MomentumOptions.com Pre-Market Update for 8/13/2020
Bulls Regain Momentum/ Trade Alerts (CSCO, VIAV)
The market rebounded on Wednesday as better-than-expected economic news outweighed the ongoing stalemate in Congress over a stimulus package.
The Nasdaq snapped a 3-session slide after surging 2.1% while testing a late day peak of 11,036. Near-term and lower resistance at 11,000-11,100 was cleared and held. A close above the latter and the all-time high at 11,126 would indicate additional strength towards 11,200-11,300.
The S&P 500 was higher by 1.4% with the second half high tapping 3,387. Lower resistance at 3,375-3,400 was recovered. A move above the latter and the all-time high at 3,393 would suggest additional momentum towards 3,425-3,450.
The Dow gained 1.1% after trading to an intraday high of 28,043. Current and lower resistance at 28,000-28,250 was cleared but held for the 2nd-straight session. A close above the latter would be a bullish signal for additional strength towards 28,500-28,750.
The Russell 2000 climbed 0.5% following the morning run to 1,595. Near-term and lower resistance at 1,585-1,600 was challenged but held. A close above the latter would indicate further upside towards 1,610-1,625.
Technology was the strongest sector after soaring 2.3% while Healthcare and Utilities advanced 1.7% and 1.5%. Financials were the only sector laggard after giving back 0.2%.
In economic news, MBA Mortgage Applications rebounded 6.8% after dropping -5.1% in the prior week. It’s now at a 37.1% year-over-year pace of increase versus 55.3% last week. Strength was in the refi index which jumped 9.1% after a -6.8% decline previously. The purchase index was up 2%, erasing the -1.8% previously. It’s now at a 21.8% year-over-year clip versus 21.5% in the prior week. The 30-year fixed mortgage rate dropped to 3.06%, another fresh record low, from 3.14% previously.
Consumer Price Index rose 0.6% in July on both the headline and core, following respective June gains of 0.6% and 0.2%. On a 12-month basis, the headline rate accelerated to 1% from 0.6% year-over-year previously, with the ex-food and energy component rising to 1.6% from 1.2%. Strength in energy prices paced the upside, climbing another 2.5% from 5.1%. Transportation costs were also firm, rising 2.9% after the prior 2.5% increase in June. New and used car prices bounced 1.3% following a -0.2% dip in June. Apparel prices were up 1.1% from 1.7% previously. Medical care costs were firm with another 0.4% gain, the same as in June. Services prices rose 0.6%. Housing rose 0.3% from 0.2%, with owners’ equivalent rent at 0.2% from 0.1%. Food and beverage costs declined -0.4% after the prior 0.6% gain. Real average hourly earnings were slid -0.4%% in July from -1.8% previously, but slowed to 3.7% year-over-year from 4.1%.
Treasury Budget posted a -$63 billion deficit in July. The modest improvement in the economy, the reduction in spending, and the July 15th tax date all helped the moderation. Receipts surged 124.2% year-over-year to $563.5 billion, a new monthly record, but with an asterisk due to the push back in the April 15th tax date to July. Outlays rose 68.8% year-over-year to $626.5 billion last month. The year-to-date deficit for the 10-months of fiscal 2020 has ballooned to -$2,807.3 billion, versus -$866.8 billion for the same period previously. Year-to-date receipts dropped -1.3% year-over-year to $2,823.6 billion. Year-to-date outlays climbed 51.1% to $5,630.9 billion.
The iShares 20+ Year Treasury Bond ETF (TLT) extended its losing streak to 4-straight sessions following the intraday backtest to $164.99. Prior and upper support at $165-$164.50 and the 50-day moving average were tripped but levels that held. A close below the latter would signal additional weakness towards $163.50-$163.
Lowered resistance is at $166-$166.50 followed by $167.50-$168.
The S&P 500 Volatility Index ($VIX) fell for the 8th time in 9 sessions following the intraday tumble to 21.54. Current and upper support at 21.50-21 was challenged but held. A close below the 20 level would be an ongoing bullish signal for the market with additional backtest potential towards 17.50-17 and levels from late February.
Lowered resistance is at 23-23.50 followed by 24.50-25.
The Invesco QQQ Trust (QQQ) was up for the first time in 4 sessions after tagging an afternoon high of $272.84. Near-term and lower resistance at $272.50-$273 was cleared but held. A close above the latter would signal a possible retest towards $274.50-$275 with last Thursday’s all-time peak at $274.98.
Current support is at $270.50-$270 with backup help at $268-$267.50.
RSI is back in an uptrend after clearing and holding lower resistance at 60-65. A close above 65 would indicate additional strength towards 70-75 with the latter representing the early July top. Support is at 55-50.
The Real Estate Select Sector Spider (XLRE) remains in an 11-session trading range after testing to a late day high of $36.28. Near-term and lower resistance at $36.25-$36.50 was cleared but held. A close above the latter would signal additional upside towards $36.75-$37.
Current support is at $35.75-$35.50 and the 200-day and 50-day moving averages.
RSI is in an uptrend with lower resistance at 55-60 getting cleared and holding. A move above the latter would indicate additional strength towards 65-70 and levels from early June. Support is at 50-45 with the latter holding since late May.
I have updated our current trades so let’s go check the tape.
Momentum Options Play List
Closed Momentum Options Trades for 2020: 27-8 (77%). 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, $30.18, down $0.02)
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 $30.51 before settling slightly down with lower resistance at $30.50-$30.75 getting breached but holding. Support remains at $29.75-$29.50.
Western Union (WU, $23.37, up $0.14)
WU September 26 calls (WU200918C00026000, $0.35, flat)
Entry Price: $0.50 (8/3/2020)
Exit Target: $1.00
Stop Target: None
Action: Shares tapped a high of $23.53 yesterday 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, $48.10, up $0.91)
CSCO August 50 calls (CSCO200821C00050000, $0.65, up $0.10)
Entry Price: $0.65 (7/21/2020)
Exit Target: $1.30
Stop Target: None
Action: Close the trade this morning to save the remaining premium. The company topped earnings estimates but was slightly lower in after-hours action. These options expire next Friday and I don’t think shares are going to clear $50 by then.
Viavi Solutions (VIAV, $14.15, down $0.29)
VIAV August 14 calls (VIAV200821C00014000, $0.45, down $0.35)
Entry Price: $0.60 (7/13/2020)
Exit Target: $1.20
Stop Target: 60 cents (Stop Limit)
Action: The calls traded up to 85 cents before fading and tripping our Stop Limit.
While disappointed, the chart looks good to come back and visit this trade if shares can clear and hold $15.