MomentumOptions.com Pre-Market Update for 9/11/2020

Bears Return to Push Lower Lows

8:00am (EST) 

The market settled lower on Thursday following a choppy session over the uncertainty of a proposed stimulus package by Senator Majority Leader Mitch McConnell. The bill was rejected late in the session after falling 8 votes shy of the 60 needed to pass procedural phase. The major indexes hit session lows shortly after the news to give the bears their 4th win over the past 5 sessions.

The Nasdaq fell 2% with the 2nd half low tapping 10,875. Current and upper support at 10,900-10,800 was breached but held on the close back below the 50-day moving average. A move below the latter and the weekly low at 10,837 would indicate additional weakness towards 10,700-10,600.

The S&P 500 was lower by 1.8% after matching Tuesday’s low of 3,329 ahead of the closing bell. Prior and upper support at 3,350-3,325 was tripped and failed to hold. A close below the latter and the 50-day moving average would signal a further pullback potential towards 3,300-3,275.

The Dow dropped 1.5% with the late day and monthly low reaching 27,447. Fresh and upper support at 27,500-27,250 was tripped but held. A close below the latter and the 50-day moving average would suggest additional downside risk towards 27,000-26,750.

The Russell 2000 declined 1.2% following the close on the session low of 1,507. Near-term and upper support at 1,515-1,500 failed to hold. A close below the latter and the monthly low at 1,499 would reopen a further backtest towards 1,490-1,475.

Energy was the weakest sector after losing 3.7% while Technology and Utilities were off 2.3% and 1.7%, respectively. There was no sector strength.

In economic news, Initial Jobless Claims were steady at 884,000, but above forecasts of 830,000, following the -127,000 drop to 884,000 in the previous week. The 4-week moving average fell to 970,750 versus 992,500. Continuing claims were 93,000 firmer at 13,385,000 after plunging -1,200,000 to 13,292,000 previously.

Producer Price Index rose 0.3% in August, versus forecasts for a rise of 0.1%, with the core rate increasing 0.4%. These follow respective July gains of 0.6% and 0.5%. The 12-month headline rate edged up to -0.2% year-over-year from -0.4%, while the ex-food and energy component doubled to a 0.6% year-over-year pace from 0.3%. Goods prices edged up 0.1% versus the prior 0.8% jump, as food prices fell -04%% after dropping -0.5% in July. Energy prices dipped -0.1% following the 5.3% rise previously. Services prices were up 0.5%, as they were in June.

Wholesale Trade fell -0.3% in July, while sales climbed 4.6%. The advance indicators report showed a -0.1% slip in July inventories. The strength in sales and the weakness in inventories knocked the inventory-sales ratio down to 1.32, just shy of the pre-pandemic 1.31 in February. It was at 1.38 in June and is down from the historic high of 1.63 in April.

The iShares 20+ Year Treasury Bond ETF (TLT) settled higher despite tapping an intraday low reaching $161.95. Prior and upper support at $162-$161.50 was breached but held. A move below the latter would signal further weakness towards $161-$160.50 with the late August low at $160.64.

Lower resistance at $164-$164.50 was recovered on the rebound to $164.35 with more important hurdles at $165.50-$166 and the 50-day moving average.

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The S&P 500 Volatility Index ($VIX) closed higher for the 2nd time in 3 sessions despite testing a morning low of 27.59. Current and upper support at 28.50-28 was breached but held for the 2nd-straight session.

The bounce to 30.56 afterwards cleared but held resistance at 30-30.50. A move above the latter reopens upside risk towards 31.50-32.

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The Spider Small-Cap 600 ETF (SLY) showed weakness for the 4th time in 5 sessions after settling on the session low of $61.68. Near-term and upper support at $62-$61.50 was breached and failed to hold. A close below the latter would be a renewed bearish development with additional pullback potential towards $61-$60.50 and the 200-day moving average.

Lowered resistance is at $62.25-$62.75 and the 50-day moving average.

RSI is in a slight downtrend with key support at 40 holding. A move below this level would signal weakness towards 35-30 and levels from early April/ late March. Resistance is at 45-50.

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The Dow Jones Transportation Average ($TRAN) remains in a 4-session trading range following the afternoon backtest to 11,139. Current and upper support at 11,200-11,100 was breached and failed to hold. A close below the 11,000 level and bottom of the current trading range would suggest additional weakness towards the 10,900-10,800 area.

Resistance is at 11,300-11,400. A close above the 11,500 level would indicate a possible breakout with upside potential towards 11,600-11,700 and levels from September 2018.

RSI is curling lower with key support at 60 holding. A close below this level would signal additional weakness towards 55-50 with the latter sticking since early July. Resistance is at 65-70.

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There are a few technical levels to watch for today that will easily signal another round of selling pressure. 

For the Nasdaq, the 10,900 was breached for the 3rd time in 4 sessions; Dow 27,500 was triggered for the 2nd time in 3 sessions; and the small-caps challenged 1,500 for the 4th-straight session. 

As for the S&P 500, a move below 3,325 could signal a fresh wave of panic selling ahead of the weekend. The slightly good news for the bulls was 3,229 was kissed twice this week and held and is representing a shaky but possible short-term double bottom.

The fact the VIX held the 30 level was also a slight win yesterday despite the lower closes across the board. On that note, I have updated our current trades, including yesterday’s newbie, AT&T.

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.

AT&T (T, $28.91, down $0.46)

T October 28 puts (T201016P00028000, $0.62, up $0.12)

Entry Price: $0.55 (9/10/2020)

Exit Target: $1.10

Return: 12%

Stop Target: None

Action: Shares closed a penny off the session low of $28.90. Prior and upper support from late June at $29-$28.75 failed to hold. A close below $28.50 and the June low would be an ongoing bearish development. Lowered resistance is at $29.25-$29.50.

The one slightly bullish signal is shares are oversold with RSI nearing 30 and a level from late May. It doesn’t mean a test into the 20’s won’t happen but one reason why we might take a quick profit. 

Aside from the technical weakness, there was heavy action in the T October 29 puts as 21,000 traded. This massive volume is signaling traders are expecting lower lows down the road.

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Rambus (RMBS, $13.31, up $0.09)

RMBS November 13 puts (RMBS201120P00013000, $0.95, unchanged)

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

Exit Target: $1.80

Return: 7%

Stop Target: None

Action: Thursday’s low reached $13.21 with upper support at $13.25-$13 getting breached but holding. Resistance remains at $13.50-$13.75.

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