MomentumOptions.com Pre-Market Update for 8/26/2020
S&P 500/ Nasdaq Set Another Round of Record Highs
The market showed overall strength for the 4th-straight session on Tuesday following news that Chinese and U.S. negotiators spoke on the phone and agreed to push forward their phase one trade deal. Another round of better-than-expected housing numbers offset weak consumer confidence to power the S&P 500 and Nasdaq higher.
The Dow struggled following a reconstitution for 3 of its members with the small-caps holding positive territory in the final hour of action and into the closing bell. Meanwhile, volatility spiked on the open but held key levels of resistance to keep the overall bullish sentiment intact.
The Nasdaq rallied 0.8% following the late day run to 11,468 and fresh all-time high. Uncharted territory and lower resistance at 11,500-11,600 was approached but held. A close above the latter would indicate additional momentum towards 11,650-11,750.
The S&P 500 gained 0.4% after trading to a fresh all-time high of 3,444 ahead of the closing bell. New and lower resistance at 3,450-3,475 was challenged but held. A move above the latter keeps additional upside towards 3,500-3,525 in play.
The Russell 2000 added 0.2% while testing a session high of 1,574. Current and lower resistance at 1,570-1,585 was recovered. A close above the latter would signal further strength towards 1,600-1,615.
The Dow dipped 0.2% with the midday low reaching 28,094. Near-term and upper support at 28,250-28,000 was breached and failed to hold. A close below the latter would signal a further backtest towards 27,750-27,500.
Communication Services was the strongest sector after rising 0.9% while Healthcare and Technology rose 0.7% and 0.5%, respectively. Energy and Utilities were the weakest sectors with losses of 1.4% and 1%.
In economic news, FHFA House Price Index increased 0.9% to 289.9 in June after slipping -0.2% to 287.2 in May. The June print is now the record high, and the index is at a 5.7% year-over-year growth rate, versus the 4.9% clip from May. For Q2, prices rose 5.4% year-over-year, and have increased for 36 straight quarters. House prices rose in all 50 states and DC between Q2 2019 and Q2 2020, according to the report.
S&P Corelogic Case-Shiller Home Price Index rose 0.2% to 225.1 after rising 0.4% to 224.6 in May. The 12-month pace slipped to 3.5% year-over-year versus 3.6%, and has been in expansionary territory since May 2012. The composite 10-City index edged up 0.1% to 237 in June after the 0.2% rise in May to 236.7 previously. The 12-month pace slowed to 2.8% year-over-year versus May’s 3% rise. All of the 20-cities survey reported annual gains, led by Phoenix (9% year-over-year) and Seattle (6.5%), with Chicago bringing up the rear (0.6%).
New Home Sales jumped another 13.9% to 901,000 in July, topping forecasts for a print of 774,000, after the 15.1% surge in June to 791,000. Regionally, sales were higher in the West, South, and Midwest, with just the Northeast stumbling. The months’ supply fell to 4 from 4.6, the lowest since January 2013. The median sales price fell -1.9% to $330,600 after a 7.7% pop in June to $337,000. This left a 7.2% year-over-year rate, versus the 8.1% pace from June.
Consumer Confidence tumbled 6.9 points to a disappointing 84.8 in August, well below expectations for a reading of 93, and follows the -6.6 point pullback to 91.7 in July. The index is now at a 6-year low and below the 85.7 pandemic reading from April. The present situations index took the worst hit, falling to 84.2 from 95.9 last month. The expectations component slid to 85.2 from 88.9. The labor market differential dropped back into negative territory to -3.7 from 2.2. The 12-month inflation gauge eased to 6% from 6.1%.
Richmond Fed Manufacturing Index for August soared 8 points to 18 after rising 10 points to 10 in July. The shipments index slipped to 22 from 23. The employment component rebounded to 17 from the prior -3 print. New order volume advanced to 15 from 9. The prices paid component rose to 1.62% from 0.93%, while prices received nearly tripled to 1.43% from 0.45%. The 6-month business activity gauge dropped to 33 from 57, with employment easing to 23 from 28. The future order volume index plummeted to 13 from 29. Prices paid slipped to 1.91% from 1.97%, and prices received sank to 0.81% from 2.07%. Capex zoomed to 19 from 8.
The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 2nd-straight session following the intraday pullback to $163.83. Prior and upper support from last week at $164-$163.50 was tripped but held. A close below the latter would indicate additional weakness towards $163-$162.50.
Lowered resistance is at $165.50-$166 and the 50-day moving average.
The S&P 500 Volatility Index ($VIX) was down for the 3rd-straight session despite testing a midday peak of 23.43. Current and lower resistance at 23-23.50 was breached but held. A close above the latter reopens upside risk towards 24.50-25.
Near-term support remains at 21.50-21 followed by 20.50-20.
The Russell 2000 ETF (IWM) extended its winning streak to 2-straight sessions after tagging an opening high of $156.82. Lower resistance at $156.50-$157 was cleared but held. A move above the latter would be a bullish signal for a retest towards $159-$160 with the monthly peak at $159.82.
The intraday pullback to $154.79 breached but held near-term and upper support at $155-$154.50. A close below the $153.50 level and last Friday’s low at $153.60 would suggest additional pullback potential towards $152.50-$152.
RSI has flatlined with upper support at 60-55 holding. A close below 55 would suggest additional weakness towards 50-45 with the latter holding since mid-April. Resistance is at 65-70.
The Spider S&P Retail ETF (XRT) had its 2-session winning streak snapped following the intraday pullback to $52.05. Fresh and upper support at $52-$51.50 was challenged but held. A close below the latter would signal further weakness towards $50.50-$50.
Current resistance is at $53-$53.50 with Monday’s all-time high at $52.88. A close above the latter would be a bullish signal for a breakout towards $54.50-$55.
RSI is in a slight downtrend with key support at 70 holding. A move below the this level would signal additional weakness towards 65-60 with the latter holding since mid-July. Overbought resistance is at 75-80.
The Dow lagged following news of a reshuffling of 3 of its members with Exxon Mobil (XOM), Pfizer (PFE) and Raytheon Technologies (RTX) being replaced by Salesforce (CRM), Amgen (AMGN) and Honeywell International (HON).
The latter are higher priced stocks and will need to be added by the fund managers at some point. This was a catalyst that will provide much larger price swings down the road and could help the Dow back towards the 30,000 level with the all-time high at 29,568.
I have updated our current positions so let’s go check out the action.
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.
Bank of America (BAC, $26.00, up $0.31)
BAC September 26 calls (BAC200918C00026000, $0.75, up $0.10)
Entry Price: $0.75 (8/25/2020)
Exit Target: $1.50
Stop Target: None
Action: Shares traded to a morning high of $26.19 with prior and lower resistance at $26-$26.25 getting cleared and holding. Support is at $25.75-$25.50.
Rambus (RMBS, $13.48, up $0.20)
RMBS November 13 puts (RMBS201120P00013000, $0.90, down $0.05)
Entry Price: $0.90 (8/21/2020)
Exit Target: $1.80
Stop Target: None
Action: Lowered resistance at $13.50-$13.75 was tripped but held on the rebound to $13.53 yesterday with more important hurdles at $14 and the 200-day moving average. Support is at $13.25-$13.
Advanced Micro Devices (AMD, $86.35, up $3.27)
AMD September 90 calls (AMD200918C00090000, $3.00, up $1.35)
Entry Price: $2.20 (8/21/2020)
Exit Target: $3.30-$4.40
Stop Target: $1.10, raise to $2.45 (Stop Limit)
Action: Raise the Stop Target from $1.10 to $2.45 and make it a Stop Limit to start protecting profits and to avoid a loss.
Shares soared to a high of $86.62 with prior and lower resistance at $86.50-$87 getting cleared but holding. A close above the latter could signal a retest towards $87.50-$88 with this month’s all-time peak at $87.29. Support is at $85.50-$85.
Consumer Staples Select Spiders (XLP, $64.71, down $0.14)
XLP September 65 calls (XLP200918C00065000, $0.75, down $0.05)
Entry Price: $0.85 (8/17/2020)
Exit Target: $1.70
Stop Target: None
Action: Upper support at $64.50-$64 was breached but held on the fade to $64.43 yesterday. Resistance is at $65-$65.50 with the all-time high at $65.05.
AT&T (T, 29.90, down $0.12)
T September 31 calls (T200918C00031000, $0.20, down $0.05)
Entry Price: $0.50 (8/10/2020)
Exit Target: $1.00
Stop Target: None
Action: Shares tested a low of $29.83 with upper support at $29.75-$29.50 holding. Resistance remains at $30-$30.25 and the 50-day moving average.