MomentumOptions.com Pre-Market Update for 9/3/2020

Dow Reclaims 29,000 Level 

8:00am (EST) 

The market opened with strong gains on Wednesday despite a lousy private payroll report that came in well below expectations. Another round of all-time highs were made before weakness pushed Tech and the small-caps into the red with volatility once again rising. However, strength returned in the second half of action and got stronger ahead of the closing bell to keep near-term momentum intact.

The Dow jumped 1.6% with the late day peak reaching 29,162. Prior and lower resistance from mid-January at 29,000-29,250 was cleared and held. A close above the latter would indicate further upside towards 29,500-29,750 with all-time from February at 29,568.

The S&P 500 extended its winning streak to 2-straight sessions after rising  1.5% while tapping a lifetime high of 3,588. Blue-sky and lower resistance at 3,575-3,600 was cleared and held. A close above the latter would indicate additional momentum towards 3,625-3,650.

The Nasdaq extended its winning streak to 4-straight sessions after soaring 1% with the record high reaching 12,074 ahead of the closing bell. Uncharted territory and lower resistance at 12,000-12,100 was cleared and held. A close above the latter would signal additional strength towards 12,200-12,300.

The Russell 2000 advanced 0.9% while testing an afternoon high of 1,595. Current and lower resistance at 1,585-1,600 was cleared and held. A pop above the latter and the mid-August high of 1,603 would suggest further strength towards 1,610-1,625.

Utilities led sector strength after zooming 3.1% while Materials and Real Estate rallied 2.3% and 2.2%, respectively. Energy was the only sector laggard after giving back 0.5%.

In economic news, MBA Mortgage Applications fell -2%, following a -6.5% drop previously. This represented 3rd-straight drop, and is the 5th weekly decline out of the last 6 weeks. Most of the weakness was in the refi index which slid -3.1% after the prior -10.2% plunge. The purchase index dipped -0.2%. On a 12-month basis, the application index was at a 35.4% year-over-year clip, slightly faster than last week’s 34% rate. The refi index edged up to 40.1% year-over-year from 34.5%, while the purchase index slowed to 28.3% versus 33.1%. The 30-year fixed rate dipped to 3.08% versus 3.11% previously. The 5-year ARM slipped to 3.08% from 3.14%. Record low mortgage rates, along with changing consumer preferences toward home ownership, are helping fuel the strength in the housing market.

ADP reported private payrolls increased 428,000 in August, well below expectations of 900,000, and follows July’s 212,000 gain. Much of the improvement was in the services sector where jobs were up 389,000. The goods producing sector added 40,000. Manufacturing jobs increased 9,000. The leisure/hospitality sector and education/health areas led the way, climbing over 100,000. Professional/business services added 66,000 jobs. Trade/transport jobs increased 58,000, and finance related jobs were up 11,000.

Factory Orders rose 6.4% in July, topping expectations of 6%, after rising 6.4% in June, as well, and representing a 3rd-straight monthly gain. Durable orders were bumped to an 11.4% July gain from the 11.2% pop in the Advance report and compares to the 15% bounce in June. Transportation orders were up 35.7%, following the 19.5% June gain. Excluding transportation, orders were up 2.1% versus the 4.8% gain in June. Defense orders bounced 30% versus -16.7% in the prior month. Nondefense capital goods orders excluding aircraft rose 1.9% versus the prior 4.3% gain. Shipments climbed 4.6% from the 10% jump in June. Nondefense capital goods shipments excluding aircraft were up 2.4% versus the prior 3.7% gain. Inventories fell -0.5% after rising 0.5% previously. The inventory-shipment ratio eased to 1.43 from 1.51.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight sessions with the midday peak hitting $165.56. Near-term and lower resistance at $165.50-$166 was breached but held. A close above the latter and the 50-day moving average would indicate additional strength towards $167-$167.50.

Rising support is at $164.50-$164 followed by $163-$162.50.

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The S&P 500 Volatility Index ($VIX) was up for the 2nd-straight session after testing an afternoon high of 27.07. Lower resistance at 27-27.50 was breached but held. A close above the latter would signal additional upside risk towards 28-28.50 and the 200-day moving average.

Upper support at 25.75-25.25 and the 50-day moving average were breached but held on the midday pullback to 25.55. Continued closes below the 25 level would be a more bullish signal for the market.

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The iShares Russell 1000 (IWF) was up for the 4th-straight session and 9 of the past 10 after tapping a fresh all-time high of $234.27. New and lower resistance is at $234-$234.50 was cleared but held. A move above the latter would suggest additional momentum towards the $236-$236.50 area.

Current support is at $230-$229.50 with Wednesday’s intraday low tagging $229.60. A close below the $227.50 level would signal a possible near-term top. 

RSI remains in a slight uptrend with key and overbought resistance from January 2018 at 85 holding. Support is at 80 with a close below this level signaling additional weakness towards 75-70.

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The iShares MSCI Emerging Markets Fund (EEM) was down for the 2nd-time in 3 sessions despite reaching a first half high of $45.37. Lower resistance at $45.50-$46 was challenged but held. A close above the latter would be a bullish signal for a run towards $46-$46.50 and levels from mid-January with the 52-week peak at $46.32.

Current and upper support at $45-$44.50 was breached but held on the fade to $44.78 afterwards. A close back below the $44 level would be a slightly bearish development with backtest potential towards $43.50 and the 50-day moving average.

RSI is back in a downtrend with upper support at 55-50 holding and the latter holding since mid-April. Resistance is at 60.

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Progress in the development of tests and vaccines for the coronavirus remain in play with expectations for a cure by November 1st. One warning signal was volatility which remained elevated and is still signaling a near-term pullback. If the VIX clears and holds the 30 level, it will be clearly be a time to start looking at bearish positions. Otherwise, a drop below 25 is needed to confirm a trip into blue-sky territories. 

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, $14.36, up $0.40)

RMBS November 13 puts (RMBS201120P00013000, $0.65 down $0.10)

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

Exit Target: $1.80

Return: -29%

Stop Target: None

Action: Prior and lower resistance at $14.25-$14.50 and the 50-day moving average was cleared and held with Wednesday’s peak reaching $14.40. I would like to see the latter level hold on continued strength. New support is at $14-$13.75.

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Consumer Staples Select Spiders (XLP, $66.84, up $1.19)

XLP September 65 calls (XLP200918C00065000, $2.10, up $0.90)

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

Exit Target: $1.70, raise to $3 (closed half at $2.00 on 9/2)

Return: 142%

Stop Target: $1.70 (Stop Limit)

Action: Raise the Exit Target from $1.70 to $3 on the other half of the position. 

Shares traded to an all-time high of $67.11 with fresh and lower resistance at $67-$67.50 getting cleared but holding. New support is at $66.50-$66.

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