MomentumOptions.com Pre-Market Update for 7/23/2020

Bulls Get Clean Sweep

8:00am (EST) 

The market traded in tight ranges on Wednesday following ongoing tensions with China after the U.S. ordered their consulate to be closed in Texas to protect American intellectual property and private information of U.S. citizens. China responded by saying the U.S. needed to immediately rescind its erroneous decision, or they would undertake legitimate and necessary actions.

The geopolitical spat overshadowed a slightly grim outlook from President Trump after he said the coronavirus pandemic could get worse before things get better. However, Trump also highlighted the positives of the current situation and the number of vaccines in development to treat coronavirus. Despite the noise, the higher closes remain an ongoing bullish development.

The Dow gained 0.6% after trading to a late high of 27,035. Current and lower resistance at 27,000-27,250 was recovered with a move above the latter suggesting ongoing strength towards 27,500-27,750.

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The S&P 500 also climbed 0.6% to extend its winning streak to 4-straight sessions following the run to 3,279 ahead of the closing bell. Lower resistance at 3,275-3,300 was cleared and held with a pop above the latter getting  3,325-3,350 and levels from late January back in focus.

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The Nasdaq edged up 0.2% with the high kissing 10,745 shortly after the opening bell. Near-term and lower resistance at 10,800-10,900 was approached but held with a move above the latter suggesting additional upside towards 11,000-11,100 and new lifetime highs.

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The Russell 2000 was also higher by 0.2% with the morning peak reaching 1,493. Near-term and lower resistance at 1,500-1,515 was challenged but held for the 2nd-straight session with a close above the latter signaling additional momentum towards 1,525-1,540 and prior levels from early June.

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Utilities were the strongest sector after rising 1.5% while Real Estate and Materials posted gains of 1.2%. Energy was the only sector loser after falling 1.2%.

In economic news, MBA Mortgage Applications rose 4.1% following a 5.1% jump in the prior week. Strength remained in refis with the index up another 5.3% after the prior 11.9% surge the week before. The purchase index bounced 1.8% after a prior -6.1% decline. The 12-month rates accelerated with applications now up 70.5% year-over-year versus 61.1% in the prior week. Refis are up 122% year-over-year from 106.6%, and purchases were up to 19.4% from 15.5%. The 30-year mortgage rate inched up to 3.20% on the week from the record low 3.19% previously. The 5-year ARM dropped to 2.89% from 3%.

Existing Home Sales zoomed a record 20.7% to 4,720,000 in May following the -9.7% drop to 3,910,000 in May. Purchases are down -3.4% year-over-year. Sales were up in every region. Single family sales bounced 19.9% to 4,280,000 after declining -9.4% in May to 3,570,000. Condo/coop sales climbed 29.4% to 440,000 versus the prior -12.8% slump to 340,000. The NAR reported condo sales are about 9% of total sales, a little below the more typical 12% share, and some of that erosion was attributed to the increased demand for single family sales due to the coronavirus. The months’ supply of homes dropped to 4 from 4.8 while days on the market slipped to 24 from 26. The median sales price rose to a record high of $295,300 versus $283,600.

FHFA house price index dipped -0.3% to 287.3 in May after edging up 0.1% in April to 288 which was a record high for the index. The index is still up 4.9% year-over-year, though a little slower than the prior 5.5% clip in April. Declines were registered in 6 of the 9 regions, led by New England (-1%) and the Pacific (-0.8%). Only the South Atlantic posted a marginal gain (0.1%). The other two regions were unchanged. The report noted that much of the weakness was a function of the COVID-19 related shutdowns. Meanwhile, all of the 12-month changes were positive, ranging from 3.7% in the New England division to 6.3% in the Mountain division.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight sessions after trading to an afternoon high of $168.46. Prior and lower resistance from mid-May at $168-$168.50 was cleared but held. A close above the latter would confirm the breakout of the recent trading range with additional strength towards $169.50-$170. 

Rising support is at $167.50-$167 followed by $166-$165.50.

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The S&P 500 Volatility Index ($VIX) settled lower for the 3rd time in 4 sessions despite testing an intraday peak reaching 26.26. Current and lower resistance at 26-26.50 was breached but levels that held. A close above the latter and the the 200-day moving average would suggest a retest towards 29.50-30 and the 50-day moving average.

Support remains at 24-23.50. A close below the latter and the June low at 23.54 would signal additional weakness towards 22.50-22.

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The Russell 2000 ETF (IWM) extended its winning steak to 2-straight sessions following the intraday push to $148.67. Lower resistance at $148.50-$149 was tripped but held. A move above the $150 level would be a more bullish signal for a possible retest towards $152.50-$153 with the early June peak at $153.39.

Near-term support is at $147-$146.50 followed by $145.50-$145 and the 200-day moving average. 

RSI has leveled out with key support at 60 holding. A close below this level would signal additional weakness towards 55-50 with the latter basically holding since early June. Resistance is at 65-70.

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The Spider Gold Shares (GLD) extended its winning streak to 4-straight sessions after soaring to a first half and fresh 52-week peak of $175.77. Longer-term and lower resistance at $175.50-$176 was cleared and held. A close above the latter would be a bullish signal for continued momentum towards $177-$177.50 and 9-year resistance from August 2011. The early September 2011 and all-time intraday high tapped $185.85.

Rising support is at $174-$173.50 followed by $172.50-$172.

RSI remains in an uptrend after clearing and holding lower resistance at 75-80 with the latter representing the overbought February peak. Support is at 70-65.

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The Dow and S&P 500 are making higher highs while the Russell 2000 and the Nasdaq traded near Tuesday’s tops. I think near-term momentum could last into next week as the bulls wind down an incredible July and the height of earnings season plays out. 

The VIX appears as though it wants to test lower lows and make a run at the 20 level and historically where is trades. I’m not sure if volatility gets that low but I do see a possible test towards 22-21.50. 

I have mentioned August could be more volatile and there is a possibility of some stretch into next month with a cure for coronavirus the major headline that could cause a blowoff top.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 24-8 (75%). 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.

Cisco Systems (CSCO, $46.90, down $0.12)

CSCO August 50 calls (CSCO200821C00050000, $0.55, down $0.05)

Entry Price: $0.65 (7/21/2020)

Exit Target: $1.30

Return: -18%

Stop Target: None

Action: Upper support at $46.75-$46.25 was breached but held on the backtest to $46.53 yesterday. Resistance remains at $47-$47.50.

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Viavi Solutions (VIAV, $13.47, up $0.03)

VIAV August 14 calls (VIAV200821C00014000, $0.60, flat)

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

Exit Target: $1.20

Return: 0%

Stop Target: None

Action: Wednesday’s peak reached $13.60 with lower resistance at $13.50-$13.75 and the 200-day moving average getting cleared but holding. Support remains at $13.25-$13.

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