MomentumOptions.com Pre-Market Update for 6/12/2020
Bears Get Aggressive
The market suffered the biggest selloff since mid-March following escalating concerns of a second wave of coronavirus cases. Additionally, the major indexes were beginning to be seen as overbought, leaving stocks ripe for profit taking following the remarkable 40+% rebound to recent peaks from March’s panic lows.
The Russell 2000 plummeted 7.6% with the late day low reaching 1,355. Fresh and upper support at 1,365-1,350 was breached and failed to hold with a close below the latter signaling additional weakness towards 1,335-1,320.
The Dow tanked 6.9% after testing a low of 25,082 ahead of the closing bell. Late May and upper support at 25,250-25,000 failed to hold with a move below the latter signaling a further retest towards 24,750-24,500.
The S&P 500 dropped 5.9% with the afternoon low reaching 2,999. Near-term and upper support at 3,000-2,975 was breached but held with a close below the latter getting 2,950-2,925 in play.
The Nasdaq had its 4-session winning streak snapped after falling 5.3% with the intraday pullback reaching 9,491. New and upper support at 9,500-9,450 was tripped and failed to hold with a close below the latter keeping downside risk towards 9,400-9,350 in focus.
There was no sector strength. Energy led sector laggards after getting hammered for a 9.2% loss while Financials and Materials tanked 8.2% and 7.7%, respectively.
In economic news, Initial Jobless Claims fell -355,000 to 1,542,000 after sliding -226,000 to 1,897,000 previously. The 4-week moving average dropped to 2,002,000 from 2,288,250. Continuing claims slumped -339,000 to 20,929,000 after rising 427,000 to 21,268,000.
Producer Price Index bounced 0.4% in May, with the core rate dipping -0.1%. Those follow respective declines of -1.3% and -0.3%, where the headline drop was the largest since recording began in 2009. The 12-month headline pace of contraction slowed to -0.8% year-over-year versus -1.2%, while the core rate dipped to 0.3% year-over-year versus 0.6%. Goods prices increased 1.6% from -3.3% in April, with food prices popping 6% from -0.5%, while energy prices increased 4.5% versus -19% previously. Services prices were down -0.2% from -0.4%.
The U.S. QSS figures that track activity for the service sector revealed an unrevised 0.8% Q1 year-over-year gain in the aggregate selected services measure that reflected a -2.9% drop from Q4.
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 4th-straight session after surging to an intraday high of $164.23. Prior and lower resistance from late May at $164-$164.50 was breached but held. A close above the latter and the 50-day moving average would signal additional momentum towards $165.50-$166.
New support is at $163.50-$163 followed by $161-$160.50.
The S&P 500 Volatility Index ($VIX) was up for the 3rd time in 4 sessions after zooming to a high of 42.58 while closing back above the 50-day moving average. Mid-May and lower resistance at 42.50-43 was cleared but held. A close above the latter would signal additional strength towards 45-47.50.
Fresh support is at 40-39.50 followed by 38-37.50.
The iShares Russell 1000 (IWF) was down for just the 2nd time in 14 sessions following the pullback to $182.78. Prior and upper support from late May at $183-$182.50 was breached and failed to hold. A close back below the latter would signal additional weakness towards $180.50-$180.
Lowered resistance is at $183.50-$184 followed by $185-$185.50.
RSI is in a downtrend with key support at 50 holding. A close below 50, and a level that has been holding since early April, would signal additional weakness towards 45-40. Resistance is at 55-60.
The iShares PHLX Semiconductor ETF (SOXX) had its 2-session winning streak snapped following the late day pullback to $255.21. Prior and upper support from last week at $255.50-$255 was breached and failed to hold. A close below the latter would signal additional downside risk towards $253-$252.50.
Lowered resistance is at $256.50-$257 followed by $259.50-$260.
RSI is back in a downtrend with upper support at 55-50 failing to hold. A close below the latter would signal a further backtest towards 45-40. Resistance is at 60.
I mentioned a market top was likely to happen so there could be additional weakness for today and next week. While some of the current trades will likely suffer, we only paid $2.15 in premium for the 3 remaining trades with 2 positions expiring longer-term. The regular June options expire next week so our LLNW trade is the only one that concerns me at the moment.
Momentum Options Play List
Closed Momentum Options Trades for 2020: 21-6 (78%). 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, $20.42, down $1.56)
DBX July 25 calls (DBX200717C00025000, $0.15, down $0.15)
Entry Price: $0.55 (6/4/2020)
Exit Target: $1.10
Stop Target: None
Action: Upper support from late April at $20.50-$20.25 was breached and failed to hold. Lowered resistance is at $20.75-$21 and the 50-day moving average.
Tilray (TLRY, $8.37 down $1.32)
TLRY September 11 calls (TLRY200918C00011000, $0.90, down $0.35)
Entry Price: $1.00 (6/3/2020)
Exit Target: $2.00
Stop Target: 50 cents
Action: Thursday’s low kissed $8.21 with prior and upper support at $8.50-$8.25 failing to hold. Lowered resistance is at $8.75-$9.
Limelight Networks (LLNW, $5.14, down $0.13)
LLNW June 5 calls (LLNW200619C00005000, $0.30, down $0.15)
Entry Price: $0.60 (5/6/2020)
Exit Target: $1.20
Stop Target: None
Action: Upper support at $5.10-$5 was breached but held with yesterday’s low at $5.02. Lowered resistance at $5.20-$5.30.