MomentumOptions.com Pre-Market Update for 7/29/2020

Market Stumbles Ahead of Fed Minutes 

8:00am (EST) 

The market closed lower on Tuesday following ongoing uncertainty over the progress on the stimulus bill and disappointing earnings from a number of blue-chip companies. There is chatter that Senate Republicans are not united on the stimulus bill, with the party expecting major defections.

The pullback comes as the FOMC began its 2-day meeting and will issue its post-meeting statement Wednesday afternoon. The losses pushed the major indexes near the bottom of their current 2-week trading ranges.

The Nasdaq gave back 1.3% with the second half low reaching 10,397. Current and lower support at 10,500-10,400 was breached but held with a close below the latter indicating additional weakness towards 10,300-10,200.

The Russell 2000 was lower by 1% after settling on the session low of 1,469. Near-term and upper support at 1,475-1,460 was breached and failed to hold with a move below the latter likely leading to a further backtest towards 1,450-1,435 and the 200-day moving average.

The Dow was down 0.8% following the intraday pullback to 26,361. Crucial and upper support at 26,500-26,250 failed to hold with a close below the latter and the 200-day moving average signaling additional weakness towards 26,000-25,750 and the 50-day moving average.

The S&P 500 fell 0.7% after tapping a low of 3,216 ahead of the closing bell. Upper support at 3,225-3,200 was clipped and failed to hold with a drop below the latter suggesting a further backtest towards 3,175-3,150.

Real Estate led sector strength after jumping 2% while Utilities and Consumer Staples were up 1.5% and 0.4%, respectively, to round out the winners.

Materials and Energy were the leading sector laggards after stumbling 2.2% and 1.8%, respectively.

In economic news, S&P Corelogic Case-Shiller home price index rose 0.4% to 224.8 for the May 20-City measure, after the 0.8% increase in April to 223.9. It is up 3.7% year-over-year versus 3.9% previously. The 10-City index was up 0.3% on the month to 237 versus the 0.7% April gain to 236.4. It’s up 3.1% year-over-year versus 3.3%. All 20 cities surveyed posted 12-month gains, led by Phoenix (9%) and Seattle (6.8%) with New York (2.2%) and Chicago (1.3%) bringing up the rear.

Consumer Confidence index dropped 5.7 points in July after climbing 12.4 points to 98.3 in June. All of the weakness was in the expectations gauge which fell to 91.5 from 106.1. The present situations index improved to 94.2 from June’s 86.7. The labor differential climbed to 1.3 from -2.8. The 12-month inflation reading slipped to 6.1% from 6.6%.

Richmond Fed Manufacturing Index jumped 10 points to 10 in July after bouncing 27 points to unchanged in June. The employment index improved marginally to -3 from -6 previously. New order volume edged up to 9 from 7. Prices paid slid to a 0.93% pace versus 1.87% with prices received at 0.45% versus 1.16%. The 6-month shipment index rose to 57 from 51. The future employment gauge rose to 28 from 23. Order volume inched up to 48 from 47 while capex was steady at 8. Prices paid slipped to 1.97% from 2.23% with prices received at 2.07% from 1.68%.

Chain store sales jumped 1.1% in the week ended July 25th, after a 0.4% gain previously, as sales pick up from weakness early in the month. The 12-month pace of contraction has continued to slow and slipped to -8.5% year-over-year from -8.9%. The index has now recovered 15.4% from its April 11th low, according to the report, although it is still 11.2% below its cycle high from December 28th. The report also warned there is still a long way to go and probably won’t be back until late this year.

The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 2-session slide after trading to an afternoon high of $170.34. Current and lower resistance at $170-$170.50 was reclaimed. A close above the latter would be a bullish signal for additional upside towards $171.50-$172 with the April peak at $172.15.

Support is trying to move up to $169.50-$169 with backup help at $168-$167.50.

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The S&P 500 Volatility Index ($VIX) snapped a 2-session slide after testing an opening high of 25.85. Current and lower resistance at 26.50-27 and the 200-day moving average was challenged but levels that easily held.

The fade to 24.05 afterwards breached but held upper support at 24.50-24. A close below 23.50 and the monthly low of 23.60 would be a more bullish signal for the market with additional weakness towards 22.50-22 and levels from late February.

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The Spider S&P 500 ETF (SPY) was down for the 3rd time in 4 sessions following the intraday pullback to $320.85. Current and upper support at $321-$320.50 was tripped but held. A close below the latter would suggest further weakness towards $319-$318.50.

Near-term resistance remains at $323-$323.50 with Tuesday’s intraday peak reaching $323.64. A close above the latter would indicate a retest towards $324.50-$325.

RSI is back in a slight downtrend with upper support at 55-50 holding. A close below the latter would signal additional weakness towards 45 and the late June low. Resistance is at 60-65.

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The Health Care Select Sector Spider (XLV) was also lower for the 3rd time in 4 sessions despite tagging an intraday high of $106.47. Current and lower resistance at $106-$106.50 was cleared and held. A close above the latter would indicate additional strength towards $107.50-$108 with last Thursday’s all-time high at $107.53.

The fade to $105.57 afterwards held upper support at $105.50-$105 with a close below $104.50 signaling a possible near-term top.

RSI has flatlined after failing lower resistance at 65-70. A close above the latter would be a bullish signal for additional strength towards 75-80 and prior peaks from January and last December. Support is at 60 with a move below this level indicating additional weakness towards 55-50.

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There is a bevy of news today that will have a major impact on sentiment and direction with earnings and the Ged news. Additionally, some of the top Tech CEO’s will be in front of the House Judiciary Committee’s antitrust panel to answer allegations their companies are too dominant or have harmed competition.

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.

iShares Emerging Markets (EEM, $43.45, down $0.36)

EEM September 45 calls (EEM200918C00045000, $0.80, down $0.10)

Entry Price: $0.82 (7/28/2020)

Exit Target: $1.65

Return: -3%

Stop Target: None

Action: Shares tested a low of $43.40 with upper support at $43.50-$43 failing to hold. Resistance is at $44 with a close above this level being a bullish signal for a possible breakout towards $44.50-$45. The current 52-week peak is at $46.32. A golden cross has occurred with the 50-day moving average clearing the 200-day moving average.

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Cisco Systems (CSCO, $46.28, down $0.91)

CSCO August 50 calls (CSCO200821C00050000, $0.40, down $0.10)

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

Exit Target: $1.30

Return: -39%

Stop Target: None

Action: Monday’s low tapped $46.21 with current and upper support at $46.50-$46 getting breached and failing to hold. Resistance remains at $47-$47.50.

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Viavi Solutions (VIAV, $13.31, down $0.32)

VIAV August 14 calls (VIAV200821C00014000, $0.50, down $0.05)

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

Exit Target: $1.20

Return: -18%

Stop Target: None

Action: Upper support at $13.25-$13 was challenged but held on yesterday’s pullback to $13.26. Resistance remains at $13.50-$13.75 and the 200-day moving average

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