MomentumOptions.com Pre-Market Update for 7/6/2020

Tech Tags Fresh All-Time High

8:00am (EST) 

The market showed strength throughout Thursday’s session following another blowout jobs report and a rebound in factory orders. Ongoing concerns over steadily rising coronavirus cases pulled the major indexes off their best levels but not before Tech tagged a fresh all-time intraday and closing high.

The shortened week was a strong one for the bulls and comes ahead of the start of 2Q earnings season. Although announcements will be somewhat light next week, a bevy of companies from the Financial sector will report the following week to get the ball rolling.

The Nasdaq was up for the 4th-straight session after rising 0.5% with the morning peak reaching 10,310. Unchartered territory and lower resistance at 10,300-10,400 was cleared but held with a close above the latter signaling additional strength towards 10,500-10,600.

The S&P 500 gained 0.5% to extend its winning streak to 4-straight, as well, with the opening high reaching 3,165. Prior and lower resistance from mid-June at 3,150-3,175 was cleared but held with a move above the latter getting 3,200-3,225 in focus.

The Dow advanced 0.4% after trading to an intraday high of 26,204 but failing to hold the 26,000 level into the closing bell. Near-term and lower resistance at 26,250-26,500 and the 200-day moving average were challenged but levels that held with a move above the latter signaling additional upside towards 26,750-27,000.

The Russell 2000 rose 0.3% following the first half run to 1,459. Lower resistance at 1,450-1,465 was cleared but held with a close above the latter and the 200-day moving average suggesting additional momentum to 1,470-1,485.

For the week, the Nasdaq surged 4.6% and the Russell 2000 rallied 4%. The S&P 500 was also higher by 4% and the Dow gained 3.3%.

Materials and Energy showed the most sector strength after rising 1.9% and 1.1%, respectively, while Industrials jumped 0.9%. Real Estate and Communication Services were the only sector laggards after sliding 0.3%.

In economic news, Initial Jobless Claims fell 55,000 to 1,427,000, versus forecasts of 1,400,000, and follows the -58,000 drop to 1,482,000 in the prior week. This represented the 13th-straight weekly decline after the surge to a record high of 6,867,000 in the March 27th week. The 4-week moving average was at 1,503,750 from 1,621,250. Continuing claims were 59,000 higher at 19,290,000 after falling -1,058,000 to 19,231,000 preciously.

Nonfarm Payrolls increased 4,800,000 in June, topping forecasts of 3 million, after the upwardly revised 2,699,000 bounce in May. The unemployment rate slide to 11.1% versus 13.3% previously. The labor force rose another 1,705,000 after the prior 1,746,000 gain, with household employment up 4,940,000 versus 3,839,000. The labor force participation rate rose to 61.5% versus 60.8%. Average hourly earnings declined another -1.2% versus -1% previously. Average weekly hours fell to 34.5 in June from 34.7 in May. Private payrolls climbed 4,767,000 following the 3,232,000 increase the previously. The goods producing sector added 504,000 with construction up 158,000. Service sector jobs increased 4,263,000 while leisure/hospitality added 2,088,000.

The U.S. trade deficit widened 9.7% to -$54.6 billion in May after rising to -$49.8 billion in April. Exports dropped -4.4% after plunging -20.5% while imports slipped -0.9% after plummeting -13.6% in April. The real goods balance widened to -$86.5 billion from -$80.4 billion.

Factory Orders rebounded 8% in May after tumbling a record -13.5% in April. Transportation surged 82% following the -48.9% decline in April. Excluding transportation, factory orders were rose 2.6%, though still only partially recovering from the -8.9% decline previously. Durable goods orders were nudged down to a 15.7% gain. Nondefense capital goods orders excluding aircraft rebounded 1.6% from the prior -6.6% slide. Shipments posted a 3.1% gain, following the -14% April plunge. Nondefense capital goods shipments ex-aircraft were up 1.5% from -6.4%. Inventories climbed to 0.2% from -0.5% and the inventory-shipment ratio dipped to 1.65 from 1.70.

Baker Hughes reported the U.S. Rig Count was down 2 rigs to 263 with oil rigs off 3 to 185, gas rigs up 1 to 76, and miscellaneous rigs unchanged at 2. The U.S. Rig Count is down 700 rigs from last year’s count of 963, with oil rigs lower by 603, gas rigs down 98, and miscellaneous rigs up 1 to 2. The U.S. Offshore Rig Count is up 1 to 12 and down 12 year-over-year. 

The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 3-session slide despite kissing a morning low of $162.24. Current and upper support at $162.50-$162 was breached but held for the 2nd-straight session. A close below the latter would suggest additional weakness towards $161-$160.50.

Lower resistance at $164-$164.50 was challenged but easily held following the rebound to $163.74 afterwards and close back above the 50-day moving average.

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The S&P 500 Volatility Index ($VIX) extended its losing streak to 4-straight sessions after tagging a low of 25.90 shortly after the opening bell. Prior and upper support from early June at 26-25.50 and the 200-day moving average were breached but held. A close below the latter would signal additional weakness towards 24-23.50 with the multi-month and June low at 23.54.

Lowered resistance is at 28-28.50 followed by 29.50-30.

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The Spiders Dow Jones Industrial Average ETF (DIA) was up for the 3rd time in 4 sessions after testing an opening peak of $262.17. Lower resistance at $262-$262.50 and the 200-day moving average were cleared but levels that held. A close above $262.50 would signal additional strength towards $264.50-$265.

Current support is at $258-$257.50. A close below the latter would signal additional weakness towards $256-$255.50.

RSI is back in a slight uptrend with key resistance at 55 holding. A close above this level would signal additional strength towards 60-65. Support is at 50-45 with the latter representing the June bottom.

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The Health Care Select Sector Spider (XLV) extended its winning streak 4-straight sessions following the intraday trip to $102.18. Current and lower resistance at $102-$102.50 was cleared but held. A close above the latter would be an ongoing bullish signal for a run towards $104.50-$105 with the June peak reaching $104.22 and the January all-time high at $105.08.

Rising support at $101.50-$101 with backup help at $100-$99.50 and the 50-day moving average.

RSI is is in an uptrend after clearing and holding key resistance at 55 holding. Continued closes above this level would be a bullish signal for additional strength towards 60-65. Support is at 50-45.

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The 2-week trading ranges is something I have prepared us for but our current trades have struggled. While I should have been more cautious in opening new trades, I liked GLD and MOMO when we added them late in June. Meanwhile, T and DBX were trades from earlier in the month but they too, need some help. 

All of these options have 11 days before they expire, or by next Friday’s close. I apologize for the dismal showing but I’m hopeful the latter trades can breakeven or at least give us a slight profit. It will come down to the wire on how these trades play out but I could also close a few to save some premium.

The good news is June also produced a number of winners as we cashed out WU for a 325% 113% FCX win and…

Overall, you should have still posted a gain for June with some of the current losses penciled-in.

Our next batch of trades will have August and September expirations, and possibly longer, as summer can be a tricky month to trade. However, July is typically a bullish month for the market and it feels like the major indexes are on the verge of a breakout. 

The Nasdaq remains at overbought levels, in fact, relative strength been hovering at its highest peak for a few weeks. The S&P 500 is close to forming a golden cross with the 50-day moving average on the verge of clearing the 200-day moving average. This is typically a bullish sign for higher highs. The Dow and the Russell 2000 have similar setups but aren’t as defined.

Volatility has continued to simmer and will provide clear signs when it could be time to go short again. The first signal to lighten up on bullish trades is when the VIX closes back above the 30 level.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 22-7 (76%). 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, $166.98, up $0.36)

GLD July 172 calls (GLD200717C00172000, $0.50, down $0.10)

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

Exit Target: $2.00

Return: -48%

Stop Target: None

Action: Thursday’s high reached $167.24 with lower resistance is at $167-$167.50 getting cleared but holding by 2 pennies. A close above the latter would be a bullish signal for a return run to 52-week peaks north of $168. Support is at $166-$165.50.

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Momo (MOMO, $18.11, up $0.63)

MOMO July 16.50 puts (MOMO200717P00016500, $0.30, down $0.30)

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

Exit Target: $1.40

Return: -57%

Stop Target: None

Action: Shares tested a high of $18.48 with lower resistance at $18.25-$18.50 getting cleared but holding. Rising support at $17.75-$17.50.

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AT&T (T, $30.08, up $0.18)

T July 32 calls (T200717C00032000, $0.15, flat)

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

Exit Target: $1.35

Return: -78%

Stop Target: None

Action: Lower resistance at $30.25-$30.50 and the 50-day moving average were cleared but levels that held with the latter representing Wednesday’s peak. Shaky support is at $30-$29.75.

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Dropbox (DBX, $21.65, down $0.13)

DBX July 25 calls (DBX200717C00025000, $0.15, flat)

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

Exit Target: $1.10

Return: -73%

Stop Target: None

Action: Upper support at $21.50-$21.25 was challenged but held on the fade to $21.55. Resistance is at $22-$22.25.

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