MomentumOptions.com Pre-Market Update for 8/12/2020
Late Selling Pressure Erases Strong Gains
The market showed continued momentum on Tuesday following news President Trump is seriously considering a capital gains tax cut. Indications stimulus talks in Congress will resume with unemployment benefits being released in a few weeks also helped sentiment.
As for coronavirus developments, Russia President Vladimir Putin announced the country has registered the first vaccine for a cure. However, the leading vaccine candidate has only been tested in small and early clinical trials. Despite the overall positive developments, selling pressure in the final hour of action wiped out the majority of the gains with the major indexes settling lower for the day.
The Dow fell 0.4% to snap a 7-session winning streak despite tapping a morning high of 28,154. Prior and lower resistance from late January at 28,000-28,250 was cleared but held. The fade to 27,624 afterwards failed to hold upper support at 27,750-27,500.
The Russell 2000 was down 0.6% after testing a high of 1,603 shortly after the opening bell. Late January and lower resistance at 1,600-1,615 was breached but held. Upper support at 1,575-1,560 failed to hold on the late tumble to 1,570.
The S&P 500 dropped 0.8% following the intraday push to 3,381. Lower resistance from early February at 3,375-3,400 was cleared but held with the all-time high at 3,393 also holding. The pullback to 3,326 failed to hold key and upper support at 3,350-3,325.
The Nasdaq sank 1.7% to extend its losing streak to 3-straight following the 2nd half backtest to 10,763. Current and upper support at 10,850-10,750 was breached for the 2nd-straight session and failed to hold. A move below the latter would signal a possible near-term top with additional weakness towards 10,600-10,500.
Financials and Industrials were the only sectors winner after rising 1.2% and 0.5%. Utilities and Real Estate led sector laggards after falling 2.2% and 1.9%.
In economic news, NFIB Small Business Optimism Index fell -1.8% to 98.8 in July, following the 6.6% jump to 100.6 in June. Expectations were for a print of 100. The July slump reflected the resurgence of the virus and the rollback in reopenings in several key states. Weakness was in expectations for a better economy, expectations for higher sales, and positions not able to fill. This countered gains in plans to higher, plans to increase capital spending, and expectations of higher selling prices.
Producer Price Index bounced 0.6% in July, topping expectations for a rise of 0.1%, with the core rate jumping 0.5%. There were no revisions to the declines in June where headline producer prices dropped -0.2% and the ex-food and energy gauge slid -0.3%. On a 12-month basis, PPI rose to a -0.4% year-over-year clip versus -0.8% previously, with the core rate at 0.3% year-over-year versus 0.1%. Goods prices increased 0.8% from 0.2% while energy costs climbed another 5.3% from 7.7% previously. Food prices declined -0.5% versus -5.2% in June. Services prices rebounded 0.5% from -0.3%.
Chain store sales dropped -1.5% in the week ending August 8th with weakness in department and apparel stores. Despite the slide, the contraction rate continues to slow and posted a -6.8% year-over-year rate versus -7.9% at the start of the month. The report also warned that retailers will see very uneven sales depending on the type of merchandise sold.
Redbook Store Sales were down -3.4% for the year in the week ending August 8th.
The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 3rd-straight session after sinking to an intraday low of $165.88. Prior and upper support from early July at $166-$165.50 was breached but held. A drop below the latter would indicate additional downside weakness towards $165-$164.50 and the 50-day moving average.
Lowered resistance is at $167.50-$168 followed by $169.50-$170.
The S&P 500 Volatility Index ($VIX) snapped a 7-session losing streak despite tapping a multi-month low of 20.28. Crucial and upper support at 20.50-20 was breached but held. A close below the 20 level would be a major bullish signal for the market with additional backtest potential towards 17.50-17 and levels from late February.
The late day bounce to 24.93 breached but held lower resistance at 24.50-25. A close above the latter would signal additional upside risk towards 27-27.50 and the 200-day moving average.
The Wilshire 5000 Composite Index ($WLSH) fell for the first time in 8 sessions despite the intraday run to 34,565. Lower resistance from mid-February at 34,500-34,750 was cleared but held. A close above the latter and the all-time high at 34,616 would be an ongoing bullish signal for a breakout towards 35,000-35,250.
Fresh support at 34,000-33,750 was challenged but held on the late day tumble to 33,993. A close below the latter would signal a possible near-term top with additional backtest potential towards 33,500-33,250.
RSI is in a downtrend after failing lower resistance at 70-75 and the latter representing the early June peak. Support is at 60-55 following the close back below the 65 level.
The iShares MSCI Emerging Markets Fund (EEM) was down for the 2nd-time in 3 sessions despite the first half high hitting $44.35. Lower resistance at $44-$44.50 was cleared but failed to hold. A close above the latter and the monthly peak at $44.85 would be a bullish signal for a run towards $45.50-$46 and levels from mid-January.
Current and upper support at $43.50-$43 held on the final hour fade to $43.81. A close back below the $42.50 level would be a slightly bearish development with backtest potential towards $42-$41.50 and the 50-day moving average.
RSI has flatlined with key resistance at 60. A close above this level would signal additional strength towards 65-70 with the latter representing the June and July top. Support is at 55-50 and the latter holding since early April.
I have updated our current trades so let’s go check the tape.
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.
AT&T (T, $30.20, up $0.18)
T September 31 calls (T200918C00031000, $0.50, flat)
Entry Price: $0.50 (8/10/2020)
Exit Target: $1.00
Stop Target: None
Action: Shares traded up to $30.77 before the flat finish with lower resistance at $30.50-$30.75 getting challenged but holding. Support is at $29.75-$29.50.
Western Union (WU, $23.23, down $0.15)
WU September 26 calls (WU200918C00026000, $0.35, flat)
Entry Price: $0.50 (8/3/2020)
Exit Target: $1.00
Stop Target: None
Action: Shares tested a high of $23.76 with lower resistance at $23.50-$23.75 getting cleared but holding. Support remains at $22.75-$22.50 and the 200-day moving average.
Cisco Systems (CSCO, $47.19, down $0.54)
CSCO August 50 calls (CSCO200821C00050000, $0.55, down $0.10)
Entry Price: $0.65 (7/21/2020)
Exit Target: $1.30
Stop Target: None
Action: Upper support at $47.50-$47 failed to hold on Tuesday’s fade to $47.08. Resistance is at $48-$48.50.
Viavi Solutions (VIAV, $14.44, up $0.22)
VIAV August 14 calls (VIAV200821C00014000, $0.80, up $0.05)
Entry Price: $0.60 (7/13/2020)
Exit Target: $1.20
Stop Target: 60 cents (Stop Limit)
Action: Lower resistance at $14.50-$14.75 was cleared but held on the run to $14.65. Support remains at $14.25-$14.