MomentumOptions.com Pre-Market Update for 8/4/2020

Fresh Money Pushes Nasdaq to Record High 

8:00am (EST) 

The market settled higher on Monday as mostly upbeat economic news and corporate earnings fueled sentiment. Hopes of a fresh stimulus package remain in play although Congress continues to struggle on finalizing a new fiscal relief package after meeting over the weekend, despite pandemic-era unemployment benefits having expired last Friday. 

The Russell 2000 rallied 1.8% with the session high reaching 1,507 and matching the July top. Near-term and lower resistance at 1,500-1,515 was recovered with a move above the latter suggesting a continued run towards 1,525-1,540 and levels from early June.

The Nasdaq jumped 1.5% while tapping a fresh all-time intraday high of 10,927. Uncharted territory and lower resistance at 10,850-10,950 was cleared and held with a close above the latter indicating additional momentum towards 11,000-11,100.

The Dow gained 0.9% with the afternoon peak reaching 26,707. Near-term and lower resistance at 26,500-26,750 was recovered with a pop above the latter suggesting a retest 27,000-27,250 and the mid-July high at 27,071.

The S&P 500 was higher by 0.7% following the midday push to 3,302. Early February and lower resistance at 3,300-3,325 was breached but held with a close above the latter signaling additional upside towards 3,350-3,375.

Technology and Healthcare paced sector strength with gains of 2.5% and 1%, respectively. Real Estate and Utilities led sector laggards after giving back 1.6% and 1.1%, respectively.

In economic news, ISM Manufacturing Index advanced 1.6 points to 54.2 in July, topping expectations of 53.5, after the 9.5 point jump to 52.6 in June. New orders climbed another 5.1 ticks to 61.5 after the 24.6 point surge to 56.4 in June. The employment component rose 2.2 points to 44.3 following the 10 point increase to 42.1, but it’s been below the 50 level since August 2019. New export orders rose to 50.4 from 47.6 while imports jumped to 53.1 from 48.8.

PMI Manufacturing Index was up 1.1 points to 50.9 in the final July print from versus the 49.8 reading in June. However, it’s a downward revision from the flash 51.3 reading and where forecasts were at. Nevertheless, it remains in expansionary territory and is at its highest since January. The output index rose to 51.7 from June’s 47.5 while new orders also improved versus June.

Construction Spending dipped -0.7% in June, versus forecasts for a rebound to 1.3%, following the -1.7% drop in May. All of the components declined. Spending on residential construction projects fell -1.4% from -3.5% while nonresidential spending slipped -0.2% from -0.4%. Private construction spending was down -0.7% from -2.7%. Public spending declined -0.7% following a 1.3% gain in May. 

In Fed news, Dallas Fed Robert Kaplan worries the economy will weaken again if the unemployment benefits are not extended. He said he doesn’t want to shift forward guidance and tie it to inflation alone, allowing prices to run a little hot for awhile.

Kaplan would prefer to tie forward guidance to the dual mandate, and particularly to unemployment. He said inflation dynamics have changed such that Fed has been able to run the economy hotter with more muted inflation. He stressed it’s important the lending programs sunset so that the markets stand on their own feet again.

St. Louis Fed James Bullard said the July slowdown suggests the recovery will be a bumpy one as the virus has proven to be more persistent than expected, but also less severe than initially feared. He believes the manufacturing sector is adapting well to the virus, though high touch sectors (airlines) have a long way to go. 

Bullard expects a big bounce back in the economy this quarter and acknowledged there is more sympathy at the Fed for an inflation overshoot of the 2% target. However, he also said it was important to keep inflation expectations centered around target.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its losing streak to 2-straight sessions after testing an intraday low of $168.97. Current and upper support at $169-$168.50 was breached but held. A close below the latter would signal additional weakness towards $167.50-$167.

Lowered resistance is at $170-$170.50. 

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The S&P 500 Volatility Index ($VIX) tested a fresh multi-month low of 22.17 before closing slightly higher. Late February and upper support at 22.50-22 was breached but held.

Lower resistance 26.50-27 and the 200-day moving average was challenged but held on the bounce to 26.01 afterwards. A close above the latter would signal a retest towards 28.50-29 and the 50-day moving average.

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The Russell 2000 ETF (IWM) snapped a 2-session slide after tagging an intraday high of $149.97 but remains in a 14 session trading range. Lower resistance at $149.50-$150 was reclaimed. A move above the $150.50 level would be a more bullish signal of a breakout and a possible retest towards $152.50-$153 with the early June peak at $153.39.

Near-term support is at $148-$147.50 followed by $145.50-$145 and the 200-day moving average. 

RSI is back in an uptrend with key resistance at 60 holding. A close above this level would signal additional strength towards 65-70 and levels from early June. Support is at 55-50 with the latter holding since mid-June.

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The Energy Select Sector Spider (XLE) rebounded with the 2nd half high hitting $36.36. Current and lower resistance at $36-$36.50 was recovered. A close above the latter would signal additional upside towards $37-$37.50 with more important hurdles at $38-$38.50 and the 50-day moving average.

Support is at $35.50-$35. A close below the latter would be a renewed bearish development and indicate additional weakness towards $34.50-$34 with the early July low at $34.24.

RSI is trying to curl higher with lower resistance at 45-50 holding. A close above the latter would signal additional strength towards 55-60 and levels from mid-May. Support is at 40-35 with the latter representing the July low.

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I have important updates on WU and RMBS so let’s go check the action.

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.

Western Union (WU, $24.21, down $0.07)

WU September 26 calls (WU200918C00026000, $0.55, flat)

Entry Price: $0.50 (8/3/2020)

Exit Target: $1.00

Return: 10%

Stop Target: None

Action: Monday’s peak reached $24.46 before the slightly lower close and opening weakness. Prior and lower resistance from early June at $24.25-$24.50 was cleared but held. A close above the latter could lead to a breakout towards $24.75-$25 with the June top at $24.91. Support is at $23.75-$23.50.

The company reports earnings after today’s closing bell. We are expecting a really good quarter but guidance and other market factors will also play a role on how shares react. 

Shares could explode past $25 if all goes well and levels from the back half of February. A drop towards $24-$22 could come on disappointing results. 

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Rambus (RMBS, $15.59, up $0.83)

RMBS September 15 calls (RMBS200918C00015000, $1.05, up $0.25)

Entry Price: $0.90 (8/3/2020)

Exit Target: $1.80

Return: 17%

Stop Target: None

Action: Shares tapped a high of $15.61 ahead of the company’s earnings announcement after Monday’s close. This is always a tricky stock to trade on earnings and we were banking on solid numbers. We were greeted with a kitchen sink quarter.

Rambus reported a loss of 9 cents a share on revenue of $59.9 million versus Wall Street estimates for a profit of 25 cents a share on revenue north of $100 million.

In after-hours trading, shares were down 6%. If they fall below $14 and the 200-day moving, close the trade today to save the remaining premium.

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iShares Emerging Markets (EEM, $43.59, up $0.30)

EEM September 45 calls (EEM200918C00045000, $0.70, up $0.05)

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

Exit Target: $1.65

Return: -15%

Stop Target: 80 cents

Action: Lower resistance at $$43.50-$44 was cleared and held following the run to $43.69. A close above the latter would be a very bullish signal for a breakout towards $45-$45.50. Support remains at $43-$42.50.

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Cisco Systems (CSCO, $47.16, up $0.06)

CSCO August 50 calls (CSCO200821C00050000, $0.40, flat)

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

Exit Target: $1.30

Return: -38%

Stop Target: None

Action: Lower resistance at $47-$47.50 was cleared and held on trip to $47.35. Support remains at $46.50-$46 and the 50-day moving average following the opening fade to $46.68.

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Viavi Solutions (VIAV, $14.20, up $0.37)

VIAV August 14 calls (VIAV200821C00014000, $0.75, up $0.10)

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

Exit Target: $1.20

Return: 25%

Stop Target: None

Action: Shares showed a clear sign of a breakout following Monday’s intraday surge to $14.24. New and lower resistance from late February at $14-$14.25 was reclaimed. Rising support is at $13.75-$13.50 and the 200-day moving average.

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