MomentumOptions.com Pre-Market Update for 6/29/2020

Bulls Give Up Weekly Gains on Friday Selloff

8:00am (EST) 

The market traded lower throughout Friday’s session following news of a number of states announcing new restrictions due to coronavirus and holding back on reopening plans. Specifically, Texas ordered new closures on bars and restaurants while Arizona and Florida also paused some reopenings.

Also weighing on the action were the bank stress test announcements and warnings from China that the U.S. may risk the Phase One trade deal if the U.S. meddles in Hong Kong. The Fed told banks to cap dividend payments to preserve capital, and barred buybacks in Q3 while China said the U.S. should refrain from going too far with meddling and red lines shouldn’t be crossed.

The negative news and lower lows into the closing bell were enough to erase the weekly gains with the major indexes closing lower for the 2nd time over past 3 weeks. Volatility zigzagged for the 4th-straight session to return to elevated levels but is giving a neutral heading into a shortened week and the winding down of the second quarter.

The Dow was the weakest index after sinking 2.8% with the late day low tapping 24,971. Mid-month and upper support at 25,000-24,750 was breached but held with a close below the latter and the 50-day moving average signaling a further pullback towards 24,500-24,250.

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The Nasdaq stumbled 2.7% following the backtest to 9,749 just ahead of the closing bell. Prior and upper support at 9,750-9,650 was tripped but held with a move below the latter setting up a further retest towards 9,600-9,500.

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The Russell 2000 fell 2.4% with the afternoon low reaching 1,375. Near-term and upper support at 1,375-1,360 held by a half-point with a close below the latter signaling additional weakness towards 1,350-1,335 and the 50-day moving average. Below is a chart of the IWM which mirrors the small-caps.

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The S&P 500 was also lower by 2.4% with the 2nd half low reaching 3,004. Current and upper support at 3,025-3,000 failed to hold with a drop below the latter suggesting additional selling pressure towards 2,975-2,950 and the 50-day moving average.

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For the week, the Dow lost 3.3% and the S&P 500 slid 2.9%. The Russell 2000 gave back 2.8% while the Nasdaq was off 1.9%.

There was no sector strength on Friday. Communication Services and Financials were the weakest sectors after tanking 4.4% and 4.3%, respectively, while Energy sank 3.5%.

Over the past 5 sessions, Energy (-7.7%); Financial (-5.8%); Communication Services (-5.5%); and Real Estate (-4.6%) were the weakest sectors. There were no sectors that showed strength.

In economic news, Personal Income declined -4.2% in May with consumption bouncing 8.2%, following the 10.8% jumped in April income and a -12.6% drop in spending. Compensation rebounded to 2.5% from -7.4%, with wages and salaries rising 2.7% from -7.6% previously. Disposable income fell -4.9% after soaring 13.1% in April. The savings rate slid to 23.2% from 32.2%. The chain price index edged up 0.1% from -0.5%, with the core rate rising 0.1%, as well, to -0.3% from -0.4%. On a 12-month basis, the headline price index slowed to 0.5% year-over-year versus 0.6% previously, while the core was steady at 1%. Real personal spending increased 8.1% on the month.

Consumer Sentiment was at 78.1 for the final June reading, just below the 78.9 preliminary print. Both components beat last month’s readings, but were bumped down from the preliminary readings. The current conditions index was at 87.1 and is up from the 82.3 print in May. The expectations component was at 72.3 versus May’s 65.9. The 12-month inflation gauge was unchanged at the 3% preliminary reading, but slower than the 3.2% last month. The 5-year index dipped to 2.5% versus the 2.6% preliminary, and compares to May’s 2.7% reading.

Baker-Hughes reported the U.S. rig count was down 1 rig from last week to 265 with oil rigs down 1 to 188, gas rigs unchanged at 75, and miscellaneous rigs unchanged at 2. The U.S. Rig Count is down 702 rigs from last year’s count of 967, with oil rigs off 605, gas rigs lower by 98, and miscellaneous rigs up 1 to 2. The U.S. Offshore Rig Count is unchanged at 11 and down 15 year-over-year.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight sessions following the intraday trip $165.32 and fresh monthly peak. Prior and lower resistance from mid-May at $165-$165.50 was recovered. A close above the latter would signal additional strength towards $166.50-$167.

Rising support is at $164.50-$164 and the 50-day moving average.

RSI is in an uptrend with key resistance at 60 holding. A close above this level and the April peak would signal additional momentum towards 65-70. Support is at 55-50.

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The S&P 500 Volatility Index ($VIX) spiked to a midday high of 36.25 to keep a 9-session trading range intact. Current and lower resistance at 37-37.50 was challenged but held for the 3rd-straight session. A move above the latter would be a bearish development for the market with additional upside risk towards 40-42.50.

Near-term support is at 35-34.50 followed by 32.50-32 and the 50-day moving average.

RSI is maintaining a neutral reading with resistance at 55-60 holding. A move above the latter would signal strength and a retest towards 65-70. Key support is at 50 with a drop back below this level being a slightly bullish signal for the market with additional weakness towards 45-40.

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The Invesco QQQ Trust (QQQ) was down for the 2nd-time in 3 sessions with the intraday low tapping $239.68. Prior and upper support from earlier in the month at $240-$239.50 was tripped but held. A close below the latter would be an ongoing bearish development and suggest a further backtest towards $237.50-$235.

Lowered resistance is at $241.50-$242 with additional hurdles at $244.50-$245.

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

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The Spider Gold Shares (GLD) snapped a 2-session losing streak after rebounding to reach an late day peak of $166.56. Current and lower resistance at $166.50-$167 was reclaimed. Continued closes above $167, and last week’s 52-week high of $166.99, would be a renewed bullish signal for strength towards the $170 area.

Current support is at $166-$165.50 followed by $164.50-$164. A close below the $164 level would signal a failed breakout.

RSI is trying to curl higher with key resistance at 65 holding. A close above this level and the monthly top would be a bullish signal with additional strength toward 70-75. Support is at 60-55. A close below the latter would also signal a possible near-term top for GLD with weakness towards 50-45.

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The percentage of Nasdaq 100 stocks trading above the 50-day moving closed at 66.99% on Friday, down 1.94%. Current and upper support at 67.5%-65% was tripped and failed to hold. A close below the 65% level  would signal a retest towards 62.5%-60% with the latter representing the monthly low. Resistance is at 70%-72.5%.

The percentage of S&P 500 stocks trading above the 200-day moving average settled at 32.47%, down 3.56%. Upper support from mid-May at 32.50%-30% was breached and failed to hold. A close below the latter would signal additional weakness towards 27.5%-25% and slightly oversold levels. Current resistance is at 35%-37.50%.

I mentioned lower lows could come into play ahead of the upcoming 2Q earnings season, especially if the major indexes fell out of their mini trading range. Although the VIX has been holding steady, there is also the feeling of higher highs forthcoming. 

With the 50-day moving averages now in play, a retest and dip below these levels is more likely than not. The technical outlook over the mid-term is still showing golden crosses are in the process of forming with the 50-day MA’s still on track to clear the 200-day MA’s. However, if they start to rollover, a deeper pullback could be in the works. 

I added 2 new trades on Friday (GLD and MOMO) as the current market weakness should carry over into Monday’s session with more states likely announcing a further explosion in coronavirus cases from the weekend. Florida topped nearly 10,000 on Saturday. 

While increased testing has occurred, which causes higher numbers, the infectious rate for the U.S remains less than 1%. However, more cautious measures might be implemented in the coming weeks with the focus on a vaccine becoming even greater.

As for our bullish trades, I would like to see how the rest of this week unfolds before possibly cutting the cord on the July AT&T and DBX positions. 

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, $166.54, up $0.74)

GLD July 172 calls (GLD200717C00172000, $1.02, up $0.13)

Entry Price: $0.97 (6/26/2020)

Exit Target: $2.00

Return: 5%

Stop Target: None

Action: Shares snapped a 2-session losing streak after rebounding to reach an intraday peak of $166.56. Current and lower resistance at $166.50-$167 was reclaimed. Continued closes above $167, and last week’s 52-week high just a penny below this level, would be a renewed bullish signal for strength towards 

Current support is at $166-$165.50 followed by $164.50-$164. A close below the $164 would signal a failed breakout.

RSI is trying to curl higher with key resistance at 65 holding. A close above this level and the monthly top would be a bullish signal with additional strength 70. Support is at 60-55. A close below the latter would signal a possible near-term top for GLD with weakness towards 50-45.

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Momo (MOMO, $16.79, down $1.03)

MOMO July 16.50 puts (MOMO200717P00016500, $0.90, up $0.35)

Entry Price: $0.70 (6/26/2020)

Exit Target: $1.40

Return: 29%

Stop Target: None

Action: Shares tagged a fresh 52-week low of $16.76 with new and upper support at $16.75-$16.50 getting challenged but holding. Near-term resistance is at $17-$17.25.  

I think shares could make a quick trip towards $15 over the next 3 weeks and where we will easily double our money. Earnings aren’t due out until August so we don’t have this headline risk as the options expire well before then.

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AT&T (T, $29.08, down $0.64)

T July 32 calls (T200717C00032000, $0.15, down $0.10)

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

Exit Target: $1.35

Return: -78%

Stop Target: None

Action: Fresh and upper support from late May at $29-$28.75 was breached but held on the fallback to $28.92. Resistance is at $29.25-$29.50.

If shares fall below $28 this week, we will exit the position.

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Dropbox (DBX, $21.47, down $0.69)

DBX July 25 calls (DBX200717C00025000, $0.15, down $0.05)

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

Exit Target: $1.10

Return: -73%

Stop Target: None

Action: Shares tapped a low of $21.34 with prior and upper support at $21.50-$21.25 failing to hold. Lowered resistance is at $21.75-$22.

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Tilray (TLRY, $7.95, down $0.60)

TLRY September 11 calls (TLRY200918C00011000, $0.55, down $0.15)

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

Exit Target: $2.00

Return: -45%

Stop Target: 50 cents

Action: Friday’s low kissed $7.77 with upper support at $8-$7.75 failing to hold. Lowered resistance is at $8.25-$8.50 and the 50-day moving average. 

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