MomentumOptions.com Pre-Market Update for 7/13/2020

Tech Stays Hot with 26th Record Close for 2020

8:00am (EST) 

The market was looking at a weak start to Friday’s session as ongoing worries over the resurgence of the coronavirus and worse-than-expected economic news dampened spirits. However, just ahead of the open, positive news on a possible drug that is currently used to treat coronavirus patients and has the ability to cut down on the risk of death improved sentiment.

The gains helped the bulls turn around a mixed week with the majority of the major indexes closing higher. The small-caps lagged and was tagged for a weekly loss but did recover a key level of resistance after showing the most strength on Friday.

The choppy and whipsaw action throughout last week was much anticipated as Wall Street awaits 2Q earnings that will get underway this week. Meanwhile, volatility also see-sawed for the 3rd-straight session and remains trapped between key support and resistance levels.

The Russell 2000 rallied 1.7% while closing on its session high of 1,422. Lower resistance at 1,420-1,435 was taken back with a pop above the latter signaling additional strength towards 1,450-1,465 and the 200-day moving average.

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The Nasdaq was up for the 8th time in 9 sessions after rising 0.7% while tapping a 3rd-straight all-time high of 10,622. Lower resistance at 10,550-10,650 was cleared and held with a move above the latter signaling possible upside towards 10,800-10,900.

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The Dow jumped 1.4% with the late day high hitting 26,101. Near-term and lower resistance at 26,000-26,250 was recovered with a close above the latter and the 200-day moving average suggesting another run towards mid-June levels at 26,500-26,750.

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The S&P 500 rebounded 1.1% but remains in a mini 5-session trading range with the intraday high reaching 3,186. Lower resistance at 3,175-3,200 was cleared and held with a move above the latter signaling a retest towards 3,225-3,250 and prior peaks from early June.

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For the week, the Nasdaq soared 4% and the S&P 500 was up 1.7%. The Dow climbed 0.9% while the Russell 2000 was down -0.7%.

Financials and Energy were the strongest sectors with gains of 3.4% and 3.2%. Healthcare and Technology were the weakest sectors after giving back 0.2% and 0.03%, respectively. 

Over the past 5 sessions, Communication Services (4.9%); Consumer Discretionary (2.9%); and Technology (2.7%) were the strongest sectors. Energy (-4.8); Real Estate (-1.8%); and Industrials (-1.4%) were the weakest sectors.

Producer Price Index for June slipped 0.2%, and the core dropped 0.3%, much lower than forecasts for both. There were no revisions to May where the headline rate increased 0.4% and the ex-food and energy component dipped 0.1%. On a 12-month basis, headline final demand was steady at -0.8% year-over-year and the core rate slipped to 0.1% versus 0.3% previously. Inflation in the goods sector saw prices edge up 0.2% after a prior 1.6% gain. Energy prices jumped 7.7% after rising 4.5% in May while food prices dropped 5.2% from 6% previously. Services prices were down 0.3% from 0.2%.

Baker-Hughes reports that the U.S. rig count was down 5 rigs to 258 with oil rigs declining 4 to 181, gas rigs off 1 to 75, and miscellaneous rigs unchanged at 2. The U.S. Rig Count is down 700 rigs from last year’s count of 958, with oil rigs down 603, gas rigs down 97, and miscellaneous rigs unchanged at 2. The U.S. Offshore Rig Count was unchanged at 12 and down 14 year-over-year.

In Fed news, Dallas Fed Robert Kaplan said there is lots of excess capital in the system and weak inflation data is not a surprise. He does expect growth to rebound in Q3 and Q4 after a steep drop in Q2, but no inflationary pressures for awhile. While he suspects more fiscal help will be needed, and added that the Fed has substantial capacity left, their roles are less important for the economic recovery currently, than following health protocols to mute the spread of the coronavirus.

The iShares 20+ Year Treasury Bond ETF (TLT) zigzagged for the 7th-straight session following the intraday pullback to $166.16. Near-term and upper support at $166-$165.50 was challenged but held. A close below the latter would break a run of higher highs and higher lows and signal additional weakness towards $165-$164.50.

Resistance from mid-May is at $167.50-$168 with Friday high at $168.21.

RSI has rolled over after failing key resistace at 60 and a level that has been holding since April. Support is at 55-50.

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The S&P 500 Volatility Index ($VIX) cleared the 30 level for the 3rd-straight session with Friday’s peak kissing 30.91. Near-term and lower resistance at 31-31.50 was challenged but held along with the 50-day moving average. A close above the 32.50 level would be a slightly bearish development for the market with upside potential towards 34.50-35.

The fade to 27.12 afterwards breached and held upper support at 27.50-27. A close below the latter would suggest another backtest towards 26.50-26 and the 50-day moving average.

RSI is back in a downtrend with support at 40-35 and the latter representing the May and June low. Resistance is at 45-50.

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The Russell 2000 ETF (IWM) zigzagged for the 5th-straight session after trading to an intraday high of $141.50. Lower resistance at $141-$141.50 was cleared and held. A move above the latter would signal a possible retest towards $142.50-$143 with more important recovery levels at $145-$145.50 and the 200-day moving average. 

Near-term but shaky support is at $140-$139.50 followed by $137.50-$137 and the 50-day moving average. 

RSI is back in a slight uptrend after clearing and holding key resistance at 50. Continued closes above this would signal additional strength towards 55-60 with the latter holding since mid-June. Support is at 45-40.

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The Communication Services Select Sector Spider (XLC) extended its winning streak to 3-straight sessions with the intraday high reaching $57.74. Prior and lower resistance from February at $57.50-$58 was cleared and held. A close above the latter and the all-time high of $57.75 would be a bullish signal for blue-sky territory towards $58.50-$59.

Rising support is at $56.50-$56. A move below the latter would signal a possible near-term top with additional weakness towards $55-$54.50.

RSI is in an uptrend with resistance at 70-75 and the latter representing the mid-June peak. A close above the 75 level would signal a push towards 80 and the January top. Support is at 60-55.

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The percentage of Nasdaq 100 stocks trading above the 50-day moving

closed at 83.49% on Friday, up 2.91%. Current and lower resistance at 85%-87.5% was challenged but held. A close below the latter would signal a retest towards 90%-92.50% and overbought levels from late June. Support is at 80%-77.5%.

The percentage of S&P 500 stocks trading above the 200-day moving average settled at 40.39%, up 2.38%. Lower resistance at 40%-42.50% was recovered. A close below the latter would signal additional strength towards 45% and a level that has been holding since mid-June. Current support is at 37.50%-35%.

The Q2 earnings season “officially” starts next week with the Financial sector taking center stage. Expectations remain low, both for banks as well as most other sectors, with total S&P 500 earnings expected to be down -44.4% on -10.9% lower revenues.

While expectations are low, the charts are looking bullish for a number of stocks. For instance, Citigroup (C, $52.65, up $3.20) will announce numbers ahead of Tuesday’s action with average estimates at $0.29 a share on revenue north of $19 billion. However, the low estimate has the company losing 29 cents a share with the high at a profit of 52 cents. This means a big headline of a massive miss or blowout numbers.

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JPMorgan Chase (JPM, $96.27, up $4.99) is also reporting ahead of Tuesday’s opening bell. 

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Both stocks recovered their 50-day moving averages on Friday and will likely dictate Tuesday’s action. If the bulls can keep momentum with a higher close on Monday, this would also signal money is still moving into the market following Friday’s strength into the closing bell. 

The chances look good for a continued run to higher highs despite Tech being slightly overbought. I have been mentioning overbought levels can remain in play for week and months and Tech has a lot of good stories going heading into the quarter – despite the pandemic. 

There is still other sectors, however, that could keep upside limited and why we saw last week’s trading ranges take shape. If the Financial stocks can’t lead the next leg higher, it could be a warnings sign of a pullback, or even worse, a selloff. 

The good news is we are well prepared to play either scenario with the portfolio light and only 1 open trade. On that note, I could have additional new trades as early as today so stay locked-and-loaded.

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.

Western Union (WU, $21.33, up $0.60)

WU August 22 calls (WU200821C00022000, $0.75, up $0.20)

Entry Price: $0.70 (7/10/2020)

Exit Target: $1.40

Return: 8%

Stop Target: None

Action: Shares tapped a high of $21.41 ahead of the close with prior and lower resistance at $21.25-$21.50 getting cleared and holding. Support is at $21-$20.75 and the 50-day moving average.

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