MomentumOptions.com Pre-Market Update for 7/8/2020

Bears Make an Appearance

8:00am (EST) 

The market opened lower to start Tuesday’s session as persistent concern over rising coronavirus cases and a retrenchment in reopenings weighed on sentiment. Optimism over the growth outlook was back under renewed pressure, as the surge in infections continues to hamper reopenings with California, Florida and Texas pulling back on their opening processes.

Tech showed some strength shortly after the weak open with the broader market rebounding as well. However, the small-caps and blue-chips struggled throughout the session with the rest of the major indexes rolling over in the final hour. The lower close cooled overbought levels with volatility holding a key level of resistance.

The Dow had its 2-session winning streak snapped after giving back 1.5% with the late day low tagging 25,866. Fresh and upper support at 26,000-25,750 and the 200-day moving average failed to hold with a move below the latter signaling weakness towards 25,500-25,250.

The S&P 500 had its 5-session winning streak come to an end after falling 1.1% while trading to an intraday low of 3,142. New and upper support at 3,150-3,125 was breached and failed to hold with a drop below the latter indicating a further pullback towards 3,100-3,075.

The Russell 2000 was lower by 1.9% following the fade to 1,414 ahead of the closing bell. Current and upper support at 1,425-1,410 failed to hold with a move below the latter leading to a further backtest towards 1,400-1,385.

The Nasdaq was down for the 1st time in 6 sessions after giving back 0.9% despite trading to an all-time intraday high of 10,518. Uncharted territory and lower resistance at 10,500-10,600 was cleared but held with a pop above the latter suggesting additional momentum towards 10,700-10,800. The backtest to 10,337 before the closing bell failed to hold new and upper support at 10,350-10,250 with a close below the latter suggesting a near-term top. 

Consumer Staples and Materials were the only sectors that showed strength after rising 0.9% and 0.03%, respectively. Energy and Financials led sector weakness after stumbling 3.2% and 2.1%.

In economic news, Chain Store Sales dropped -0.9% in the week ending July 4th, erasing the prior week’s 0.7% gain as some states paused or reimposed some restrictions, especially on restaurants and bars. Sales had rallied 4% in the June 20th week. The decline in sales saw the 12-month pace of contraction deepen to -10% year-over-year, versus -9.3% previously.

JOLTS reported job openings rose 401,000 in May to 5,397,000 after dropping -1,015,000 to 4,996,000 in April. The JOLTS rate increased to 3.9% from 3.7%. Hirings jumped 2,440,000 to 6,487,000, bouncing from April’s -1,064,000 decline to 4,047,000. The hire rate climbed to 4.9% from 3.1%, a new all-time high, breaking the prior peak of 4.3% in January 2001. Quitters edged up 190,000 to 2,067,000 following the prior -912,000 slide to 1,877,000. The quit rate rose to 1.6% from 1.4% in April.

In Fed news, Cleveland Fed Loretta Mester views the coronavirus economy in three stages: first the shutdown, now reopenings, and then the recovery, which she believes will take a long time before analysts get back to normal. She also noted there will be structural changes that will have to be deal with as the Fed will have to provide extra measures to deal with the pandemic, or just maintain its lower-for longer strategy, will depend on the virus. 

Mester said the Fed is trying to ensure market functioning and the policies are not about setting asset price levels while stressing in countering criticisms that the Fed is ruining the pricing mechanism. Without functioning financial markets, credit can’t flow she said, and that will hurt the economy. She also stated the markets are working much better now than before the Fed’s actions.

Fed Vice Chairman Richard Clarida said signs the economy is beginning to rebound started in May and June and credit is flowing well again. He said a double-dip recession is not the Fed’s base case and there is more the Fed can do, and will do if needed, noting forward guidance and the balance sheet as tool. He said the Fed’s actions are aimed at achieving the dual mandate and the framework review is still going on.

The iShares 20+ Year Treasury Bond ETF (TLT) rebounded after soaring to an intraday high of $165.34. Current and lower resistance at $165-$165.50 was cleared and held. Continued closes above the latter and the late June peak at $165.32 would be a bullish signal for a breakout towards $167-$167.50 and levels from mid-May.

Fresh support is at $164.50-$164 followed by $163.50-$163 and the 50-day moving average.

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The S&P 500 Volatility Index ($VIX) was up for the 2nd-straight session after tagging an late session high of 29.63. Lower resistance at 29.50-30 was cleared but held within the last 10 minutes of action. A close above the latter would be a slightly bearish signal for the market and would likely lead to a retest towards 30.50-31 and the 50-day moving average. 

Rising support is at 28.50-28 with more important recovery levels at 25-24.50 and the 200-day moving average.  

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The iShares Russell 1000 (IWF) fell for the 1st time in 6 sessions despite the midday push to $201.63 and fresh all-time high. Unchartered territory and lower resistance at $201.50-$202 was cleared but held. A move above the latter would suggest additional upside towards $203.50-$204.

The fade to $198.10 late in the day held upper and support at $198-$197.50. A close below the latter would signal a possible near-term top with additional backtest potential towards $195.50-$195.

RSI has rolled over after failing key resistance at 70. A close above this level would signal additional strength towards 75 and the high from early June and mid-February. Key support is at 60with a drop below this level signal additional downside weakness towards 55-50.

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The iShares PHLX Semiconductor ETF (SOXX) also posted a fresh all-time high after reaching an intraday peak of $278.94. New and lower resistance $278.50-$279 was breached but held. A close above the latter would signal additional strength towards $280-$280.50.

Current support is at $274-$273.50 following the late day tumble to $274.10. A close below the latter would signal additional downside risk towards the $272.50-$272 area.

RSI reversed course with key support at 60 holding. A close below this level would signal further weakness towards 55-50 with the latter holding since early April. Resistance is at 65-70 and the latter representing the June peak.

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It appears volatility has returned with the market likely to remain choppy into next week and the start of 2Q earnings. On that note, we did see some upside in our GLD position as Gold continues to hit fresh multi-year highs.

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, $169.04, up $1.06)

GLD July 172 calls (GLD200717C00172000, $0.65, up $0.15)

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

Exit Target: $2.00

Return: -34%

Stop Target: None

Action: Shares closed on the session and fresh 52-week high of $169.04 with longer-term and lower resistance at $169-$169.50 getting recovered. A close above the latter would be an ongoing bullish signal for additional strength towards $171-$171.50. Rising support is at $168.50-$168.

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AT&T (T, $30.32, down $0.17)

T July 32 calls (T200717C00032000, $0.10, down $0.05)

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

Exit Target: $1.35

Return: -85%

Stop Target: None

Action: Upper support at $30.25-$30 was breached but held on yesterday’s late day fade to $30.23. Resistance remains at $30.50-$30.75.

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Dropbox (DBX, $22.44, up $0.02)

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: Shares traded to a high of $22.84 with prior and lower resistance at $22.75-$23 getting cleared and holding. Rising support is at $22.25-$22. 

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