MomentumOptions.com Pre-Market Update for 6/15/2020

Bulls Rebound, Bears Win Week

8:00am (EST)

The market opened with strong gains on Friday following the prior session selloff and the biggest in 3 months. Better-than-expected economic news helped the major indexes push their highs shortly after the open but the buy-the-dip enthusiasm faded as the market drifted lower throughout the morning. 

The midday fade into negative territory was a slight concern before buying resumed to give the bulls a rebound victory but the bears winning the week. Meanwhile, volatility tested a fresh monthly peak before settling lower and remains at elevated levels heading into next week.

The Russell 2000 showed the most strength after rising 2.3% with the morning peak reaching 1,412. Fresh and lower resistance at 1,400-1,415 was cleared but held with a close above the latter signaling additional strength towards 1,425-1,440.

The Dow rallied 1.9% with the sessions high reaching 25,965. New and lower resistance at 25,750-26,000 was breached but held with a close above the latter signaling a retest towards 26,250-26,500.

The S&P 500 advanced 1.3% following the opening run to 3,088. Near-term and lower resistance at 3,075-3,100 was tripped but held with a move above the latter signaling additional upside towards 3,125-3,150. 

The Nasdaq gained 1% after reaching a 1st half peak of 9,768. Current and lower resistance from the prior week at 9,700-9,800 was breached but held with a move above the latter signaling additional upside towards 9,900-10,000.

For the week, the Russell 2000 plummeted 8% and the Dow lost 5.6%. The S&P 500 fell 4.8% and the Nasdaq gave back 2.3%.

Real Estate and Financials led sector stength with gains of 3.2% and 3%, respectively. Utilities were the only sector that showed weakness after falling 0.3%.

Over the past 5 sessions, there was no sector strength. Energy (-11.2%), Financials (-8.6%) and Materials (-8%) were the leading sector laggards.

In economic news, Import Prices rose 1% in May, with Export Prices edging up 0.5%. These follow respective declines of -2.6% and -3.3% in April. On a 12-month basis, import prices were down -6% year-over-year versus -6.8%, and export prices were lower by -6% year-over-year versus -6.8%. As for imports, petroleum prices climbed 20.5%, a record advance, after diving -31% in April. Ex-petroleum, import prices edged up 0.1% from -0.4%. Export prices excluded agriculture increased 0.6% from -3.3% as ag prices slipped -0.5% from -3.1%.

Consumer Sentiment jumped 6.6 points to 78.9 in the preliminary June print versus expectations for a print of 75, after inching up 0.5 ticks to 72.3 in May. The current conditions index increased to 87.8 from 82.3 while the expectations component climbed to 73.1 from 65.9. The 12-month inflation gauge softened to 3% after rising to 3.2% previously. The 5-year price index slowed to 2.6% from 2.7%.

Baker-Hughes reported that the U.S. rig count was down 5 rigs from the prior week to 279 with oil rigs off 7 to 199, gas rigs up 2 to 78, and miscellaneous rigs unchanged at 2. The U.S. Rig Count is down 690 rigs from last year’s count of 969, with oil rigs down 589, gas rigs down 103, and miscellaneous rigs up 2 to 2. The U.S. Offshore Rig Count was unchanged at 13 and down 11 year-over-year.

In Fed news, Richmond Fed Tom Barkin said that the pandemic could have effects that last beyond the next couple of months and cautioned that some of the millions of jobs that have been lost during the viral outbreak may never return, echoing similar remarks made by Fed Chairman Jerome Powell.

The iShares 20+ Year Treasury Bond ETF (TLT) had its 4-session winning streak snapped following the morning pullback to $162.05. Fresh support at $162.50-$162 was breached but held. A close below the latter would signal a further backtest towards $161-$160.50.

Resistance is at $164-$164.50. A close above the $165 level and the 50-day moving average would be a more bullish signal for additional strength towards $167.50-$168.

RSI is back in a slight downtrend with key support at 50 holding. A close below this level would signal additional weakness towards 45-40. Resistance is at 55-60.

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The S&P 500 Volatility Index ($VIX) traded to a high of 44.16 shortly after the open before settling lower. Mid-April and lower resistance at 44-44.50 was breached but held. A close above the 45 level would be a renewed bearish signal with additional upside towards 47.50-50.

Upper support at 35-34.50 was tripped but held on the fade to 34.97 afterwards. A close below the latter and the 50-day moving average would be a more bullish development for the market.

RSI is back in a downtrend with upper support at 55-50. A close below the latter would signal additional weakness towards 45-40. Resistance is at 60-65 with the latter representing last week and the monthly peak.

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The S&P 400 Mid Cap Index ($MID) rebounded but had an inside session after testing a high of 1,793 and failing to take out the previous session peak. Prior and lower resistance from late May at 1,800-1,850 was challenged but held. Continued closes above the latter and the 200-day moving average would be a renewed bullish signal for a retest towards 1,900-1,950 with the monthly high at 1,946.

Current support is at 1,725-1,675 with additional help at 1,650-1,600 and the 50-day moving average.

RSI is back in a slight uptrend after clearing and holding key resistance at 50. Continued closes above this level would signal additional strength towards 55-60. Support is at 45-40 with the latter holding since late March.

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The Spider S&P Retail ETF (XRT) ended a 3-session losing streak following the morning rebound to $42.43. Near-term and lower resistance at $42-$42.50 was cleared but held. A close above the latter would be a bullish signal for a retest towards $43-$43.50.

Current support is at $40.50-$40 and the 200-day moving average. A close below the latter would be a renewed bearish development with additional downside risk towards $38.50-$38.

RSI is trying to reestablish an uptrend with lower resistance at 55-60 holding. Key support is at 50 with a move below this level signaling additional weakness towards 45-40.

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The percentage of Nasdaq 100 stocks trading above the 50-day moving

closed at 85.43% on Friday, up 3.88%. Current and lower resistance at 85%-87.5% was cleared but and held. A close above the latter would signal a retest towards 90%-87.5% but still signaling overbought levels. Support is at 82.5%-80%.

The percentage of S&P 500 stocks trading above the 200-day moving average settled at 36.43%, up 2.97%, with the session high at 40.22%. Lower resistance at 40%-42.5% was cleared but held. A close above the latter would signal additional strength towards 45%-47.5%. Last week’s peak was just north of 60% and was signaling slightly overbought levels. Current support is at 35%-32.5%.

The 1Q earnings season is in the books and it is now time to start looking at how 2Q numbers will look. Earnings estimates fell sharply in the immediate aftermath of the coronavirus pandemic, with full-year 2020 estimates now almost a quarter below the year-earlier level and even 2021 estimates now modestly below the 2019 level. 

The massive negative revisions trend of the last three months appears to have eased in recent weeks, but that could change as companies start reporting 2Q results next month and provide guidance.

The brunt of the earnings hit is expected to be in Q2 2020, but declines are expected to continue in the second half of the year as well, though the pace of declines decelerates significantly from the Q2 level. 

Total S&P 500 earnings are expected to decline -43.9% in Q2 on -11% lower revenues, with the Utilities sector as the only one to experience modestly higher earnings relative to the year-earlier period.

The three sectors that are expected to lose money in Q2 (year-over-year declines of -100% or more) are Autos (-229.7%), Transportation (-151.4%) and Energy (-141.7%). Other sectors expected to suffer big earnings declines in Q2 include Consumer Discretionary (-95.3%), Conglomerates (-73.3%), Aerospace (-61.2%), Basic Materials (-58.4%), Industrial Products (-53%), Retail (-41.5%) and Finance (-38.7%).

The Technology sector stands out for having a lower earnings decline in Q2 relative to other sectors, with total earnings for the sector expected to decline -13.3% from the year-earlier period on -1.1% lower revenues.

For full-year 2020, total earnings for the S&P 500 index are currently expected to be down -24.0% on -5.7% lower revenues. This is down from nearly 8% growth expected at the start of the year. For reference, S&P 500 earnings declined -19.1% in 2008 and -3.4% in 2009, though that was admittedly a different type of downturn.

Growth arrives next year, thanks to easy comparisons, but earnings in 2021 will still be below the 2019 level. While full-year 2021 earnings for the S&P 500 index are currently expected to be up 26.7% from the steadily lowered 2020 level, the absolute dollar amount of 2021 earnings estimates remains below the 2019 level.

For the small-cap S&P 600 index, total Q2 earnings are projected to be down -84.2% from the same period last year on -16.2% lower revenues. This would follow an earnings decline of -81.1% in Q1 on -8.6% lower revenues.

Friday’s session could be what is in store over the near-term as Wall Street will now turn its focus towards the start of 2Q earnings that start the 2nd week of July. This will bring even larger price swings and should set the stage for how the next MAJOR trend plays out.

The selloff from February to the March lows produced losses of over 35% for the major indexes. The rebound into early June produced a 40% run off the bottoms, on average. Each came within basically 2 months. With the portfolio light and another trade closing this week (LLNW), we will only have 2 open positions with July and September expirations.

By locking in our 9th triple-digit winner of the year with the 111x return on FCX, the Track Record is now pushing nearly an 80% win rate. We can still afford to be aggressive in opening fresh trades but I don’t want to get too aggressive with bullish trades until the VIX closes back below the 30 level.

There will likely be an opportunity for bearish positions if volatility pops above the 45-50 level. That could happen as early as today. We also have to be careful of a possible trading range and time periods where I like to be totally flat with no open positions (except maybe 1-2 longer-term call options and what we have with DBX and TLRY). 

With that said, I had my support team send out a Text Alert Sunday afternoon/ evening so that you will know exactly when you may need to take action. 

On that note, let’s go check the current positions.

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, $21.03, up $0.61)

DBX July 25 calls (DBX200717C00025000, $0.20, up $0.05)

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

Exit Target: $1.10

Return: -64%

Stop Target: None

Action: Lower resistance at $21.25-$21.50 was cleared but held on Friday’s trip to $21.28. Support is at $20.75-$20.50 and the 50-day moving average.

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Tilray (TLRY, $8.42, up $0.05)

TLRY September 11 calls (TLRY200918C00011000, $0.90, flat)

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

Exit Target: $2.00

Return: -10%

Stop Target: 50 cents

Action: Shares traded up to $9.02 with lower resistance at $9-$9.25 getting cleared and holding. Current support remains at $8.50-$8.25.

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Limelight Networks (LLNW, $5.11, down $0.03)

LLNW June 5 calls (LLNW200619C00005000, $0.20, down $0.05)

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

Exit Target: $1.20, lower to 80 cents (Limit Order)

Return: -67%

Stop Target: None

Action: Lower the Exit Target from $1.20 to 80 cents.

Upper support at $5.10-$5 was breached but held with Friday’s low tapping $5.02. Resistance is at $5.20-$5.30.

This is the first trade of the year where we’ve had a position come into the last week of action before the options expire. Technically, these calls are in-the-money and could make continued wild price swings this week as Friday expiration approaches.

The breakeven point is $5.60 and I’ve lowered the Exit Target in hopes of still getting a profit out of the trade. A close below $5 in the coming days, however, will likely force us out.

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