MomentumOptions.com Pre-Market Update for 8/17/2020
Bulls Get Weekly Win Despite Friday’s Flat Action
The market traded in tight ranges on Friday before settling mostly lower after Congress failed to agree on the next round of coronavirus aid before taking a few weeks off. A bevy of economic news also weighed on sentiment as did the delay of the review of the phase 1 trade deal between the U.S. and China.
The meeting was initially slated for the weekend but was delayed due to scheduling issues with no new date being set. Despite the choppiness, the S&P 500 and the Nasdaq closed higher for the 4th-straight week while the Dow and Russell 2000 were up for the 3rd-straight week.
The Dow nudged up 0.1% despite testing a morning low of 27,759. Near-term and upper support at 27,850-27,750 was breached but held for the 3rd-straight session. A move below the latter would indicate a further pullback towards 27,600-27,500.
The Nasdaq had its 2-session winning streak snapped after slipping 0.2% with the intraday low tapping 10,972. Current and upper support at 11,000-10,900 was clipped but held. A close below the latter would suggest additional weakness towards 10,850-10,750.
The Russell 2000 was off 0.1% following the opening fade to 1,567. Upper support at 1,575-1,560 was breached but stuck for the 2nd-straight session. A drop below the latter reopens further weakness towards 1,550-1,535. Below is a chart of the IWM.
The S&P 500 dipped a half-point, or 0.02%, with the afternoon low reaching 3,361. Key and upper support at 3,375-3,350 failed to hold with a move below the latter would signaling a further backtest towards 3,325-3,300.
For the week, the Dow jumped 1.8% and the S&P 500 rose 0.6%. The Russell 2000 also added 0.6% while the Nasdaq edged up 8 points, or nearły 0.1%.
Energy was the strongest sector after rising 1% while Financials and Industrials were up 0.4%. Utilities and Healthcare paced sector weakness after giving back 0.9% and 0.2%. respectively.
Over the past 5 sessions, Industrials (3.2%); Energy (2.7%) and Consumer Discretionary (2.3%) were the strongest sectors. Utilities and Real Estate (-1.8%), and Communication Services (-0.2%) were the only sector laggards.
In economic news, Retail Sales increased 1.2% for July and were up 1.9% excluding autos. The former is a little weaker than expectations of 1.5%, while the latter was a tad stronger by 0.1%. Those follow upwardly revised June surges of 8.4% and 8.3% respectively. Sales excluding autos, gas, and building materials surged 1.9% versus the prior 8.5% jump. Vehicle sales declined -1.2% after rising 9.1% in June. Gas station sales were up another 6.2% following June’s 14.8% increase while clothing sales climbed 5.7% after June’s 98.8% surge. Electronics shot up 22.9% from 3.6%. Furniture sales were flat after a 37.4% gain. Building materials declined -2.9% from the prior 0.8% increase while food/beverage sales edged up 0.2% from -1.5%. Eating, drinking sales increased 5% following June’s 26.7% gain and sporting good sales dropped -5% after rising 27.6%.
Industrial Production rose 3% in July, matching expectations, and follows June’s 5.7% increase. Capacity utilization rose to 70.6% after improving to 68.5% in June. Manufacturing production was up 3.4% from 7.4%, with vehicle production climbing 28.3% from June’s 118.3% pop. Excluding vehicles/parts, production was up 1.6% versus 3.7%. Machinery production increased 1.4% from 4.6% while computer and electronics production edged up 0.7% from 4.8%. Utilities were climbed 3.3% from 2 and mining bounced back 0.8% from -0.3%.
Q2 Nonfarm Productivity surged at a 7.3% rate, rebounding from the -0.3% contraction in Q1. Unit labor costs surged 12.2% last quarter following a 9.8% Q1 gain while output contracted -43% from -6.1%. Employee hours plunged -43% from -6.1% previously. Real compensation climbed 24.8% after 8.1% in Q1 while the price deflator was down -3.6% from 0.8%.
Business Inventories declined -1.1% in June from -2.3% in May. Forecasts were for a fall of -1.2% and represented the 6th-straight decline in inventories. Sales climbed another 8.4% after rising 8.5% in May. The strength in sales saw the inventory-sales ratio drop back to 1.37 from 1.53.
Consumer Sentiment nudged up 0.3 to 72.8 in the preliminary August reading, topping expectations for a reading of 71.9, after slipping 5.6 points to 72.5 in July. Weakness was in the current conditions index which slipped to 82.5 from 82.8. The expectations index was up to 66.5 from 65.9. The 12-month inflation gauge for August was steady at 3% for a 3rd-straight month and the 5-year index rose to 2.7% from July’s 2.6%.
Baker-Hughes reported the U.S. rig count was down 3 at 244 with oil rigs lower by 4 to 172, gas rigs up 1 to 70, and miscellaneous rigs unchanged at 2. The U.S. Rig Count is down 691 rigs from last year’s count of 935, with oil rigs dropping 598, gas rigs declining 95, and miscellaneous rigs unchanged at 2. The U.S. Offshore Rig Count was up 1 to 13 and down 14 year-over-year.
The iShares 20+ Year Treasury Bond ETF (TLT) extended its losing streak to 6-straight sessions after trading to a late day low of $163.16. Current and upper support from early July at $163.50-$163 failed to hold. A move below the latter would be an ongoing bearish signal with further weakness towards $162.50-$162.
Resistance remains at $164.50-$165 and the 50-day moving average.
RSI is in a downtrend but is showing signs of bottoming with upper support at 35-30 holding and the latter representing the early June low. Resistance is at 40.
The S&P 500 Volatility Index ($VIX) fell for the 3rd-straight session and for the 10th time over the past 11 despite tapping an opening high of 23.55. Current and lower resistance at 23.50-24 was breached but held. A close above the 25 level would be a slightly bearish development with upside potential towards 27.50-28 and the 200-day and 50-day moving averages.
Current and upper support at 21.50-21 was breached but held for the 2nd-straight session following the fade to 21.79 afterwards. A close below the 20 level would signal continued strength for the market with additional pullback potential towards 17.50-17 and levels from late February.
RSI is trying to level out with longer-term support at 35 holding. Resistance is at 40-45.
The S&P 400 Mid Cap Index ($MID) traded in an 18-point range with the session low at 1,941. Current and upper support at 1,950-1,925 failed to hold. A close below the latter would suggest additional weakness towards 1,900-1,875.
Resistance is at 1,975-2,000. A close above the latter would be a renewed bullish signal with retest potential towards 2,025-2,050 and levels from late February. A golden cross has officially formed with the 50-day moving average clearing the 200-day moving average. This is typically a bullish signal for higher highs.
RSI is back in a slight downtrend after failing key resistance at 70. A close above the latter would signaling additional strength towards 75 and the early June peak. Support is at 65-60.
The Spider Gold Shares (GLD) fell for the 5th time in 6 sessions after testing an intraday low of $181.49. Fresh support at $181.50-$181 was tripped but held. A close below the $179.50 level and last week’s low at $179.43 would be an ongoing bearish signal with additional pullback potential towards $177.50-$176.
Resistance is at $183.50-$184. A close above the $185 level would be a bullish signal with upside gap and retest potential towards $187.50-$190.
RSI is shaky with support at 50-45. A close below the latter and the early June low would signal possible weakness towards 35-30 and levels from mid-March. Resistance is at 60-65.
The percentage of Nasdaq 100 stocks trading above the 50-day moving
closed at 69.93% on Friday, down 1.94%. Upper support at 70%-67.5% was was breached and failed to hold. 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 59.48%, unchanged. Current and lower resistance at 60%-62.5% was breached but held. A close above the latter would signal additional strength towards 65%-67.5% and levels from mid-February. Support is at 57.5%-55%.
The charts for the major indexes show recent golden crosses forming in the Dow and the Russell 2000. These are bullish signals for higher highs and what we have seen with the Nasdaq and the S&P 500. Although slightly oversold conditions are in play for the latter 2 indexes, it will be interesting to see if the blue-chips and small-caps can expand on their momentum from this bullish technical development.
With earning season winding down, the massive price swings we have seen in individual stocks will start to slow as Wall Street awaits October until Q3 season gets underway. This leaves the rest of August and September more vulnerable to economic and political news.
We are still waiting to see if the volatility can clear and hold the 20 level to confirm another leg higher for the market. Last week’s low kissed 20.28 with Friday’s close at 22. If the 20 level isn’t cleared and held, then the market could be setting up for some near-term weakness with the $VIX possible moving back up near prior resistance levels in the 25-28 range.
Another new deal for a stimulus package could provide some additional upside but Wall Street is more eager for a vaccine cure for the coronavirus. The continued delay in both of these events could also produce a trading range with slightly lower lows, or highs, with the action in the $VIX likely providing the best signal for market direction.
On that note, I could have a new trade today so stay locked-and-loaded.
Momentum Options Play List
Closed Momentum Options Trades for 2020: 28-9 (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, $30.01, up $0.10)
T September 31 calls (T200918C00031000, $0.35, flat)
Entry Price: $0.50 (8/10/2020)
Exit Target: $1.00
Stop Target: None
Action: Shares traded to a high of $30.15 with lower resistance at $30-$30.25 getting cleared and holding on the close back above the 50-day moving average. Support is at $29.75-$29.50.
Western Union (WU, $23.64, up $0.20)
WU September 26 calls (WU200918C00026000, $0.35, flat)
Entry Price: $0.50 (8/3/2020)
Exit Target: $1.00
Stop Target: None
Action: Close the trade today to save the remaining premium. The 50-day moving average is showing signs of rolling over and we can reenter the trade when it is showing more momentum.