MomentumOptions.com Pre-Market Update for 8/10/2020

Small-Caps Shine in Lackluster Action/ Profit Alert (EEM)

8:00am (EST) 

The market struggled throughout much of Friday’s session as uncertainty surrounding prospects for another aid bill from Washington outweighed a better-than-expected jobs report. By the end of the day, no deal was made as the Democrats and the GOP failed to meet the deadline imposed by the White House to come to an agreement.

Despite the failure, a final hour rally and strength in the small-caps, help lift the S&P 500 and the Dow into positive territory. Tech struggled after setting another record high shortly after the open but ended the week with a nice gain along with the other major indexes. 

The Russell 2000 surged 1.6% while closing on its session peak of 1,569. Prior and lower resistance from early June at 1,560-1,575 was cleared and held. A close above the latter would indicate additional momentum towards 1,585-1,600.

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The Dow added 0.2% after tagging a late day high of 27,456. Lower resistance from early June at 27,500-27,750 was challenged but held. A close above the latter and the June peak at 27,580 would be an ongoing bullish development for additional strength towards 28,000-28,250.

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The S&P 500 edged up 0.1% with the high reaching 3,352 just ahead of the closing bell. Early February and lower resistance at 3,350-3,375 was cleared and held by a point. A move above the latter would suggest continued strength towards 3,400-3,425 with the current all-time high at 3,393.

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The Nasdaq fell 0.9% after trading to a first half and all-time intraday high of 11,126. New and lower resistance at 11,150-11,250 was challenged but held. The fade to 10,920 afterwards breached but held fresh and upper support at 11,000-10,900.

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For the week, the Russell 2000 zoomed 6% and the Dow surged 3.8%. The S&P 500 and the Nasdaq both rallied 2.5%.

Financials led sector strength after jumping 2.1% while Utilities and Industrials soared 1.8% and 1.4%. Technology and Communication Services were the only sector laggards after falling 1.5% and 0.1%, respectively.

Over the past 5 sessions, Industrials (4.7%); Financials (3.4%) and Energy (3.2%) were the strongest sectors. There were no sector laggards.

In economic news, Nonfarm Payrolls increased 1,763,000 in July after climbing 4,791,000 in June. The unemployment rate dipped to 10.2% versus 11.1% previously. Expectations were for 1,400,000 jobs added with the unemployment rate at 10.5%. The labor force declined -62,000 from the 1,705,000 climb in June, while household employment was up 1,350,000 from 4,940,000 prevously. The labor force participation rate slipped fractionally to 61.4% from 61.5%. Average hourly earnings edged up 0.2% from -1.3%, and slowed modestly to a 4.8% year-over-year pace versus 4.9% previously. Average weekly hours was at 34.5, down from 34.6. Private payrolls rose 1,462,000 in July from the 4,737,000 gain. The goods producing sector added 39,000 jobs versus 515,000. Manufacturing jobs edged up 26,000 from 357,000, while construction added 20,000 jobs from 163,000. Service sector jobs were up 1,423,000 from 4,222,000. Government jobs increased 301,000 versus the prior 54,000 gain.

Wholesale Inventories dropped -1.4% in June with sales jumping 8.8%. May inventories dropped -1.2%, while sales bounced 5.7%. Inventories have declined in five of the six months this year. Sales have posted strong gains in May and June, though don’t yet recoup the -21.5% cumulative drop from March and April. Meanwhile, the weakness in June inventories and the strength in sales saw the inventory-sales ratio drop back to 1.38 from 1.53 in May and is closing in on the 1.31 reading at the start of the year.

Baker-Hughes reported the U.S. rig count was down 4 to 247, with oil rigs off 4 to 176, gas rigs unchanged at 69, and miscellaneous rigs also unchanged at 2. The U.S. offshore rig count was unchanged at 12 and down 11 year-over-year.

Consumer Credit came in at $9 billion in June, versus forecasts of $8.9 billion, after dropping a revised -$14.4 billion. All of the strength was in non-revolving credit which increased $11.3 billion after the $10.3 billion preciously. Revolving credit declined -$2.3 billion after the -$24.7 billion decline in May.

The iShares 20+ Year Treasury Bond ETF (TLT) zigzagged for the 4th-straight session following the intraday pullback to $169.58. Current and upper support at $170-$169.50 was breached and failed to hold. A close below the latter would signal additional additional weakness towards $168.50-$168.

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

RSI is in a downtrend with upper support at 55-50 holding and the latter since mid-June. A close below the 50 level would signal additional weakness towards 45-40. Resistance is at 60.

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The S&P 500 Volatility Index ($VIX) was down for the 6th-straight session after trading to an opening low of 22.02. Near-term and upper support at 22.50-22 was taken out and held. A close below the 20.50 level and last Thursday’s low of 20.97 would be an ongoing bullish signal for additional weakness towards 20.50-20.

Lowered resistance is at 23.50-24. A close above the 25 level would suggest additional upside risk towards 27-27.50 and the 200-day moving average.

RSI remains in a downtrend with key support from May and June at 35 holding. A close below this level would signal a further pullback to 30 and a level last seen in March 2016. Resistance is at 40.

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The Spider S&P 500 ETF (SPY) extended it winning streak to 6-straight with the late session and multi-month high reaching $334.88. Lower resistance from early February at $334.50-$335 was recovered. A close above the latter would indicate a retest towards $336.50-$337 with the all-time high at $339.08.

Rising support is at $333-$332.50. A close below the latter would suggest further weakness towards $331.50-$331.

RSI has flatlined with key resistance at 70 holding. A close above this level would indicate additional strength towards 75 and the early June peak. Support is at 65-60.

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The Financial Select Sector Spiders (XLF) was up for the 2nd time in 3 sessions with the 2nd half high tapping $24.86. Prior and lower resistance from mid-June at $24.75-$25 was reclaimed. A move above the latter would be a more bullish signal for a possible retest towards $25.75-$26 and the 200-day moving average. 

Support is at $24.25-$24. A close below the latter and the 50-day moving average would likely signal a further pullback towards $23.50-$23.25.

RSI is in an uptrend with key resistance at 60 getting breached and holding. Continued closes above this level keeps additional strength towards 65-70 and levels from early June in play. Support is at 55-50 with the latter holding since early July.

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The percentage of Nasdaq 100 stocks trading above the 50-day moving closed at 70.87% on Friday, unchanged. Upper support at 70%-67.5% was challenged but held. A close below the latter would signal a retest towards 65%-62.5%. Resistance is at 72.5%-75%.

The percentage of S&P 500 stocks trading above the 200-day moving average settled at 57.31%, up 2.77%. Current and lower resistance at 55%-57.5% was breached and held. A close above the latter would signal additional strength towards 60%-62.5% with the latter representing the early June peak. Support is at 52.5%-50%.

The Dow joined the Nasdaq and the S&P 500 in forming a golden cross with the 50-day moving average clearing the 200-day moving average. The Russell 2000 is also close to joining the club and the technical pattern typically leads to higher highs. 

Although Tech remains and overbought levels, the pullback on Friday knocked some fluff off these conditions. I have mentioned a continued rally into August and it will be important volatility ($VIX) clears and holds the 22.50 level this week to keep the momentum going. 

On that note, I could have new bullish trades as soon as this morning so stay locked-and-loaded in case I take action.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 26-8 (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, $23.27, up $0.51)

WU September 26 calls (WU200918C00026000, $0.35, up $0.15)

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

Exit Target: $1.00

Return: -30%

Stop Target: None

Action: Shares tested a high of $23.32 with lower resistance at $23.25-$23.50 and the 200-day moving average getting cleared and holding. Support at $22.50-$22.25 and the 50-day moving average.

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iShares Emerging Markets (EEM, $43x, down $0.

EEM September 45 calls (EEM200918C00045000, $0.80, down $0.35)

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

Exit Target: $1.65

Return: 10%

Stop Target: 90 cents (Stop Limit)

Action: The Stop Limit was triggered on Friday’s pullback to $43.64. I would like to see a further pullback to $43 and where we can look to possibly reestablish a position.

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Cisco Systems (CSCO, $47.43, down $0.34)

CSCO August 50 calls (CSCO200821C00050000, $0.60, down $0.05)

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

Exit Target: $1.30

Return: -9%

Stop Target: None

Action: Friday’s low tapped $47.03 with upper support at $47.50-$47 failing to hold. 

Volume was heavy on Friday with over 7,000 contracts traded. This is signaling traders are expecting a possible push past $50 with earnings due on Wednesday.

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Viavi Solutions (VIAV, $14.26, down $0.04)

VIAV August 14 calls (VIAV200821C00014000, $0.75, flat)

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

Exit Target: $1.20

Return: 25%

Stop Target: 60 cents (Stop Limit)

Action: Upper support at $14.25-$14 was tripped but held on the pullback to $14.08. Resistance is at $14.50-$14.75. 

Earnings are due out on Tuesday.

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