MomentumOptions.com Pre-Market Update for 7/10/2020

Tech Tags Another Lifetime High

8:00am (EST) 

The market opened mostly to the downside on Thursday following mixed economic news with Tech showing some strength to start the session. However, news that the Supreme Court rejected President Trump’s bid to block a New York subpoena seeking his tax returns led to additional selling pressure. 

The Supreme Court did, however, block Congress from getting Trump’s tax records after sending that motion back to a lower court. The rest of the session saw the major indexes rebound off the lows with Tech settling higher for its 26th record close for 2020.

The S&P 500 was down for the 2nd time in 3 sessions after giving back 0.6% while testing an intraday low of 3,115. Near-term and upper support at 3,125-3,100 was breached but held with a close below the latter indicating a further backtest towards 3,075-3,050. Despite the pullback, a golden cross has formed with the 50-day moving average now above the 200-day moving average.

The Dow dropped 1.4% with the morning low reaching 25,523. Current and upper support at 25,750-25,500 was breached and failed to hold with a close below the latter signaling weakness towards 25,250-25,000 and the 50-day moving average.

The Russell 2000 declined 2% following the opening fade to 1,384. Prior and upper support at 1,400-1,385 failed to hold with a move below the latter suggesting additional weakness towards 1,375-1,360.

The Nasdaq bucked the trend after adding 0.5% while tapping a fresh all-time high of 10,578 shortly after the open. Uncharted territory and lower resistance at 10,550-10,650 was cleared but held with a close above the latter signaling additional momentum towards 10,800-10,900.

Technology and Communication Services were the only sectors that showed strength after rising 0.4% and 0.1%. Energy was the weakest sector after plummeting 4.9% while Industrials and Financials fell 2.2% and 2.1%, respectively. 

In economic news, Initial Jobless Claims dropped -99,000 to 1,314,000 versus forecasts for a print of 1,375,000. This represented the 14th-straight weekly decline from the record 6,867,000 reading from late March with the 4-week moving average falling to 1,437,250 from 1,500,250. Continuing claims declined -698,000 to 18,062,000 versus 18,760,000 preciously. The insured unemployment rate fell to 12.4% from 12.9%.

Wholesale Inventories dropped -1.2% while sales rebounded 5.4% in May. April inventories were up 0.2% and sales dove -16.4%. For sales, April was the steepest slide on record, and May was the largest increase in history. The auto sector contributed for much of the weakness in May for inventories (-5.1%) and for the strength in sales (23.4%). The inventory-sales ratio fell back to 1.53 from 1.63.

The iShares 20+ Year Treasury Bond ETF (TLT) flip-flopped for the 6th-straight session after trading to an intraday high of $167.45. Prior and lower resistance from mid-May at $167-$167.50 was cleared and held. A close above the latter would be a bullish signal for additional upside towards $168.50-$169.

Rising support is at $166-$165.50 with backup help at $163.50-$163 and the 50-day moving average.

sc.png

The S&P 500 Volatility Index ($VIX) was up for the 3rd time in 4 sessions with the morning high reaching 31.48. Near-term and lower resistance at 31-31.50 and the 50-day moving average was breached but levels that held. A close above the latter would be a bearish development for the market with upside risk towards 32.50-33.

Current support has moved up to 28.50-28 followed by 26.50-26.

sc_1.png

The Invesco QQQ Trust (QQQ) traded to an afternoon and fresh all-time high of $262.87. Unchartered territory and lower resistance is at $262.50-$263 was breached but held. A close above the latter would signal additional strength towards $264.50-$265.

Current support is at $261.50-$261 with additional help at $260-$259.50.

RSI is in a slight uptrend after clearing lower resistance at 70-75 with the latter representing the early June peak. A move above 75 would signal additional strength towards 80 and the January top. Support is at 65-60.

sc_2.png

The Energy Select Sector Spider (XLE) extended its losing streak to 3-straight sessions after tapping a late day low of $34.40. Upper support at $34.50-$34 was breached and failed to hold. A close below the latter and the mid-May low at $34.30 would be an ongoing bearish development with additional weakness towards $32.50-$32.

Lowered resistance is at $35-$35.50.

RSI remains in a downtrend with upper support is 35-30 holding. A close below the latter would signal additional weakness towards 25-20 and levels from late February and throughout March. Resistance is at 40-45.

sc_3.png

It appears there could be some continued near-term weakness but the VIX continues to hold the 30 level. However, today will be an important test as RSI is showing signs of curling higher and higher highs are being made. It feels like there could be another pop towards the 35 level.

Given this outlook and the additional weakness in our current trades, we are going to exit both this morning. I hate losing trades more than the excitement of losing ones and I apologize for the losses. The good news is we will be flat going into 2Q earnings season and there will be plenty of major moves in a number of stocks forthcoming.

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, $29.54, down $0.40)

T July 32 calls (T200717C00032000, $0.10, unchanged)

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

Exit Target: $1.35

Return: -85%

Stop Target: None

Action: Close the trade today to save the remaining premium.

sc_4.png

Dropbox (DBX, $22.40, down $0.34)

DBX July 25 calls (DBX200717C00025000, $0.10, down $0.05)

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

Exit Target: $1.10

Return: -82%

Stop Target: None

Action: Close the trade today to save the remaining premium.

sc_5.png