MomentumOptions.com Pre-Market Update for 8/31/2020

Bulls Sailing Thru August

8:00am (EST) 

The market showed  showed overall strength for the 6th-straight session on Friday following a slew of economic news that was mostly positive. The gains come ahead of the last trading day of the month on Monday with the 3 major indexes up 8%, on average, for August. The small-caps are up over 6% for the month but still down the same amount for the year. 

The Dow recovered positive territory for the year with the S&P notching its 6th-straight record close and the Nasdaq recording its 40th record close for 2020. Meanwhile, volatility simmered after closing lower and holding key resistance for the 2nd-straight session while giving a neutral reading heading into the new week.

The Russell 2000 rallied 0.9% while settling on the session peak of 1,573. Current and lower resistance at 1,570-1,585 was cleared and held. A move above the latter would suggest a retest towards 1,600-1,615. Below is a chart of the IWM.

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The S&P 500 was up for the 7th-straight session after advancing 0.7% and trading to a lifetime high of 3,509. Current and lower resistance at 3,500-3,525 was breached and held. A close above the latter would indicate additional momentum towards 3,550-3,575.

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The Dow extended its winning streak to 3-straight sessions after rising 0.6% with the afternoon peak reaching 28,733. Prior and lower resistance from late January at 28,500-28,750 was recovered. A close above the latter would signal further strength towards 29,000-29,250 with the all-time high from February at 29,568.

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The Nasdaq also rose 0.6% with the intraday high reaching 11,708. Near-term and lower resistance at 11,650-11,750 was cleared for the 3rd-straight session and held. A close above the latter and Thursday’s all-time high at 11,730 would signal additional momentum towards the 11,900-12,000 area.

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For the week, the Nasdaq was surged 3.4% and the S&P 500 soared 3.3%. The Dow gained 2.6% and the Russell 2000 added 1.7%.

Energy and Materials were sector standouts with gains of 1.8% and 1.2%, respectively. There were no sector laggards.

Over the past 5 sessions, Technology (+4.8%) and Communication Services (+3.9%) were the strongest sectors. Utilities (-0.7%) were the only sector laggard.

In economic news, Chicago PMI dipped 0.7 points to 51.2 to in August versus forecasts of 51.8, after surging 15.3 points to 51.9 in July. The 3-month moving average rose to 46.6 from 40.3. While the headline slippage was a little disappointing, the index remained in expansionary territory (above 50) for the 2nd-straight month after 12 months in contraction.

Advance goods trade deficit deepened to -$79.3 billion in July, and the biggest since December 2018, after narrowing to -$71 billion in June. Exports climbed 11.8% to $115 billion after bouncing 14.3% to $102.9 billion previously, while imports also rose 11.8% to $194.3 billion following the 5.1% jump in June to $173.8 billion. Advance wholesale inventories dipped -0.1% in July to $633.7 billion following the -1.3% slide to $634.4 billion in June, while retail inventories rebounded 1.2% to $594.7 billion after June’s -2.7% drop to $587.8 billion.

Personal Income rose 0.4% in July, while spending climbed 1.9%. The -1.1% slip in income in June was revised to -1% while spending was bumped up to 6.2% from 5.6%. Compensation increased 1.3% in July versus June’s 2.2% gain, while wages and salaries were up 1.4% from 2.1%. Disposable income edged up 0.2% after the previous -1.3% drop. The savings rate dipped to 17.8% from 19.2%. The PCE chain price index showed a slowing to 0.3% from 0.5%. The core rate was steady at 0.3% versus 0.2% in June. The 12-month clip rose to a 1% year-over-year pace from 0.9%, and the core rate was up at a 1.3% year-over-year clip from 1.1% preciously.

Consumer Sentiment for August bounced to 74.1 versus expectations of 72.8 and the preliminary reading. Most of the strength was in the expectations index which climbed to 68.5 from 65.9 in July. The current conditions index edged up to 82.9 versus July’s 82.8. The 12-month inflation gauge rose to 3.1% versus 3% in July. The 5-year index edged up to 2.7% from 2.6% in July, and ties for the highest reading going back to early 2016.

Baker-Hughes reported the U.S. rig count was unchanged at 254 with oil rigs down 3 to 180, gas rigs up 3 to 72, and miscellaneous rigs unchanged at 2. The U.S. Rig Count is down 650 rigs from last year’s count of 904, with oil rigs down 562, gas rigs down 90, and miscellaneous rigs unchanged at 2. The U.S. Offshore Rig Count was unchanged at 13 and down 13 year-over-year.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its losing streak to 5-straight sessions following the afternoon fade to $160.64. Prior and upper support from mid-June at $161-$160.50 was breached but held. A close below the $160 level would be an ongoing bearish signal with additional weakness towards $159-$158.50.

Lowered resistance is at $161.50-$162 followed by $163-$163.50. 

RSI remains in a downtrend with key support and the early June low at 30 holding. A close below this level would signal a continued backtest towards 25 and the low from October 2018. Resistance is at 35-40.

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The S&P 500 Volatility Index ($VIX) fell for the first time in 3 sessions after trading to a 2nd half low of 22.64. Current and upper support at 23-22.50 was reclaimed. There are additional recovery levels at 22-21.50 followed by 20.50-20.

Resistance is at 25.50-26 and the 50-day moving average followed by 27.50-28 and the 200-day moving average.

RSI is back in a slight downtrend with upper support at 45-40 holding. Resistance is at 50-55 and the latter holding since mid-June.

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The Spiders Dow Jones Industrial Average ETF (DIA) was up for the 3rd-straight session and for the 6th time in 7 after reaching an intraday peak of $287.45. Lower resistance from mid-January at $287-$287.50 was tripped but held. A move above the latter would indicate additional momentum towards $288.50-$289.

Current and rising support is at $285-$284.50 with backup help at $282.50-$282.

RSI remains in an uptrend with key resistance and the early June high at 75 getting cleared and holding. Continued closes above this level would signal a run toward 80 and overbought territory from November 2019. Support is at 70-65.

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The Materials Select Sector (XLB) was up for the 2nd time in 3 sessions with the late day and all-time high reaching $64.03. Uncharted territory and lower resistance at $64-$64.50 was cleared but held. A close above the latter would be an ongoing bullish signal for a run towards $65.50-$66.

Rising support is at $63.50-$63 followed by $62-$61.50.

RSI is back in an uptrend with key resistance and the July high at 70 holding. A close above this level would suggest additional strength towards 75 and the early June peak. Support is at 65-60.

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The percentage of Nasdaq 100 stocks trading above the 50-day moving closed at 80.58% on Friday, up 0.97%. Near-term and lower resistance at 80%-82.5% was cleared and held. A move above the latter would indicate a retest towards 87.5%-90% and overbought levels from late June/ early July. Support is at 77.5%-75%.

The percentage of S&P 500 stocks trading above the 200-day moving average settled at 62.05%, up 0.99%. Current and lower resistance at 62.50%-65% was challenged but held. A close above 63.50% and the monthly high would be a bullish signal for a run towards 67.5%-70%. This area represents the gap lower from late February. Support is at 60%-57.5%.

I have updated our current trades so please make adjustments to start protecting profits. 

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, $26.30, up $0.25)

BAC September 26 calls (BAC200918C00026000, $0.95, up $0.10)

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

Exit Target: $1.50

Return: 27%

Stop Target: 78 cents (Stop Limit)

Action: Set an initial Stop Limit at 78 cents to protect profits and to avoid a loss.

Friday’s high tapped $26.47 with lower resistance at $26.25-$26.50 getting cleared and holding. Rising support is at $26-$25.75.

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Rambus (RMBS, $13.66, up $0.39)

RMBS November 13 puts (RMBS201120P00013000, $0.85, down $0.10)

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

Exit Target: $1.80

Return: -6%

Stop Target: None

Action: Lower resistance at $13.50-$13.75 was recovered on Friday’s closing high. Support remains at $13.25-$13.

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Consumer Staples Select Spiders (XLP, $65.77, up $0.58)

XLP September 65 calls (XLP200918C00065000, $1.25, up $0.15)

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

Exit Target: $1.70

Return: 47%

Stop Target: None

Action: Shares traded to a new all-time high $65.81 with fresh and lower resistance at $65.75-$66.25 getting breached and holding. Rising support is at $65.25-$64.75.

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AT&T (T, $30.04, up $0.14)

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: Lower resistance at $30-$30.25 was recovered on the run to $30.08. Support remains at $29.75-$29.50 and the 50-day moving average 

Shares were pushing $31 in after-hours on a report the company is again exploring a deal for its DirecTV business.

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