MomentumOptions.com Pre-Market Update for 8/27/2020

Bulls Stay Strong Ahead of Fed Update

8:00am (EST)   

The market  tentative on Wednesday ahead of Fed Chair Powell’s speech from the Jackson Hole symposium on Thursday. Powell’s speech on the U.S. central bank’s policy framework review could signal a shift in the Fed’s inflation target to an average, which would allow inflation to rise more quickly than in the past. 

While there is increasing chatter that his speech may fall short of the very dovish expectations priced in by the market, the major indexes managed to settle mostly higher with the broader market and Tech setting another round of record highs.

The Nasdaq extended its winning streak to 5-straight sessions after advancing 1.7% with the late day and new all-time high tagging 11,672. Fresh and lower resistance at 11,650-11,750 was breached and held. A close above the latter would signal additional momentum towards the 11,850-11,950 area. 

The S&P 500 was also up for the 5th-straight session after rallying 1% while testing another record high of 3,481. Unchartered territory and lower resistance at 3,475-3,500 was cleared and held. A move above the latter would indicate additional strength towards 3,525-3,550.

The Dow gained 0.3% after trading in a 200-point range with the afternoon peak reaching 28,353. Current and lower resistance at 28,250-28,500 was cleared and held. A close above the latter would indicate further strength towards 28,750-29,000 and levels from mid-February.

The Russell 2000 had its 2-session winning streak after slumping 0.7% while settling on the session low of 1,560. Current and upper support at 1,565-1,550 failed to hold. A close below the latter would suggest further weakness towards 1,540-1,525.

Communication Services led sector strength for the 2nd-straight session after zooming 3.4% while Technology and Materials surged 2% and 1.1%, respectively. Energy and Utilities paced sector laggards after falling 2.1% and 1.1%.

In economic news, MBA Mortgage Applications dropped -6.5% following a -3.3% declin in the prior week. All of the weakness for the current reading was in refis where the index declined -10.2% after the prior -5.3% slide. The purchase index edged up 0.4% after rising 0.8% previously. On a 12-month basis, the market index was little changed at 34% year-over-year versus 34.2% in the prior week. The refi index slowed to a 34.5% year-over-year clip versus 38.3% previously. The applications index edged up to 33.1% versus 27.2%. The 30-year fixed rate inched lower to 3.11%, and remains just off the record low of 3.06% set from the first week of August. The 5-year ARM increased to 3.14% versus 2.95% last week.

Durable Goods Orders rose 11.2% in July, almost triple expectations for a rise of 4.3%, following an upwardly revised 7.7% gain in June. Transportation orders jumped 35.6% from a 19.7% pop in June after surging 78.8% in May. Excluding transportation, orders rose 2.4% from a prior 4% gain. Nondefense capital goods orders excluding aircraft were up 1.9% versus June’s 4.3% increase. Durable shipments extended 7.3% higher after June’s 15.2% jump. Nondefense capital goods shipments ex-aircraft increased 2.4% following the 3.8% advance in June. Inventories declined -0.5% following a -0.1% dip in June. The inventory-shipment ratio fell to 1.73 from 1.87.

In Fed news, Kansas City Fed President Esther George said the recession that began in February could revisit the economy if the coronavirus pandemic intensifies. She said an important risk to that outlook is thinking about what happens as we come into the fall, whether we see any resurgence in the virus that would cause an additional pullback in the economy. monitor that carefully to see whether that plays out. However, she said the baseline is we will continue to see the economy improve and she did not commit to any further policy actions from the Fed.

George added financial conditions are very accommodative. We have low rates, and we still have capacity in those credit facilities. She thinks it’s too soon to try to speculate on whatever else might be needed, other than to say the Federal Reserve is going to be very vigilant on that and be prepared to respond if they would have to.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its losing streak to 3-straight sessions with the morning low tapping $163.28. Prior and upper support at $163.50-$163 was breached but held. A close below the latter and the mid-month low at $163.16 would indicate additional weakness towards $162.50-$162.

Lowered resistance is at $164.50-$165 followed by $166 and the 50-day moving average.

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The S&P 500 Volatility Index ($VIX) snapped a 3-session slide despite tapping a first half low of 20.92. Near-term and upper support at 21.50-21 was breached but held with more important recovery levels at 20.50-20.

The bounce to 23.27 n the final hour of trading failed to hold current and lower resistance at 23-23.50. A close above the latter reopens upside towards 24.50-25. 

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The S&P 400 Mid Cap Index ($MID) was down for the 2nd-straight session following the intraday backtest to 1,925. Current and upper support at 1,925-1,900 was kissed but held. A drop below the latter would suggest additional weakness towards 1,875-1,850 and the 50-day moving average.

Resistance is at 1,950-1,975. A close above the latter and the monthly peak would be a renewed bullish signal with retest potential towards 2,000-2,025 and levels from late February. A golden cross remains in play with the 50-day moving average clearing the 200-day moving average earlier this month. This is typically a bullish signal for higher highs.

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

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The Communication Services Select Sector Spider (XLC) extended its winning streak to 3-straight sessions after tapping a new all-time high of $64.26 ahead of the closing bell. Fresh and lower resistance at $64-$64.50 was cleared and held. A close above the latter would be an ongoing bullish signal for blue-sky upside towards $65.50-$66.

Rising support is at $62.50-$62 followed by $61-$60.50.

RSI is remains in a strong uptrend but overbought territory with key resistance at 75 getting cleared and holding. Continued closes above this level would indicate additional strength towards 80-85 and levels from April 2019. Support is at 70.

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I have updated our current trades so let’s go check the tape.

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, $26.56, down $0.44)

BAC September 26 calls (BAC200918C00026000, $0.60, down $0.15)

Entry Price: $0.75 (8/25/2020)

Exit Target: $1.50

Return: -20%

Stop Target: None

Action: Shares traded to a low of $25.54 with upper support at $25.75-$25.50 getting breached and failing to hold. Resistance is at $26-$26.25.

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Rambus (RMBS, $13.44, down $0.04)

RMBS November 13 puts (RMBS201120P00013000, $0.90, flat)

Entry Price: $0.90 (8/21/2020)

Exit Target: $1.80

Return: 0%

Stop Target: None

Action: Current and upper support at $13.25-$13 easily held on the backtest to $13.41. Resistance remains at $13.50-$13.75. 

I would like to see a close below $13.25 ahead of the weekend as the technical setup still shows lower lows with a death cross still in play.

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Advanced Micro Devices (AMD, $86.02, down $0.33)

AMD September 90 calls (AMD200918C00090000, $2.80, down $0.20)

Entry Price: $2.20 (8/21/2020)

Exit Target: $3.30-$4.40

Return: 28%

Stop Target: $2.45 (Stop Limit)

Action: Shares soared to a fresh all-time high of high of $87.72 before fading. New resistance at $87.50-$88 was cleared but held. Upper support at $85.50-$85 held on the drop to $85.50 afterwards.

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Consumer Staples Select Spiders (XLP, $64.79, up $0.08)

XLP September 65 calls (XLP200918C00065000, $0.80, up $0.05)

Entry Price: $0.85 (8/17/2020)

Exit Target: $1.70

Return: -7%

Stop Target: None

Action: Upper support at $64.50-$64 was breached but held on the fade to $64.28 yesterday. The rebound to $64.88 challenged but failed lower resistance at $65-$65.50.

I would like to see a close above the all-time high at $65.05 by today or Friday’s close.

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AT&T (T, 29.99, up $0.09)

T September 31 calls (T200918C00031000, $0.20, flat)

Entry Price: $0.50 (8/10/2020)

Exit Target: $1.00

Return: -60%

Stop Target: None

Action: Resistance at $30-$30.25 was cracked but held on the late day recovery to $30.12. Support remains at $29.75-$29.50 and the 50-day moving average.

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