MomentumOptions.com Pre-Market Update for 6/25/2020

Bears Return as Coronavirus Cases Surge/ Profit Alert (GLD)

8:00am (EST)

The market was weak throughout Wednesday’s action as major concerns over the growing number of coronavirus cases weighed on sentiment. A warning from the Texas Governor started the selling pressure after he implored residents to stay home as the state grapples with a surge in coronavirus cases and hospitalizations stemming from the disease.

Later in the session, the Governors from New York, New Jersey and Connecticut announced a joint travel advisory that will start Thursday at midnight. All individuals traveling from states with significant community spread of coronavirus into any of the three states must quarantine for 14 days. The news sent the major indexes deeper into negative territory with major losses holding into the closing bell.

The Russell 2000 tumbled 3.5% with the afternoon low reaching 1,374. Prior and upper support at 1,375-1,360 was breached but held with a close below the latter signaling additional weakness towards 1,350-1,335.

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The Dow was down 2.7% after testing an intraday low of 25,296. Near-term and upper support at 25,500-25,250 failed to hold with a drop below the latter signaling a further backtest towards 25,000-24,750.

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The S&P 500 lost 2.6% with the 2nd half low tapping 3,032. Current and upper support at 3,050-3,025 was tripped but held by less than a point with a close below the latter getting 3,000-2,975 back in focus.

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The Nasdaq sank 2.2% to snap an 8-session winning streak following the midday pullback to 9,842. Fresh and upper support at 9,850-9,750 was breached but held with a move below the latter setting up a retest towards 9,600-9,500.

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Energy was the weakest sector after sinking 5.6% while Financials and Industrials sank 3.5%. There was no sector strength.

In economic news, MBA Mortgage Applications declined -8.7% last week following an increase of 8% in the prior week. An -11.7% tumble in the refi index paced the headline decline, and follows a 10.3% jump previously. The purchase index fell -3% after rising 3.5% in the prior week. The 12-month pace of gains slowed, with the headline index slipping to 48% year-over-year versus 63.6% previously. The refi rate dropped to 76.2% from 106%, while the purchase index slid to 18.1% from 20.9%. The 30-year fixed-rate mortgage index was steady at 3.30%, a record low, and the 5-year ARM came in at 3.09% from 3.07% the week before.

FHFA House Price Index rose 0.2% to 288.3 in April, a new record high, after edging up 0.1% to 287.7 in March. The 12-month rate slowed slightly to 5.5% year-over-year versus 5.9% previously. Five of the nine Census divisions posted gains, including an 0.8% rise in the West South Central area. Two divisions were unchanged, the Pacific and the Mountain, while New England and the South Atlantic declined. However, all regions recorded year-over-year gains, ranging from 5% in the Middle Atlantic area to 6.8% in the Mountain division. Prices have been supported by low inventories and increased demand given low mortgage rates.

Chicago Fed President Charles Evans said the U.S. economy is likely to take an extended hit from the coronavirus pandemic and that the health threat from the virus hasn’t fully abated. His forecast has real GDP returning to its pre-pandemic 2019 fourth quarter level sometime later in 2022, but that doesn’t even take into account the steady growth that had been penciled in for 2020.

Evans said the U.S. economy may require more monetary stimulus, especially with inflation so low and at risk of further weakness. He didn’t say what policy tool he might favor to use, but said he would be surprised if the Fed cut its benchmark rate into negative territory.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 5th time in 6 sessions after testing a late day high of $163.09. Current and lower resistance at $163-$163.50 was recovered. A close above the latter would signal additional strength towards $164-$164.50 and the 50-day moving average.

Support is at $162-$161.50 followed by $160.50-$160.

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The S&P 500 Volatility Index ($VIX) snapped a 2-session slide after trading to a first half high of 37.12. Prior and lower resistance at 37-37.50 was breached but held. A close above the latter would signal upside risk towards the 40 area.

New support is at 33-32.50 and the 50-day moving average.

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The iShares Russell 1000 (IWF) was down for the first time in 3 sessions following the pullback to $187.82. Near-term and upper support at $188-$187.50 was tripped but held. A close back below the latter would signal additional weakness towards $185.50-$185.

Lowered resistance is at $189.50-$190 followed by $192-$192.50.

RSI is in a downtrend with upper support at 55-50 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 60.

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The Technology Select Sector Spiders (XLK) has its 2-session winning streak snapped with the intraday low tapping $101.71. Current and upper support at $102-$101.50 was tripped but held. A close below the latter and the bottom of the current trading range would signal additional weakness towards $100.50-$100.

Lowered resistance is at $103-$103.50 followed by $104.50-$105.  

RSI is back in a downtrend with upper support at 55-50 holding with the latter holding since mid-April. A close below 50 and the monthly low would signal additional downside risk towards 45-40. Resistance is at 60-65.

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Yesterday’s pullback wasn’t a big surprise given the extremely overbought levels in Tech. While the overall results sounded bearish, near-term support levels held with the VIX closing below the 35 level.

I have mentioned a trading range could develop into the 2nd week of July with more downside risk than upside. The good news is we can wait for better entry prices on bullish trades while taking quick profits when available.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 22-6 (79%). 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.

Spider Gold Shares (GLD, $165.90, down $0.58)

GLD July 170 calls (GLD200717C00170000, $1.50, down $0.35)

Entry Price: $1.35 (6/22/2020)

Exit Target: $2.70

Return: 11%

Stop Target: $1.50 (Stop Limit)

Action: The Stop Limit at $1.50 tripped on GLD’s backtest to $165.45. I still believe a run towards $170 is coming over the near-term so we could be back in this name quickly.

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AT&T (T, $29.42, down $0.83)

T July 32 calls (T200717C00032000, $0.20, down $0.10)

Entry Price: $0.67 (6/16/2020)

Exit Target: $1.35

Return: -64%

Stop Target: None

Action: Mid-May and upper support at $29.50-$29.25 failed to hold on the tumble to $29.16. Lowered resistance is at $29.75-$30.

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Dropbox (DBX, $23.65, up $0.14)

DBX July 25 calls (DBX200717C00025000, $0.30, down $0.30)

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

Exit Target: $1.10

Return: -44%

Stop Target: None

Action: Shares tested a low of $22.36 with upper support is at $22.50-$22.25 getting breached but holding. Lowered resistance is at $23.75-$24.

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Tilray (TLRY, $8.15, down $0.41)

TLRY September 11 calls (TLRY200918C00011000, $0.60, down $0.15)

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

Exit Target: $2.00

Return: -40%

Stop Target: 50 cents

Action: Wednesday’s low tapped $8.06 with upper support at $8.25-$8 failing to hold on the close back below the 50-day moving average. Lowered resistance is at $8.50-$8.75.

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