MomentumOptions.com Pre-Market Update for 7/15/2020

Tech Rebounds, Blue-Chips Up 3-Straight

8:00am (EST)

The market shrugged off a slightly lower open to close higher across the board on Tuesday following better-than-expected earnings from the Financial sector. The overall results from the nation’s biggest banks were solid although companies are reserving cash for possible loan losses from the coronavirus pandemic.

Tech struggled throughout much of the session before a late second half rally with the other major indexes showing strength shortly after the opening bell. The mostly lower highs than the previous session was a slight concern although volatility settled back below a key level of support to return the near-term outlook to bullish.

The Dow surged 2.1% to extend its winning streak to 3-straight sessions after trading to an intraday high of 26,690. Current and lower resistance at 26,500-26,750 and the 200-day moving average were cleared and held with a move above the latter signaling a retest towards 27,000-27,250.

The Russell 2000 was higher by 1.8% after closing on its session peak of 1,428. Near-term and lower resistance at 1,420-1,435 was reclaimed with a move above the latter suggesting another run at 1,450-1,465 and the 200-day moving average.

The S&P 500 climbed 1.3% following the afternoon push to 3,200. Current and lower resistance at 3,175-3,200 was recovered with a close above the latter signaling additional strength towards 3,225-3,250.

The Nasdaq rebounded 0.3% with the late day high reaching 10,497. New and lower resistance at 10,400-10,500 was cleared and held with a move above the latter signaling a retest towards 10,600-10,700.

Energy paced sector leaders after zooming 3.5% while Materials and Industrials jumped of 2.5% and 2.2%, respectively. There were no sector laggards. 

In economic news, NFIB Small Business Optimism Index rose 6.6% to 100.6 in June following the 3.9% increase to 94.4 in May, and the best print since February’s 104.5. Nearly all of the components improved, including the plans to hire component, which doubled to 16% from 8%. Expectations for a better economy rose 39% after rising 34% previously. The good time to expand index climbed 13% versus 5% previously.

Consumer Price Index was up 0.6% in June, matching expectations, with the core rate 0.2% higher. There were no revisions to May where both the headline and core readings dipped -0.1%. For the 12-month rate, CPI accelerated to 0.6% year-over-year versus a 0.1% rate, with the ex-food and energy component steady at 1.2%. Energy prices bounced 5.1% after sliding -1.8% previously, breaking a string of 5-straight monthly declines. Apparel prices increased 1.7% following declines of -2.3% in May and -4.7% in April, as clothing sales have suffered from store lockdowns. Transportation costs rebounded 2.5% from -1.8%. Housing costs were edged up another 0.2%, the same as in May, with owners equivalent rent up 0.1% versus the prior 0.3% gain. Medical costs increased 0.4% from 0.5% while services prices were 0.2% higher versus the prior unchanged reading.

Chain Store Sales dropped -1.2%, following the -0.9% decline over the July 4th week. The 12-month pace of contraction slowed slightly to -9.8% year-over-year versus -10% previously. The report noted the recovery from April lows has become subpar, in a one step forward, two steps back pattern amid coronavirus spikes and a pause or rollback in reopenings.

In Fed news, Governor Lael Brainard called on the Fed to do more to support the economy, saying monetary policy will have to shift from stabilization to accommodation, with balance sheet policies helping extend accommodation. She also suggested yield curve control could help, though it will require additional analysis and discussion. 

Brainard said the Fed should not raise the funds rate until inflation returns to its 2% target. She fears the economy seems to be slowing after its initial burst, noting some of the high frequency data suggest that the strong pace of improvement in May and the first half of June may not be sustained. She also warned that a second wave of virus could revive financial market volatility while saying there is a thick fog of uncertainty and downside risks predominate for the U.S. economy. She added, the timing, magnitude and distribution of additional fiscal support will remain vital for the strength of the recovery.

St. Louis Fed James Bullard said that many Americans still report to the government that they are on temporary layoff and assume they are going to be recalled. He said if these workers are recalled the unemployment rate would decline to 4.5% and if the level declines to a more normal rate of about one million workers, the unemployment rate would still decline to 5.1%.

Bullard suggested that there is a lot of room, if the Fed play its cards right, to get the unemployment rate way down. He warned, however, because of the coronavirus crisis, things can go wrong and the journey is likely to be uneven.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session and 3 of the past 4 following the intraday run to $168.14. Lower resistance at $168-$168.50 was cleared but held. A close above the latter and the monthly high of $168.21 would signal additional momentum towards $169.50-$170.

Current support is at $167-$166.50 followed by $165.50-$165.

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The S&P 500 Volatility Index ($VIX) zigzagged for the 6th-straight session after closing in the red while testing an opening high of 33.67. Near-term and lower resistance at 33-33.50 was tripped and held. A close above 35, and a level that has been holding since mid-June, would be a very cautious signal for the market.

The backtest to 29.21 and close below upper support at 30.50-30 and the 50-day moving average was a slightly bullish signal with more important recovery levels at 27-26.50 and the 200-day moving average.

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The Spider Small-Cap 600 ETF (SLY) has been in a mini 6-session trading range with Tuesday’s trip reaching $58.42 just ahead of the closing bell. Lower resistance at $58-$58.50 was recovered. A close back above the $60 level and the monthly peak at $59.87 would be a more bullish development for a possible retest towards $62-$62.50 and the 200-day moving average.

Support is at $57.50-$57 and the 50-day moving average. A close below the latter would signal a breakdown out of the current range with additional weakness towards $55.50-$55. 

RSI has been oscillating since early June with lower resistance at 50-55 getting cleared and holding. A close above the latter would signal additional strength towards 60-65. Support is at 45 and the June low.

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The Materials Select Sector (XLB) extended its winning streak to 5-straight with the session high hitting $59.53. Prior and lower resistance from early June at $59-$59.50 was breached and held. A close above the $60 level would be an ongoing bullish signal for a retest towards $61.50-$62 with the current 52-week peak at $61.94 from last December.

Support is at $58.50-$58. 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 typically a bullish signal for higher highs.

RSI is in an uptrend with key resistance at 65 holding. A close above this level would signal additional strength towards 70-75 with the latter representing the early June top. Support is at 60-55.

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Tuesday’s turnaround put the bulls back in charge but near-term battles remain and support is shaky with the major indexes still in a mini 7-session grading range. However, the Dow is showing breakout potential and the Nasdaq remains strong. 

The bank earnings will dominate the headlines the rest of the week with Tech numbers starting next week. There is still the chance of one leg higher and I specifically mentioned the Financial stocks would need to have a good week to lead the next leg higher. JPMorgan (JPM) shares were slightly higher yesterday while Citigroup (C) and Wells Fargo (WFC) went southbound. 

Momentum Options Play List

Closed Momentum Options Trades for 2020: 23-8 (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.

Viavi Solutions (VIAV, $13.02, up $0.26)

VIAV August 14 calls (VIAV200821C00014000, $0.55, up $0.05)

Entry Price: $0.60 (7/13/2020)

Exit Target: $1.20

Return: -10%

Stop Target: None

Action: Yesterday’s high reached $13.04 with lower resistance at $13-$13.25 getting recovered. A close above the latter would signal a retest towards $13.50 and the 200-day moving average. Support remains at $12.75-$12.50 by a penny. Earnings are due out the 2nd week of August.

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Western Union (WU, $21.56, up $0.09)

WU August 22 calls (WU200821C00022000, $0.85, flat)

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

Exit Target: $1.40

Return: 15%

Stop Target: None

Action: Shares traded to a high of $21.58 with prior and lower resistance at $21.50-$21.75 getting cleared and holding. Support remains at $21.25-$21.

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