MomentumOptions.com Pre-Market Update for 7/7/2020
Blue-Chips Recover 200-Day Moving Average
The market closed higher on Monday following a 3-day weekend as Wall Street prepares for a light opening to 2Q earnings and the official start coming next week with the Financial sector. Better-than expected economic news and merger & acquisition headlines helped pushed the major indexes towards early and mid-June resistance levels.
Meanwhile, volatility continues to show signs of falling towards the June low on additional weakness. However, the slightly higher close in the VIX was a cause for concern given the overall market strength.
The Nasdaq extended its winning streak to 5-straight after jumping 2.2% with the first half and all-time peak reaching 10,462. Uncharted territory and lower resistance at 10,400-10,500 was cleared and held with a close above the latter signaling additional momentum towards 10,600-10,700.
The Dow was up for the 2nd-straight session and 4 of the past 5 after gaining 1.8% with the morning high tagging 26,297. Prior and lower resistance at 26,250-26,500 and the 200-day moving average were cleared and held with a move above the latter suggesting additional upside towards 26,750-27,000.
The S&P 500 rose 1.6% to extend its winning streak to 5-straight after tagging an intraday high reaching 3,182. Lower resistance from early June at 3,175-3,200 was recovered with a move above the latter getting 3,225-3,250 in focus.
The Russell 2000 rallied 0.8% with the opening high reaching 1,461. Lower resistance at 1,450-1,465 was cleared but held for the 3rd-straight session
with a close above the latter and the 200-day moving average signaling additional upside towards 1,470-1,485.
Consumer Discretionary and Financials were the strongest sectors with gains of 2.4% and 1.9%, respectively, while Technology added 1.8%. Utilities were the only sector laggard after giving back 1.2%.
In economic news, PMI Services Index for June rose to 47.9, improving upon the 46.7 flash reading and expectations for the same. The employment component rallied to 49.4 from 37.8 in May. Prices charged also increased and are at their highest level since February 2019. The final June composite index came in at 47.9 versus the 46.8 flash print. The employment subcomponent also increased to 49.1 versus 37.9 in May while input prices climbed to their highest level since June 2019.
ISM Non-Manufacturing Index index jumped 11.7 points to 57.1 in June, topping forecasts for a print of 50.1, after the 3.6 point increase in May to 45.4. The index is back in expansion as it recovers from the pandemic/shutdown plunge in April to 41.8, which was an 11-year low. Nearly all of the components increased with employment surging to 11.3 points to 43.1 versus 31.8 in May. New orders rose 19.7 points to 61.6 after jumping 9 points to 41.9 previously. New export orders rose 17.4 points to 58.9 versus 41.5 in May while imports rallied to 52.9 from 43.7. Prices paid were up 6.8 points to 62.4 from 55.6 in previously.
The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 4th time in 5 sessions after testing a first half low of $161.75. Prior and upper support at $162-$161.50 was breached but held. A close below the latter would signal a further backtest towards $160.50-$160.
Lowered resistance at $163-$163.50 and the 50-day moving average.
The S&P 500 Volatility Index ($VIX) extended its losing streak to 5-straight sessions after testing a morning low of 24.92. Prior and upper support from early June at 25-24.50 and the 200-day moving average were all breached but levels that held. A close below 24.50 would signal additional weakness towards 24-23.50 with the multi-month and June low at 23.54.
Resistance remains at 28-28.50 followed by 29.50-30.
The Spider S&P 500 ETF (SPY) was up for the 5th-straight session following the intraday run to $317.68. Overhead and lower resistance from early June at $317.50-$318 was cleared but held. Continued closes above the latter would be an ongoing bullish signal for additional strength towards $319.50-$320.
Rising support is at $316-$315.50. A close below the latter would suggest a further pullback towards $314-$313.50. A golden cross has formed with the 50-day moving average clearing the 200-day moving average. This is typically a bullish technical signal for higher highs.
RSI is in an uptrend with key resistance at 60 getting recovered. Continued closes above this level would signal additional strength towards 65-70. Support is 55-50.
The Spiders S&P Homebuilders ETF (XHB) closed higher for the 4th time in 5 sessions with the intraday high tapping $44.65. Mid-June and lower resistance at $44.50-$45 was cleared and held. A close above the latter would be a more bullish signal for additional upside towards $46.50-$47 with the June peak at $46.71.
Current support is at $44-$43.50. A drop below the latter would signal a possible retest towards $42-$41.50 and the 200-day moving average.
RSI is in an uptrend with key resistance at 60 holding. A move above this level would suggest additional strength towards 65-70. Support is at 55-50 with the latter holding since late April.
Yesterday’s action was hopefully the start of a breakout to higher highs but I mentioned the slight uptick in volatility was a concern. The small-caps continue to show signs of a surge towards 1,500 but has had trouble holding 1,450. If this level gets recovered, a short-covering rally could be in the works.
I have updated our current trades so let’s go check the action.
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, $167.98, up $1.00)
GLD July 172 calls (GLD200717C00172000, $0.50, unchanged)
Entry Price: $0.97 (6/26/2020)
Exit Target: $2.00
Stop Target: None
Action: Monday’s fresh 52-week peak reached $168 with longer-term and lower resistance at $168-$168.50 getting kissed but holding. A close above the latter would be an ongoing bullish signal for additional strength towards $169.50-$170. Rising support is at $167.50-$167.
Momo (MOMO, $20.95, up $2.84)
MOMO July 16.50 puts (MOMO200717P00016500, $0.15, down $0.15)
Entry Price: $0.70 (6/26/2020)
Exit Target: $1.40
Stop Target: None
Action: Close the trade today to save the remaining premium. Shares could keep momentum following the close back above the 50-day moving average. If not, I still don’t think shares will fall below $16 by next Friday and where they need to be just to break even on this position.
AT&T (T, $30.49, up $0.41)
T July 32 calls (T200717C00032000, $0.15, unchanged)
Entry Price: $0.67 (6/16/2020)
Exit Target: $1.35
Stop Target: None
Action: Yesterday’s high tapped $30.60 with prior and lower resistance at $30.50-$30.75 was cleared and held on the close back above the 50-day moving average. Shaky support is at $30.25-$30.
Earnings aren’t due out until the 23rd so we will need a 5% move by next Friday to try and squeeze a profit out of this trade.
Dropbox (DBX, $22.42, up $0.47)
DBX July 25 calls (DBX200717C00025000, $0.15, flat)
Entry Price: $0.55 (6/4/2020)
Exit Target: $1.10
Stop Target: None
Action: Shares traded to a high of $22.47 with prior and lower resistance at $22.25-$22.50 getting cleared and holding. New support is at $22-$21.75.
I would like to see some follow thru today and a close above $23. The company will announce numbers in early August and I expect a beat on higher revenue. However, these options expire next Friday so we won’t have the possible benefit of this news event.