MomentumOptions.com Pre-Market Update for 6/5/2020

Market Awaits More Employment Data

8:00am (EST)

The market opened slightly lower to start Thursday’s session following another round of slightly worse-than-expected economic news. A rebound occurred shortly afterwards but the major indexes remained choppy throughout the session before closing mostly lower.

The narrow trading range was an indication Wall Street is waiting for  this morning’s more important monthly employment report ahead of the open. Volatility also traded in a tight range before closing slightly higher after pushing a fresh multi-month low.

The Nasdaq had it 4-session winning streak snapped after falling 0.7% with the midday low testing 9,560. Current and upper support at 9,600-9,550 was breached but held with a move below the latter signaling additional weakness towards 9,500-9,450.

The S&P 500 was lower by 0.3% with the intraday hitting 3,090. Fresh and upper support at 3,100-3,075 was tripped but held with a close below the latter signaling additional downside risk towards 3,050-3,025.

The Russell 2000 was down less than a point with the midday low reaching 1,439. Fresh and upper support at 1,450-1,435 was breached but held with a close below the latter getting 1,425-1,410 back in focus.

The Dow extended its winning streak to 4-straight sessions after nudging up 0.1% while trading to an intraday high of 26,384. Lower resistance at 26,500-26,750 was challenged but held with a close above the latter and the 200-day moving average keeping additional upside towards 26,750-27,000 in play.

Financials and Industrials led sector strength for the 2nd-straight session with gains of 2.2% and 1.1%, respectively. Real Estate and Utilities were the weakest sectors after giving back 1.9% and 1.8%.

In economic news, Initial Jobless Claims fell -249,000 to 1,877,000, versus forecasts of 1,790,000, after declining -320,000 to 2,126,000 in the prior week. This represented the 9th-straight week of declines and brought the 4-week moving average to 2,284,000 from 2,608,750. Meanwhile, continuing claims climbed 649,000 to 21,487,000 following the -4,074,000 drop to 20,838,000 in the previous week.

April trade deficit widened 16.7% to -$49.4 billion from -$42.3 billion in March. Exports sank -20.5%, doubling the -10.2% decline from March. Imports were down -13.7%, more than double March’s -5.6% drop. Excluding petroleum, the deficit was -$52.6 billion versus the -$44.9 billion previously. The real goods balance for April widened to -$80 billion versus -$75.9 billion in March.

Q1 productivity contracted at a -0.9% pace while unit labor costs rose 5.1% in the second look, compared to respective prints of -2.5% and 4.8% previously. In Q4, productivity grew at a 1.2% pace, and unit labor costs were up 2.2%. For Q1, output was bumped down to -6.5%, from -6.2%, versus Q4’s 2.4% reading. Employee hours worsened to -5.6%, from -3.8%, compared to the 1.2% rate from Q4. Compensation per hour was up 4.2% in the second look, from 2.2%, compared to the 3.4% pace from the prior quarter. The price deflator was nudged up to 1%, from 0.7%, and was little changed from 0.9% in Q4.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its losing streak to 4-straight sessions after tapping a late day low of $157.18. Fresh and upper support from mid-March at $157.50-$157 was breached and failed to hold. A close below the latter would signal additional weakness towards $156-$155.50.

Lowered resistance is at $158-$158.50 followed by $159.50-$160.

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The S&P 500 Volatility Index ($VIX) snapped a 2-session slide despite testing a 1st half low of 24.38. Late February and upper support at 24.50-24 and the 200-day moving average were breached but levels that held. A close below the latter would be an ongoing bullish signal for the market with additional weakness towards 23-22.50.

Resistance is at 26-26.50 followed by 27.50-28.

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The Russell 2000 ETF (IWM) was down for the 1st time in 4 sessions with the intraday low at $143.18. Near-term and upper support at $143.50-$143 was breached but held. A close below the latter would be a slightly bearish signal for a retest towards $141.50-$141.

Current resistance is at $145-$145.50 with more important hurdles at $146.50-$147 and the 200-day moving average. 

RSI is in a slight downtrend with upper support at 65-60 holding. A move below the latter would signal additional weakness towards 55-50 and levels from early May. Resistance is at 70.

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The Consumer Staples Select Spiders (XLP) had its 8-session winning streak snapped following the afternoon pullback to $59.27. Current and upper support is at $59.50-$59 was tripped but held. A close below the latter would be a slightly bearish development with backtest potential towards $58.50-$58.

Near-term resistance is at $60-$60.50 and the 200-day moving average. A close above the latter would be a renewed bullish signal for additional momentum towards $61.50-$62.

RSI is back in a slight downtrend with upper support at 55-50 holding. Resistance is at 60 failing. A move above the 65 level and the February high would signal additional strength towards 70-75 and highs from January.

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I have updated our current positions so let’s go check the tape.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 20-6 (77%). 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.

Dropbox (DBX, $23.28, down $0.48)

DBX July 25 calls (DBX200717C00025000, $0.55, down $0.20)

Entry Price: $0.55 (6/4/2020)

Exit Target: $1.10

Return: 0%

Stop Target: None

Action: Thursday’s low tapped $22.86 with near-term and upper support at $23-$22.75 getting clipped but holding. Resistance is at $23.50-$23.75.

Shares could be on the verge of a major breakout if $24 is cleared and hold.

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Tilray (TLRY, $10.09, up $0.01)

TLRY September 11 calls (TLRY200918C00011000, $1.00, unchanged)

Entry Price: $1.00 (6/3/2020)

Exit Target: $2.00

Return: 0%

Stop Target: 50 cents

Action: Yesterday’s high reached $10.31 with resistance at $10.25-$10.50 getting breached but holding. Support is at $10-$9.75. 

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Freeport McMoRan (FCX, $10.20, up $0.06)

FCX June 10 calls (FCX200619C00010000, $0.55, unchanged)

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

Exit Target: $0.80

Return: 38%

Stop Target: 45 cents (Stop Limit)

Action: Thursday’s peak reached $10.28 with lower resistance at $10.25-$10.35 getting breached but holding. Support remains at $10.10-$10 and the 200-day moving average.

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Limelight Networks (LLNW, $4.68, down $0.33)

LLNW June 5 calls (LLNW200619C00005000, $0.30, down $0.15)

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

Exit Target: $1.20 

Return: -50%

Stop Target: None

Action: Prior and upper support at $4.70-$4.60 failed to hold on yesterday’s pullback to $4.65. Lowered resistance is at $4.80-$4.90.

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