MomentumOptions.com Pre-Market Update for 8/6/2020

Nasdaq Clears 11,000

8:00am (EST) 

The market showed strength for the 4th-straight session on signs of a stimulus deal being reached by Friday. President Trump has indicated he will go it alone on the payroll tax cut if he has to and is not included in the deal.

Reports that the U.S. and China will meet on August 15th to assess the phase one trade deal also fueled sentiment and helped offset mixed economic news.

The Russell 2000 jumped 1.9% following the late day push and close on 1,546. Current and lower resistance from early June at 1,535-1,550 was cleared and held. A move above the latter would indicate additional momentum towards 1,560-1,575.

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The Dow soared 1.6% with the intraday high reaching 27,221. Mid-July and lower resistance at 27,000-27,250 was recovered. A close above the latter would be an ongoing bullish signal for additional upside towards 27,500-27,750. 

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The S&P 500 added 0.6% while reaching a session peak of 3,330. Early February and lower resistance at 3,325-3,350 was reclaimed. A close above the latter would suggest continued strength towards 3,375-3,400 with the current all-time high at 3,393.

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The Nasdaq rose 0.5% after trading to an intraday and all-time high of 11,002. New and lower resistance at 10,950-11,050 was breached and held. A move above the latter would keep upside potential towards 11,100-11,200 in focus.

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Industrials led sector strength after rallying 1.9% while Materials and Financials gained 1.5% and 1.4%, respectively. Utilities and Real Estate paced sector weakness after sinking 1.3% and 0.8%, respectively.

In economic news, MBA Mortgage Applications fell -5.1% last week, after dipping -0.8% previously. The headline index was 55.3% year-over-year higher, but much lower than the 71.5% pace previously. The refi index led the decline, tumbling -6.8%, while the purchase index slid -1.8%. On a 12-month basis, refis are up 84.1% year-over-year versus 122% previously while purchases are up 21.5% year-over-year versus 21.1% previously. The 30-year mortgage rate continued to slide and fell to 3.14% on the week, from 3.20%. The 5-year ARM inched up to 3.09% versus 3.08% previously.

June trade deficit narrowed -7.5% to -$50.7 billion, after widening 10.1% to -$54.8 billion in May, which was a 17-month high. Exports rebounded 9.4% following May’s -4.3% drop, and breaks a string of three monthly declines. Imports jumped 4.7% after sliding -0.7% previously, and stops four months of declines. The deficit excluding petroleum shrank to -$52.0 billion versus -$55.1 billion. The “real” goods balance fell to -$81.0 billion from -$86.2 billion.

ADP reported private payrolls increased 167,000 in July, but sharply blow estimates of 1,888,000, following a 4,314,000 jump in June and the 3,341,000 bounce in May. The services sector added 166,000, with professional/business services leading the way, followed by education and health services with 46,000, and trade/transport with 41,000. Financial firms let go 18,000 workers. The goods producing sector added 1,000 jobs while construction shed 8,000. Large companies added 129,000 jobs.

Markit PMI Services Index rose to 50 in the final July read, bettering the 49.6 preliminary and the 47.9 reading in June. The prices charged sub-index rose to 55.8 from 53.1 and is the highest since October 2018. Input prices also increased to their highest since October 2018. The final print on the composite index was unchanged at 50 from the preliminary and is stronger than the 47.9 print in June. Of note, all three indexes are back at their best readings since the start of the year and they are at or above the 50 expansion-contraction mark.

ISM Services Index rose 1 point to 58.1 in July, topping forecasts, after jumping 11.7 points to 57.1 in June. The employment number fell to 42.1 from 43.1, though it’s up from the 30 in April. New orders rallied to 67.7 from 61.6 and it’s double the 32.9 from April. New export orders dropped to 49.3 from 58.9, with imports at 46.3 from 52.9. Prices paid slid to 57.6 from 62.4.

The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 3rd time in 4 sessions following the intraday pullback to $169.69. Prior and upper support at $170-$169.50 was breached but held. A close below the latter would signal a false breakout with additional backtest potential towards $168.50-$168.

Lowered resistance is at $170.50-$171 followed by $171.50-$172.

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The S&P 500 Volatility Index ($VIX) extended its losing streak to 4-straight sessions with the morning low tapping 22.86. Current and upper support at 22.50-22 was challenged but held for the 2nd-straight session.

Resistance remains at 25-25.50 followed by 26.50-27 and the 200-day moving average.

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The Spider Small-Cap 600 ETF (SLY) extended its winning streak to 3-straight sessions after tagging a high of $64.02 ahead of the closing bell. Lower resistance from early June at $64-$64.50 was cleared but held. A close above the latter would signal a retest towards $65-$65.50 with the June peak at $65.55.

Rising support is at $63.50-$63. A close below the latter would suggest a false breakout with backtest potential towards $62-$61.50 and the 200-day moving average.

RSI is in an uptrend with key resistance and the May high at 65 getting cleared and holding. Continued closes above this level would signal strength towards 70-75 with the latter representing the June top. Support is at 60-55.

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The Utilities Select Spider (XLU) remains in a 14-session trading range following the morning pullback to $59.81. Current and upper support at $60-$59.50 was breached but held on the close back below the 200-day moving average. A move below $59.50 would suggest additional weakness towards $59-$58.50 and the 50-day moving average. 

Lowered resistance is at $60.50-$61. A close above the latter and the late July high at $61.42 would be a bullish signal for a retest towards $62-$62.50 with the early June peak at $62.36.

RSI is back in a downtrend after failing to hold upper support at 55-50. A close below 50 would signal additional weakness towards 45-40 with the latter representing the late June low. Resistance is at 60-65.

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The recent pin action has been amazing and we talked about a continued rally into early August. The one thing we continue to watch is the VIX and the battle to clear and hold the 22.50 level. If so, there would a blowoff the roof rally to higher highs and where the market will likely take a breather and linger for awhile. 

Of course, the clear sign of a market top will be when the VIX regains strength and closes back above the 50/200-day moving averages. When this happens, there will likely be an opportunity to start buying put options. In the meantime, we will continue to look for bullish opportunities while keeping tight stops in place to protect profits.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 25-8 (76%). 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, $22.88, down $1.31)

WU September 26 calls (WU200918C00026000, $0.25, down $0.30)

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

Exit Target: $1.00

Return: -50%

Stop Target: None

Action: Shares fell for the 3rd-straight session despite tapping an opening high of $25.13. Lower resistance at $25-$2.25 was cleared but held. The fade to $22.47 breached but held near-term and upper support at $22.50-$22.25. 

The reaction to a good quarter was somewhat disappointing but I went with the September calls to give the trade plenty of time to play out. Our last WU traded netted us 300% but this one has gotten off to a rocky start due to the volatility.

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iShares Emerging Markets (EEM, $44.65, up $0.48)

EEM September 45 calls (EEM200918C00045000, $1.10, up $0.25)

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

Exit Target: $1.65

Return: 38%

Stop Target: 40 cents, raise to 90 cents (Stop Limit)

Action: Raise the Stop Target from 40 cents to 90 cents and make it a Stop Limit. 

Wednesday’s peak reached $44.85 with early January and lower resistance at $44.50-$45 getting cleared and holding. A close above the latter would be a very bullish signal for a breakout towards $45.50-$46. Rising support is at $44-$43.50.

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Cisco Systems (CSCO, $47.33, down $0.34)

CSCO August 50 calls (CSCO200821C00050000, $0.45, down $0.10)

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

Exit Target: $1.30

Return: -31%

Stop Target: None

Action: Upper support at $47.50-$47 was breached and failed to hold following the backtest to $47.05. Resistance is at $48-$48.50.

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Viavi Solutions (VIAV, $14.26, down $0.05)

VIAV August 14 calls (VIAV200821C00014000, $0.75, down $0.05)

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

Exit Target: $1.20

Return: 25%

Stop Target: 60 cents (Stop Limit)

Action: Shares were down for the first time in 6 sessions following Wednesday’s pullback to $14.17. Upper support at $14.25-$14 was tripped but held. Resistance is at $14.50-$14.75.

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