MomentumOptions.com Pre-Market Update for 8/5/2020

Bulls Run Winning Streak to 3-Straight

8:00am (EST) 

The market opened slightly lower on Tuesday while trading in tight ranges as concern over the stalemate in Washington on the relief package and ongoing U.S./ China frictions weighed on sentiment. White House and Democratic party leaders struck a cautiously optimistic tone to start the week but remain miles apart. 

President Trump suggested he is open to using an executive order if Congress fails to act, though it’s not clear such an action is legally possible. The major indexes added to their gains into the closing bell close with the Nasdaq tapping another lifetime high and 30th record close for 2020.

The Russell 2000 rose 0.7% after closing on the session peak of 1,517. Current and lower resistance at 1,510-1,525 was cleared and held with a close above the latter indicating a retest towards 1,535-1,550.

The Dow added 0.6% after tagging a 2nd half high of 26,832. Prior and lower resistance from mid-July at 26,750-27,000 was recovered with a move above the latter and the July high at 27,071 getting 27,250-27,500 in focus.

The Nasdaq was up 0.4% while finishing on the session high of 10,941. New and lower resistance at 10,950-11,050 was challenged but held with a move above the latter indicating additional momentum towards 11,100-11,200. 

The S&P 500 also gained 0.4% while settling at 3,306 and the session top. Early February and lower resistance at 3,300-3,325 was cleared and held with a close above the latter suggesting continued upside towards 3,350-3,375.

Energy was the strongest sector after soaring 2.4% while Real Estate and Materials were higher by 1.5% and 1.4%, respectively. Financials and Healthcare were the only sector laggards after falling 0.4%.

In economic news, Chain Store Sales climbed 3.1% last week following gains of 1.1% in the prior week. Back-to-school shopping was underpinned, though computers were in high demand for on-line learning. Electronic stores saw 12-month gains on the week while retail sales also showed an encouraging sign.

ISM New York Business Conditions improved with the Current Business Conditions rising 14 points to 53.5 in July from 39.5, previously. The Six-Month Outlook fell 17.5 points to 49.6, down from the 10-month high of 67.1 reported in June. Employment rose 16.8 points to reach a 6-month high of 50.3 while Quantity of Purchases fell 2.7 points to 42 from the 7-month high of 44.7 reported in June.

Factory Orders climbed 6.2% in June following the 7.7% bounce in May. Expectations were for a rise of 5.2%. Durable goods orders were bumped up to 7.6% from 7.3% in the advance report. Transportation orders rose 20.2% after May’s 78.8% jump. Excluding transportation, orders were 4.4% higher following the 2.6% May rebound. Nondefense capital goods orders excluding aircraft increased 3.4% from 1.6% previously. Shipments surged 9.8% versus the 3% increase in May. Nondefense capital goods shipments excluding aircraft were up 3.3% from 1.5%. Inventories rose 0.6% after the 0.2% May gain. The inventory-shipment ratio dropped to 1.51 from 1.65. The factory sector is clearly benefiting from the reopenings in the economy, though there’s still a long way to go with orders -10.6% and shipments -9.1% year-over-year.

The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 2-session slide following the afternoon run to $171.58 and fresh multi-month high. Lower resistance at $171.50-$172 was breached and held. A close above the latter and the late April peak at $172.15 would be a very bullish signal with gap up potential towards $172.50-$175.

Fresh support is at $170.50-$170 followed by $168.50-$168.

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The S&P 500 Volatility Index ($VIX) traded in a tight range with the intraday low hitting 22.92. Current and upper support at 22.50-22 was challenged but held. There is a huge gap down to fill on a close below the 22 level that could signal a retrace towards the 20-17.50 area.

Lowered resistance is at 25-25.50 followed by 26.50-27 and the 200-day moving average.

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The S&P 400 Mid Cap Index ($MID) extended its winning streak to 2-straight after closing on the session high of 1,894. Lower resistance from early June at 1,900-1,925 was challenged but held. A close above the latter would signal a retest towards 1,950-1,975 with the June peak at 1,946.

Current support at 1,850-1,825. A close below the latter and the 200-day moving average would be a slightly bearish signal with additional weakness towards 1,800-1,775 and the 50-day moving average. A golden cross remains in play with the 50-day MA on track to clear the 200-day MA.

RSI is in a slight uptrend after clearing lower resistance at 60-65. A close above the latter would signaling additional strength towards 70-75 and levels from early June. Support is at 55-50.

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The Communication Services Select Sector Spider (XLC) extended its winning streak to 5-straight sessions after tapping a new all-time high of $58.56. Fresh and lower resistance at $58.50-$59 was cleared and held. A close above the latter would be an ongoing bullish signal for blue-sky territory towards $60-$60.50.

Rising support is at $58-$57.50 followed by $56.50-$56 and the 50-day moving average.

RSI is in an uptrend with key resistance at 65 holding. A close above this level would indicate additional strength towards 70-75 with the latter representing the mid-June peak. Support is at 60 with a move back below this level suggesting additional weakness towards 55-50.

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I have updated our current positions so let’s go check the tape.

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, $24.19, down $0.02)

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: Shares settled slightly lower for the 2nd-straight session with the bottom hitting $23.87. Upper support at $23.75-$23.50 was challenged but held. Resistance remains at $24.25-$24.50. A close above the latter could lead to a breakout towards $24.75-$25 with the June top at $24.91.

After the closing bell, shares were pushing slightly higher after topping estimates by 4 cents and revenue numbers.

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Rambus (RMBS, $15.00, down $0.59)

RMBS September 15 calls (RMBS200918C00015000, $0.90, down $0.25)

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

Exit Target: $1.80

Return: 0%

Stop Target: None

Action: Close the trade today for a scratch.

Shares tested a low of $14.41 shortly after the open with prior and upper support at $14.50-$14.25 getting breached but holding. Resistance remains at $15.25-$15.50. 

Given the earnings miss, shares held up well with the options trading at 95 cents. However, I just don’t feel comfortable holding this position with the 50-day moving average showing signs of rolling over and RSI in a downtrend.

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iShares Emerging Markets (EEM, $44.17, up $0.58)

EEM September 45 calls (EEM200918C00045000, $0.85, up $0.15)

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

Exit Target: $1.65

Return: 4%

Stop Target: 40 cents

Action: Lower resistance at $44-$44.50 was cleared but held with shares settling on the session high of $44.17. A close above the latter would be a very bullish signal for a breakout towards $45-$45.50. Support is trying to move up to $43.50-$43.

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Cisco Systems (CSCO, $47.67, up $0.51)

CSCO August 50 calls (CSCO200821C00050000, $0.55, up $0.15)

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

Exit Target: $1.30

Return: -17%

Stop Target: None

Action: Shares were up for the 3rd straight session after closing on the session high. Lower resistance at $47.50-$48 was reclaimed. A close above the latter would be an ongoing bullish signal with upside towards $49-$49.50. Rising support is at $47-$46.50.

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Viavi Solutions (VIAV, $14.31, up $0.11)

VIAV August 14 calls (VIAV200821C00014000, $0.80, up $0.05)

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

Exit Target: $1.20

Return: 33%

Stop Target: 60 cents (Stop Limit)

Action: Set an initial Stop Limit at 60 cents to start protecting profits and to avoid a loss. 

Shares were up for the 5th-straight session following Tuesday’s trip to $14.36. Lower resistance from late February at $14.25-$14.50 was recovered with a move above the latter getting $14.75-$15 in focus. Rising support is at $14-$13.75.

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