MomentumOptions.com Pre-Market Update for 8/28/2020
Fed Fuels Continued Momentum/ Profit Alert (AMD)
The market showed mostly closed higher on news from a major drug company on its rapid 5-minute coronavirus test while the Federal Reserve provided an update on its inflation policy. The gains helped push the Nasdaq and S&P 500 tag another round of all-time highs with the Dow briefly trading back in positive territory for the year.
The Russell 2000 rebounded but continues to struggle with near-term resistance and remains in negative territory for the year, along with the Dow. Meanwhile, volatility spike to its highest level this month but held key resistance levels into the closing bell.
The Dow was up for the 2nd-straight session and for the 5th time in 6 after climbing 0.6% with the afternoon peak reaching 28,634. Prior and lower resistance from late January at 28,500-28,750 was cleared but held by 8 points. A close above the latter would indicate further strength towards 29,000-29,250 with the all-time high at 29,568.
The Russell 2000 closed higher for the 3rd time in 4 sessions after adding 0.3% while topping out at 1,573 shortly after the open. Current and lower resistance at 1,570-1,585 was breached but held. A move above the latter would suggest another run towards 1,600-1,615.
The S&P 500 extended its winning streak to 6th-straight sessions after nudging up 0.2% and testing a lifetime high of 3,501. New and lower resistance at 3,500-3,525 was cleared but held. A pop above the latter would indicate additional upside towards 3,550-3,575.
The Nasdaq slipped 0.3% to snap a 5-session winning streak despite the intraday and record peak reaching 11,730. Unchartered territory and lower resistance at 11,700-11,800 was cleared but held. A close above the latter would signal additional momentum towards 11,900-12,000 while a close below 11,500 would signal a possible near-term top.
Financials were the strongest sector after soaring 1.7% while Real Estate and Healthcare advanced 1.3% and 0.8%, respectively. Communication Services paced sector laggards after sinking 1.2% while Consumer Discretionary and Materials were down 0.5% and 0.3% to round out the losers.
In economic news, Initial Jobless Claims dropped -98,000 to 1,006,000 after rising 133,000 to 1,106,000 in the prior week. Expectations were at 987,000. This pushed the 4-week moving average down to 1,068,000 versus 1,175,250 previously. Seasonally adjusted claims contracted -68,000 to 821,600 after rising 50,800 previously. Continuing claims declined -233,000 to 14,535,000 following the -722,000 plunge to 14,758,000 in the prior week.
Q2 GDP was revised up to a -31.7% growth rate versus expectations of -32.9% and the contraction rate posted in the Advance report. Personal income was down -34.1% versus the prior Q2 -34.6% reading. Business fixed investment fell at a -26% rate compared to -27% previously. Residential investment dropped at a -37.9% rate versus -38.7%. Exports slide at a -63.2% clip, fractionally better than the prior -64.1% print, while imports were revised lower to a -54.0% clip from -53.4%. Net exports added 0.90% to GDP while inventories subtracted -3.46%. Government purchases were bumped up to a 2.8% pace from 2.7%. The chain price deflator was down -2% versus -1.8%, with the core rate at -1% versus -1.1%.
Pending Home Sales Index rose 5.9% to 122.1 in July after surging 15.4% to 115.3 in June. This represents the highest level since October 2005, as the index has bounced off of its 69 record low from April. The index is up 15.4% year-over-year versus the 11.8% pace in June.
Kansas City Fed Manufacturing Index checked in at 14 versus forecasts for a print of 2.
The iShares 20+ Year Treasury Bond ETF (TLT) was down for the 4th-straight session after testing a late day low of $161.16. Prior and upper support from late June at $161.50-$161 failed to hold. A close below the latter would indicate additional weakness towards $160-$159.50.
Lowered resistance is at $162-$162.50 followed by $164.50-$165.
The S&P 500 Volatility Index ($VIX) was up for the 2nd-straight session after zooming to a midday and monthly peak of 27.09. Prior and lower resistance at 27-27.50 was breached but held. A close above 28 and the 200-day moving average would be a bearish signal for the market and indicate further upside towards 29.50-30.
New support at 23.50-23 followed by 22.50-22.
The Spider Small-Cap 600 ETF (SLY) showed strength for the 3rd time in 4 sessions after trading to a morning high of $64.81. Current and lower resistance at $64.50-$65 was cleared but held. A close above the latter would indicate a retest towards $66.50-$67 with the monthly peak at $66.59.
Support is at $64-$63.50. A close below the latter would be a slightly bearish development with additional pullback potential towards $62.50-$62.
RSI is in a slight uptrend with key resistance at 60 holding. Continued closes above this level would signal strength towards 65-70 with the latter representing the monthly top. Support is at 55-50.
The Utilities Select Spider (XLU) was up for the 1st time in 3 sessions following the intraday rebound to $59.31. Near-term and lower resistance at $59-$59.50 and the 50-day moving average were cleared but levels that held. A close above the latter would be a bullish signal for a retest towards $60-$60.50 and the 200-day moving average.
Current support is at $58.50-$58. A move below the latter would suggest additional weakness towards $57-$56.50 and levels from mid-July.
RSI is trying to curl higher with resistance at 45-50 holding. A move above the latter would indicate additional strength towards 55-60. Support is at 40-35.
The major indexes remain in slightly overbought conditions and the return of volatility could be an early warning signal of a near-term market top. The Friday closes have been up on 3 of the past 4 Monday’s with follow thru for 4-straight Monday’s. This means cash has been moving into the market.
When this trend reverses and we start to see lower Friday/ Monday closes, it means cash is moving to the sidelines. This would also signal a pullback over the near-term. The good news is the technical setups remain super bullish and a little profit taking would be healthy for higher highs down the road.
We can use short-term puts if there is a pullback, or wait to see if key support levels hold. With the portfolio light snd another Profit Alert, we can be very nimble and see how the action unfolds.
Momentum Options Play List
Closed Momentum Options Trades for 2020: 29-9 (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, $26.05, up $0.49)
BAC September 26 calls (BAC200918C00026000, $0.85, up $0.25)
Entry Price: $0.75 (8/25/2020)
Exit Target: $1.50
Stop Target: None
Action: Lower resistance at $26-$26.25 was recovered on the rebound to $26.22. Support remains at $25.75-$25.50.
Rambus (RMBS, $13.27, down $0.17)
RMBS November 13 puts (RMBS201120P00013000, $0.95, up $0.05)
Entry Price: $0.90 (8/21/2020)
Exit Target: $1.80
Stop Target: None
Action: Thursday’s low kissed $13.20 with prior and upper support at $13.25-$13 getting breached but holding. Resistance remains at $13.50-$13.75.
Advanced Micro Devices (AMD, $83.80, down $2.22)
AMD September 90 calls (AMD200918C00090000, $2.10, down $0.70)
Entry Price: $2.20 (8/21/2020)
Exit Target: $3.30-$4.40
Stop Target: $2.45 (Stop Limit)
Action: The options peak at $2.92 before the Stop Limit at $2.45 triggered on the pullback to $82.94 yesterday.
While disappointed we didn’t get more out of this trade, we can come back to AMD when shares clear and hold the $87.50 level. I would love to see a continued pullback towards $80 and a level that holds afterwards for a few sessions.
Consumer Staples Select Spiders (XLP, $65.19, up $0.40)
XLP September 65 calls (XLP200918C00065000, $1.10, up $0.30)
Entry Price: $0.85 (8/17/2020)
Exit Target: $1.70
Stop Target: None
Action: Shares traded up to $65.50 and new all-time high with fresh and lower resistance at $65.50-$66 getting tapped but holding. Rising support at $65-$64.50.
AT&T (T, 29.90, down $0.09)
T September 31 calls (T200918C00031000, $0.20, flat)
Entry Price: $0.50 (8/10/2020)
Exit Target: $1.00
Stop Target: None
Action: Upper support at $29.75-$29.50 and the 50-day moving average held on the fade to $29.82 yesterday. Resistance is at $30-$30.25.