MomentumOptions.com Pre-Market Update for 9/2/2020

Bulls Stay Strong as Nasdaq Approaches 12,000/ Trade Alert (T)

8:00am (EST) 

The market showed continued strength on Tuesday following blowout earnings from the Tech sector and mostly upbeat economic news. The gains lifted the Nasdaq and S&P 500 to another round of lifetime highs while keeping the blue-chips and small-caps in tight trading ranges.

The Nasdaq extended its winning streak to 3-straight sessions after rising 1.4% with the 2nd half and new all-time high tagging 11,945. Fresh and lower resistance at 11,900-12,000 was cleared and held. A close above the latter would signal additional momentum towards the 12,100-12,200 area.

The Russell 2000 added 1.1% but remains in a 7-session trading range after closing on the session high of 1,578. Current and lower resistance at 1,570-1,585 was recovered. A move above the latter would suggest another run towards 1,600-1,615.

The S&P 500 rebounded 0.8% to close higher for the 8th time in 9 sessions with the late day record peak reaching 3,528. Unchartered territory and lower resistance at 3,525-3,550 was cleared and held. A move above the latter would indicate additional strength towards 3,575-3,600.

The Dow also gained 0.8% after trading to an afternoon high of 28,659. Current and lower resistance at 28,500-28,750 was reclaimed. A close above the latter would indicate further upside towards 29,000-29,250 and levels from mid-February.

Materials and Technology were sector standouts after jumping 2.9 and 1.9%.

Utilities and Healthcare paced sector laggards after dropping 1.2% and 0.9%, respectively.

In economic news, ISM Manufacturing Index rose 1.8 points to 56 in August, versus forecasts of 54.5, and follows the 1.6 point increase in July. The employment component edged up to 46.4 from 44.3 while new orders jumped to 67.6 from 61.5. New export orders increased to 53.3 from 50.4 last month. Imports climbed to 55.6 from 53.1 while inventories fell to 44.4 from 47. Prices paid rose to 59.5 from 53.2.

Markit PMI checked in at 53.1 in the final August report, rising 2.2 points from July’s 50.9, and below forecasts for a print of 53.6. However, it was the highest reading since January 2019. The employment component increased and hit its highest since November. New orders climbed to 54.1 from July’s 51.3 and the 2nd-straight month of expansion.

Construction Spending inched up 0.1% in July, below expectations for a rise of 1%, but breaks a string of four consecutive month’s of declines. Strength was in residential construction spending which increased 2.1% following June’s -0.6% slide. Spending on nonresidential construction projects declined -1.12% after slipping -0.4% in June. Private construction spending increased 0.6% after falling -0.3%. Public spending declined -1.3% after June’s -0.9% drop.

Chain store sales climbed 5.8% in the four weeks ending August 29th, strengthening from the 4.1% over the prior period. The monthly pace of contraction eased to -0.3% year-over-year versus -1.9% previously. Sales on the week were up 4.6% year-over-year versus the 0.6% clip previously. Back-to-school sales of electronics helped support the pick up, along with demand for more coronavirus personal protective equipment. There was also a last minute rush to stock up on supplies ahead of Hurricane Laura, including canned goods, groceries, and plywood.

The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session following the intraday surge to $164.07. Current and lower resistance at $164-$164.50 was tripped and held. A close above the latter would suggest additional upside towards $165.50-$166 and the 50-day moving average.

Near-term support is at $163-$162.50 followed by $161.50-$161.

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The S&P 500 Volatility Index ($VIX) traded to a morning high of 26.59 before settling lower for just the 2nd time in 5 sessions. Lower resistance at 26.50-27 was cleared but held. A close above the latter would signal additional upside risk towards 27.50-28 and the 200-day moving average.

The fade to 25.02 breached but upper support at 25.75-25.25 and the 50-day moving average but levels that failed to hold. Continued closes below the 25 level would signal another leg higher for the overall market.

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The iShares Russell 1000 (IWF) closed in the green for the 3rd-straight session and for the 8th time in 9 with the intraday and fresh all-time high tapping $231.55. Uncharted territory and lower resistance is at $231.50-$232 was cleared and held. A move above the latter would suggest additional momentum towards the $234-$234.50 area.

Rising support is at $231.50-$231 followed by $229-$228.50.

RSI remains in a slight uptrend with key resistance at 80 getting cleared and holding. Continued closes above this level would signal additional strength towards 85 and overbought territory from January 2018. Support is at 75-70.

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The Industrials Select Sector Spider (XLI) showed strength for the 4th time in 5 sessions after testing a high of $78.67. Current and lower resistance at $78.50-$79 was reclaimed. A close above the latter would be an fresh bullish signal with retest potential towards $80-$80.50 and levels from late February.

Support is at $77.50-$77 followed by $76-$75.50.

RSI is back in a slight uptrend after clearing and holding lower resistance at 65-70. A close above the latter would suggest ongoing strength towards 75-80 and early June/ August peaks. Support is at 60-55 with the latter holding since mid-July.

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I’ve been a tad hesitant to open new bullish trades this week until the VIX can recover the 25 level. I mentioned the Dow and Russell have been in mini trading ranges and we will need to see how they breakout, or breakdown, so be patient. 

We nearly had a double to start the month with Advanced Micro Devices (AMD, $83.80, down $2.22) but were stopped out on the slight pullback towards the $83 area last week. I probably shouldn’t have had such a tight stop on the position but wanted to protect profits on the higher priced option. This helps offset some of the loss we are going to get from closing AT&T this morning.

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I have received a number of emails on the AMD September 90 calls (AMD200918C00090000, $6.00, up $1.00) which are now up nearly 200% from the recommended price near $2. If you are still in, close half and set a Stop Limit at $5.

In the meantime, I have updated our current trades so let’s go check the tape. I could have a New Trade today, depending on the VIX, so stay locked-and-loaded. We sent out a Text Alert last number due to the increase of new subscribers recently. If you did not get it, please email me so I can insure you receive them. 

Momentum Options Play List

Closed Momentum Options Trades for 2020: 30-10 (75%). 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.

Rambus (RMBS, $13.96, up $0.53)

RMBS November 13 puts (RMBS201120P00013000, $0.75, down $0.15)

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

Exit Target: $1.80

Return: -17%

Stop Target: None

Action: Prior and lower resistance at $13.75-$14 and the 200-day moving average was cleared and held on yesterday’s run to $14.03. New support is at $13.50-$13.25.

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Consumer Staples Select Spiders (XLP, $65.65, up $0.07)

XLP September 65 calls (XLP200918C00065000, $1.20, flat)

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

Exit Target: $1.70

Return: 41%

Stop Target: None

Action: Tuesday’s top reached $65.68 with lower resistance at $65.75-$66.25 getting challenged but holding. Support remains at $65.25-$64.75.

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AT&T (T, $29.47, down $0.34)

T September 31 calls (T200918C00031000, $0.10, down $0.05)

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

Exit Target: $1.00

Return: -70%

Stop Target: None

Action: AT&T has been good to us last year and much of this year but this trade remains in a struggle. With that said, let’s cut our losses today and wait for shares to show some real strength on continued closes above $30.75-$31 before getting back into a possible trade.

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