MomentumOptions.com Pre-Market Update for 9/8/2020
Bears Get Weekly Win
The market showed strength on Friday’s open following a mostly positive jobs report that saw the unemployment rate dive back below the 10% level. However, selling pressure from the previous session resumed shortly afterwards with the major indexes trading to lower lows and investors avoiding holding stocks over the long 3-day weekend.
The bounce off session lows pushed the blue-chips back into positive territory in the final hour, with some previously unloved sectors finding support as Tech and other highflying stocks felt the pressure of continued profit-taking. The losses gave the bears a rare weekly win given the strong rally from the mid-August trading ranges but volatility settled lower to give the bulls some relief heading into next week.
The Nasdaq dropped 1.3% after trading to a morning low of 10,875 while holding the 11,000 level i to the closing bell. Prior and upper support from mid-August at 10,900-10,800 was breached but held. A move below the latter and the 50-day moving average would be an ongoing bearish signal with additional weakness towards 10,700-10,600.
The S&P 500 was down 0.8% following the intraday backtest to 3,349. Upper support from mid-August at 3,350-3,325 was breached but held. A move below the latter would signal additional downside risk towards 3,300-3,275 and the 50-day moving average.
The Russell 2000 fell 0.6% with the first half low tapping 1,501. Fresh and upper support at 1,515-1,500 and the 50-day moving average were triggered but levels that held. A close below the latter would indicate a further pullback towards 1,490-1,475. Below is a chart of the IWM.
The Dow was also lower by 0.6% with the intraday low reaching 27,664. Upper support from mid-August at 27,750-27,500 was breached but held. A drop below the latter would suggest a further pullback towards 27,250-27,000.
For the week, the Nasdaq plummeted 3.3% and the S&P 500 was tanked 2.3%. The Dow was down 1.8% and the Russell 2000 gave back 1.7%.
Financials and Industrials showed the most sector strength after rising 0.8% and 0.2%, respectively. Communications Services and Technology paced sector laggards after falling 1.8% and 1.4%.
Over the past 5 sessions, Materials (+0.7%) and Utilities (+0.5%) were the only sectors that showed strength. Energy (-4.3%) and Technology (-4.1%) were the leading sector laggards.
In economic news, Nonfarm payrolls increased 1,371,000 in August, versus forecasts for a print of 1,413,000, and follows July’s 1,734,000 gain. The unemployment rate dropped to 8.4% after sinking to 10.2% in July and is down from the 14.7% reading in April. Average hourly earnings were up 0.4% following the 0.1% prior gain in July. The workweek rose to 34.6 from 34.5. The labor force climbed 968,000 from -62,000 previously, while household employment surged another 3,756,000 after rising 1,350,000 in July. The labor force participation rate improved to 61.7% from 61.4%. Private payrolls increased 1,027,000 after July’s 1,481,000 increase. Jobs in the goods sector were up 43,000, while the service sector added 984,000.
Baker Hughes reported the U.S. rig count for August was at 250, down 5 from the 255 counted in July, and down 679 from the 926 counted in August 2019. The international rig count for August was at 747, up 4 from the 743 counted in July, and down 391 from the 1,138 counted in August 2019. The international offshore rig count for August was at 184, up 1 from the 183 counted in July, and down 60 from the 244 counted in August 2019. The worldwide rig count for August was 1,050, up 20 from the 1,030 counted in July, and down 1,156 from the 2,206 counted in August 2019.
The iShares 20+ Year Treasury Bond ETF (TLT) had its 4-session winning streak snapped following the late day pullback $162.45. New support at $162.50-$162 was breached but held. A close below the latter reopens a retest towards $161-$160.50 with the late August low at $160.64
Lowered resistance is at $164.50-$165 with more important recovery levels at $165.50-$166 and the 50-day moving average.
RSI is back in a downtrend with upper support at 45-40 failing to hold. A close below the latter would indicate further weakness towards 35-30 and the August/ June lows. Resistance is at 50.
The S&P 500 Volatility Index ($VIX) closed lower despite hitting a morning high of 38.28. Prior and lower resistance from mid-June at 38-38.50 was breached but held. A close above the latter would signal further upsid towards 40-45 with the June 15th peak at 44.44.
Rising and upper support at 30-29.50 held on the late day backtest to the latter. A close back below 28 and the 200-day moving average would suggest near-term selling pressure has abated.
RSI may be peaking after failing to clear key resistance at 75. A close above this level would signal further upside towards 80 and the March top. Support is at 60-55.
The Invesco QQQ Trust (QQQ) fell for the 2nd-straight session with the intraday low tapping $271.80. Prior and upper support from mid-August at $272-$271.50 was tripped but held. A close below the latter would suggest a further slide towards $269.50-$269 and the 50-day moving average.
Lowered resistance is at $284.50-$285 followed by $287.50-$288.
RSI is in a severe downtrend with key support at 50 holding. A close below 50 and a level that has been holding since late April would get weakness towards 45-40 in play. Resistance is at 55-60.
The Technology Select Sector Spiders (XLK) extended its losing streak to 2-straight with the session low reaching $113.05. Upper support from mid-August at $113.50-$113 was breached but held. A close below the latter would indicate additional weakness towards $112-$111.50 and the 50-day moving average.
Lowered resistance is at $118.50-$119 followed by $120.50-$121.
RSI is slumping with support at 50 holding. There is risk to 45-40 on a close below 50 and a level that has been holding since early April. Resistance is at 55-60.
The percentage of Nasdaq 100 stocks trading above the 50-day moving
closed at 60.19% on Friday, down 6.80%. Upper support at 60%-57.5% was was breached but held. A close below the latter would signal a retest towards 55%-52.5%. Resistance is at 62.5%-65%.
The percentage of S&P 500 stocks trading above the 200-day moving average settled at 61.78%, unchanged. Current and upper support at 60%-57.5% was breached but held. A close below the latter would signal additional weakness towards 55%-52.5% and levels from late July. Resistance is at 62.5%-65%.
The one awesome indicator last week remained the VIX. I had been warning any move above 25-30 would cause some selling pressure and Friday’s peaked reached north of 38. I mentioned there was risk up towards 40-45 but that I expected the latter to hold.
I would like to see a spike towards 45 and then a lower close today. It will be hard for the bulls to trip higher highs if the VIX doesn’t close back below 30 this week. This level doesn’t have to clear and hold today but lower lows throughout the week should give the market better confidence the short-term selling pressure has abated.
A close above the 45 level will likely cause another wave of panic selling. These are the 2 levels (30, or 45) that will determine if our next batch of trades will be bullish or bearish.
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, $13.71, down $0.07)
RMBS November 13 puts (RMBS201120P00013000, $0.85, unchanged)
Entry Price: $0.90 (8/21/2020)
Exit Target: $1.80
Stop Target: None
Action: Prior and upper support is at $13.75-$13.50 failed to hold on Friday’s drop $13.42. Resistance remains at $14-$14.25 and the 200-day moving average.