was down for the 2nd-straight session after plunging to a morning low of $158.82. Prior and upper support from early May at $159-$158.50 was pierced but held along with the 50-day moving average. A close below the latter would signal a retest towards $156.50-$156.
Lowered resistance is at $160.50-$161. Continued closes above the $162 level would be a more bullish signal of a near-term bottom.
RSI is in a downtrend with upper support at 45-40 holding. A close below the latter would be an ongoing bearish signal with additional weakness towards 35-30 with the latter representing the March low. Resistance is at 50.
We were stopped out of WU yesterday and I have update our latest trade, TLRY. I could have another new trade or 2 today so stay locked-and-loaded throughout the session in case I take 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.
Tilray (TLRY, $10.08, up $0.06)
TLRY September 11 calls (TLRY200918C00011000, $1.00, up $0.05)
Entry Price: $1.00 (6/3/2020)
Exit Target: $2.00
Stop Target: 50 cents
Action: Shares tested a high of $10.50 with resistance at $10.25-$10.50 getting cleared but holding. Support is at $10-$9.75.
Volume in these options was huge yesterday as nearly 4,500 exchanged hands.
Freeport McMoRan (FCX, $10.14, up $0.39)
FCX June 10 calls (FCX200619C00010000, $0.55, up $0.15)
Entry Price: $0.40 (5/19/2020)
Exit Target: $0.80
Stop Target: 45 cents (Stop Limit)
Action: Set an initial Stop Limit at 45 cents to protect profits and to avoid a loss. These calls expire in 2 weeks from this Friday so there is no need to stay in the position on a pullback.
Wednesday’s high reached $10.32 with fresh and lower resistance at $10.25-$10.35 getting breached but holding. Rising support is at $10.10-$10 and the 200-day moving average.
Western Union (WU, $22.88, down $0.17)
WU June 21 calls (WU200619C00021000, $2.00, down $0.15)
Entry Price: $0.50 (5/9/2020)
Exit Target: $3 (closed half at $2.25 on 6/2/2020)
Stop Target: $2 (Stop Limit)
Action: The Stop Limit at $2 tripped on yesterday’s pullback to $22.69 and the options tapping a low of $1.80.
I was hoping to squeeze a few more percentage points out of this trade but it is hard to complain about any profit you make in the market, especially and officially after the trade was our biggest winner of the year.
If shares can clear and hold $23.50, we could get back in July calls to play a possible quick pop towards $25-$26.
Limelight Networks (LLNW, $5.01, down $0.10)
LLNW June 5 calls (LLNW200619C00005000, $0.45, flat)
Entry Price: $0.60 (5/6/2020)
Exit Target: $1.20
Stop Target: None
Action: Upper support at $5-$4.90 held on yesterday’s fade to $4.97. Lowered resistance is at $5.10-$5.20.