MomentumOptions.com Pre-Market Update for 7/31/2020

Tech Stays Strong as Market Stumbles

8:00am (EST) 

The market was weak throughout much of Thursday’s action following a rise in initial and continuing jobless claims and the collapse in Q2 Gross Domestic Product. President Trump’s tweet that the November 3rd election should be delayed was also a worry that led to the opening losses. 

The midday rebound off the session lows was driven by GOP Leader Mitch McConnell’s comments after he stated the election date is set in stone. The  assurance on the November 3rd date improved sentiment and helped Tech finish higher ahead of a number of key earnings releases after the close for the sector.

The Nasdaq gained 0.4% after trading to an afternoon high of 10,609. Near-term and lower resistance at 10,600-10,700 was cleared but held with a move above the latter signaling additional strength towards 10,800-10,900 and fresh all-time highs.

The Dow was down 0.9% following the intraday pullback to 25,992. Key support at 26,250-26,000 and the 200/50-day moving averages were breached but levels that held with a close below the latter signaling additional weakness towards 25,750-25,500.

The Russell 2000 fell 0.4% with the morning low reaching 1,475. Current and upper support at 1,475-1,460 was tapped but held with a close below the latter indicating a retest towards 1,450-1,435 and the 200-day moving average.

The S&P 500 also declined 0.4% after testing a low of 3,204 shortly after the opening bell. Upper support at 3,225-3,200 was breached but held with a drop below the latter suggesting additional weakness towards 3,175-3,150.

Technology showed the most sector strength after adding 0.6% while Communication Services climbed 0.3% to round out the winners. Energy and Materials were the weakest sectors after sinking 3.9% and 1.9%, respectively.

In economic news, Q2 GDP contracted at an historic -32.9% rate after dropping -5% in Q1. Consumption plunged -34.6% versus -6.9% in Q1 while fixed investment plunged -27% from Q1’s -6.7%. Government spending rose 2.7% from 1.3%. Inventories subtracted -3.98% versus -1.34% previously. Exports dove -64.1% from -9.5%, with imports dropping -53.4% from -15%. Net exports added 0.68% versus 1.13% previously. The chain price index dropped -1.8% from 1.4%, and is the weakest since 1949, with the core rate sliding -1.1% from 1.6%.

Initial Jobless Claims rose 12,000 to 1,434,000 after rising 114,000 to 1,422,000 previously. Forecasts were for a print of 1,388,000. The 4-week moving average expanded to 1,368,500 from 1,362,000. Continuing claims climbed 867,000 to 17,018,000 following the -1,153,000 plunge to 16,151,000 in the prior week. The gain in initial claims combined with the pop higher in continuing claims could add to the growing angst that the recovery is stalling under the weight of the resurgence in coronavirus infections.

The iShares 20+ Year Treasury Bond ETF (TLT) broke out of a 5-session trading range with the intraday peak reaching $171.26. Prior and lower resistance from mid-April at $171-$171.50 was cleared and held. A close above the latter would be an ongoing bullish signal for additional strength towards $172-$172.50 with the April peak at $172.15.

Rising support at $170.50-$170 followed by $168.50-$168.

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The S&P 500 Volatility Index ($VIX) was up for the 2nd time in 3 sessions after zooming to an opening high of 28.29. Prior and lower resistance from last week at 28-28.50 was breached but held. A close above the latter and the 50-day moving average would be a bearish development for the market.

Support remains at 24.50-24 with a close back below the 23.50 level be a more bullish signal for the market.

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The Wilshire 5000 Composite Index ($WLSH) remains in a 12-session trading range following the intraday fade to 32,762. Near-term and upper support at 33,000-32,750 was breached but held. A close below the latter would indicate a breakdown out of the current range with additional weakness towards 32,500-32,250.

Resistance remains at 33,500-33,750. A close above the latter would be a bullish signal for a breakout towards 34,000-34,250 and levels from mid-February.

RSI is in a slight downtrend with upper support at 60-55 failing to hold. A close below the latter would suggest additional weakness towards 50-45 and the latter representing the late June low. Resistance is at 65 and the monthly peak.

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The iShares PHLX Semiconductor ETF (SOXX) was up for the 3rd time in 4 sessions after trading to a fresh all-time high of $291.84. Uncharted territory and lower resistance $291.50-$292 was cleared and held. A close above the latter would signal additional momentum towards $293.50-$294.

New support is at $290.50-$290 with backup help at $288-$287.50. A close below the $285 level would signal a possible near-term top. 

RSI is in an uptrend after clearing and holding lower resistance at 60-65. A move above the latter would signal additional strength towards 70 and the June peak. Support is at 55-50.

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After the close, a number of high profile companies, including Apple (AAPL) and Facebook (FB), smashed expectations with shares surging 5% and 6% in after hours trading. This should keep the Nasdaq on path to chase fresh all-time highs if the 10,800 level is cleared and held today.

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, $43.59, down $0.56)

EEM September 45 calls (EEM200918C00045000, $0.85, down $0.20)

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

Exit Target: $1.65

Return: 4%

Stop Target: 80 cents

Action: Thursday’s low tapped $43.19 with upper support at $43.50-$43 getting breached but holding. Key resistance remains at $44.

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Cisco Systems (CSCO, $46.44, down $0.27)

CSCO August 50 calls (CSCO200821C00050000, $0.35, down $0.05)

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

Exit Target: $1.30

Return: -47%

Stop Target: None

Action: Shares tested a low of $45.38 yesterday with prior support at $46-$45.50 and the 50-day moving average all getting breached but holding. Resistance remains at $46.50-$47.

The lower highs and lower lows are a concern, and depending how today’s session plays out for the shares, we could cut the cord today or Monday to save some premium and move on to better setups.

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Viavi Solutions (VIAV, $13.74, up $0.13)

VIAV August 14 calls (VIAV200821C00014000, $0.60, up $0.05)

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

Exit Target: $1.20

Return: 0%

Stop Target: None

Action: Fresh and lower resistance at $13.75-$14 was cleared but held following the run to $13.78. New support is at $13.50-$13.25 and the 200-day moving average

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