MomentumOptions.com Pre-Market Update for 7/9/2020
Bulls Regain Momentum
The market was sluggish throughout the first half of action on Wednesday as the major indexes traded on both sides of the ledger and in tight ranges. News that President Trump said Americans can look forward to another round of stimulus checks before the end of the year was offset by the continuing rise in coronavirus cases.
U.S./ China relations were also in the spotlight after a report circulated that President Trump’s advisers put forth a plan to destabilize Hong Kong’s currency peg in order to retaliate against China following the passage of the security law in Hong Kong. Despite the worries, the market showed some momentum throughout the 2nd half of trading to finish higher for the session.
The Nasdaq was up for the 6th time in 7 sessions after rising 1.4% with the afternoon peak reaching 10,494. Current and lower resistance at 10,400-10,500 was cleared and held with a close above the latter and the all-time high at 10,518 signaling additional momentum towards 10,600-10,700.
The S&P 500 rebounded after gaining 0.8% with the intraday high reaching 3,171. Lower resistance at 3,175-3,200 was challenged but held with a move above the latter getting 3,225-3,250 back in play.
The Dow was up for the 3rd time in 4 sessions after adding 0.7% with the morning high tagging 26,109. Near-term and lower resistance at 26,000-26,250 was cleared and held with a move above the latter and the 200-day moving average suggesting a retest towards 26,500-26,750.
The Russell 2000 climbed 0.8% with the opening high reaching 1,431. Lower resistance at 1,420-1,435 was cleared and held with a close above the latter signaling additional another run towards 1,450-1,465 and the 200-day moving average.
Technology led sector strength after advancing 1.6% while Consumer Discretionary and Financials jumping 1.1%, respectively. Materials were the weakest sector after sinking 1.4% while Consumer Staples were down 0.3%.
In economic news, MBA Mortgage Applications rebounded 2.2% following a decline of -1.8%, previously. Strength in the latest report was in the purchase index which climbed 5.3% after sliding -1.3% previously. Refinancings edged up 0.4% following a -2.2% decline. The gains have seen 12-month rates accelerate with the applications index posting a 71.1% year-over-year clip, versus 45.4%. Refis have popped to a 110.9% year-over-year clip compared to 74.4% previously, while the purchase index rose to 33.2%, double the prior 15.2% rate. Mortgage rates fell further with the 30-year declining to 3.26%, a new record low. The 5-year ARM fell to 2.98%
Consumer Credit fell -$18.3 billion in May to $4,113 billion after dropping a historic -$70.2 billion in April. Consumer credit hasn’t posted 3-straight monthly declines since 2010. Nonrevolving credit bounced 6 billion after sliding -$12 billion previously. The slump in nonrevolving credit was the first decline since August 2011. Revolving credit tumbled another -$24.3 billion, a 4th-straight drop, after April’s record -$58.2 billion plunge.
The iShares 20+ Year Treasury Bond ETF (TLT) zigzagged for the 5th-straight session following the intraday pullback to $163.83. Near-term and upper support at $164-$163.50 was breached but held. A close below the latter would signal a further backtest towards $163-$162.50 and the 50-day moving average.
Lowered resistance at $165-$165.50.
The S&P 500 Volatility Index ($VIX) fell for the first time in 3 sessions despite testing a morning high of 30.20. Fresh resistance at 30-30.50 was cleared but held. A close above the latter would suggest additional upside towards 31-31.50 and the 50-day moving average.
Upper support at 27.50-27 was also breached but held following the intraday fade to 27.24 with more important recovery levels at 25-24.50 and the 200-day moving average.
The Wilshire 5000 Composite Index ($WLSH) was up for the 6th time in 7 sessions with the intraday high tapping 32,376. Lower resistance at 32,250-32,500 was cleared and held. A close above the latter would be a slightly bullish signal for a retest towards 32,750-33,000.
Current support is at 32,000-31,750. A golden cross is in the process of forming with the 50-day moving average on track to clear the 200-day moving average. This is usually a bullish technical signal for higher highs.
RSI is back in a slight uptrend with key resistance at 60 and a level that has been holding since mid-June. A close above 60 would suggest additional strength towards 65-70. Support is at 55-50.
The Spider S&P Retail ETF (XRT) also ended higher for the 6th time in 7 sessions after closing on its peak of $44.32. Near-term and lower resistance at $44-$44.50 was recovered. A close above the latter would be a bullish signal for a retest towards $45-$45.50. A golden cross is also in the process of forming.
Current support is at $43.50-$43. A close below the latter would be a slightly bearish development with additional downside risk towards $42.50-$42.
RSI is trying to curl higher after holding key support at 60. A move below this level would signal additional weakness towards 55-50. Resistance is at 65-70.
Nikola is a next-generation vehicle maker but isn’t profitable, yet. However, revenue has started to come in after the company’s $5,000 deposit package sold out in less than a week. The company announced that pre-orders were being accepted starting on June 29th and closed last Thursday. This means demand is huge for the expected $60,000-$90,000 price range.
Nikola announced its entry into the electric pick-up market with its electric pickup, the Nikola Badger, a futuristic, zero-emission and cost-effective truck. The company intends to first service the commercial market with electric and hydrogen delivery trucks, and then the consumer market with electric and hydrogen pickup trucks.
There are weekly and regular call and put options available to trade on NKLA that go as far out as January 2022. The latter are know as LEAPs with the NKLA 2022 January 100 calls (NKLA220121C00100000) closing around $8 last Thursday.
Of course, these options are $46 out-of-the-money but would double from current levels if shares are above $116 by January 21st, 2022. I was hoping to get us into these calls if shares would have stayed flat while holding the 50-day moving average for a day or two. An analyst upgrade was the catalyst for the 34% stock price rally.
The aforementioned options closed Tuesday a nickel north at $6 and opened at $8.37 on Wednesday. They traded to a high of $11 and closed at $9.15, up 51% but nearly doubling intraday.
I didn’t wan’t to chase these options on the open and I;m not to fond of “expensive” options. However, NKLA is a stock worth watching and we can limit exposure by taking very small positions at a later date. It’s a great way to follow the industry and much less expensive than Tesla (TSLA, $1,365.88, down $23.98) on a share price cost. NKLA is a recent IPO and a very volatile stock.
We were fortunate enough to close our play on Gold for a slight profit and we have 2 trades from last month that are still in limbo. The portfolio is light enough to start adding new trades and there is one I like that could be ready as early as today.
Momentum Options Play List
Closed Momentum Options Trades for 2020: 23-7 (77%). 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.
AT&T (T, $30.46, up $0.14)
T July 32 calls (T200717C00032000, $0.10, unchanged)
Entry Price: $0.67 (6/16/2020)
Exit Target: $1.35
Stop Target: None
Action: Lower resistance at $30.50-$30.75 was breached but held on yesterday’s run to $30.55. Support remains at $30.25-$30.
Dropbox (DBX, $22.74, up $0.30)
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 $22.75 with prior and lower resistance at $22.75-$23 getting kissed but holding. Support is at $22.50-$22.25.