MomentumOptions.com Pre-Market Update for 9/17/2020
Fed Keeps Interest Rates Unchanged
The market traded mostly higher ahead of the FOMC announcement with Tech reversing course shortly after the opening bell. Better-than-expected earnings from FedEx (FDX) helped Transportation stocks with Eli Lilly (LLY) lifting the healthcare sector following news of another possible method for treating coronavirus beyond finding a vaccine.
The major indexes got stronger, with Tech rebounding, after the Fed announced no change to interest rates. However, comments from Fed Chairman Jay Powell led to a mixed close with the blue-chips and small-caps holding their gains.
The Russell 2000 tapped an intraday high of 1,579 while settling at 1,552 (+0.9%) to extend its winning streak to 4-straight sessions. Current and lower resistance at 1,570-1,585 was breached but held. Continued closes above the latter would be a bullish signal for a retest towards 1,600-1,610. Below is a chart of the IWM.
The Dow was also up for the 4th-straight session after reaching an afternoon peak of 28,364 before closing at 28,032 (+0.1%). Prior and lower resistance at 28,000-28,250 was recovered. A close above the latter would indicate additional upside towards 28,500-28,750.
The S&P 500 finished at 3,385 (-0.5%) to snap a 3-session winning streak with the low tagging 3,384 ahead of the closing bell. Fresh support at 3,400-3,375 failed to hold. A close below the latter would signal further downside risk towards 3,350-3,325 and the 50-day moving average.
The Nasdaq went out at 11,050 (-1.3%) after plunging to a late day low of 11,046. Prior and upper support at 11,100-11,000 failed to hold. A drop below the latter and the 50-day moving average would suggest a further pullback towards 10,900-10,800.
In economic news, MBA Mortgage Applications fell -2.5% last week, following a 2.9% bounce in the prior week. The weakness was led by refinancings, where the index fell -3.7%, erasing the 3% gain in the first week of September. The purchase index slipped -0.5% after the prior 2.6% gain. Refis comprised 62.8% of the applications on the week, down from 63.1%. The pace of 12-month gains slowed with applications at a 20% year-over-year clip versus 51.8% in the prior week. Refiis are at a 30.2% year-over-year rate compared to 59.6%, and the purchase index was at 6% year-over-year from 40%. The 30-year fixed mortgage rate was steady at 3.07%, just shy of the all-time low of 3.06% from the first week in August. The 5-year ARM rose to 3.20% from 2.99%.
Retail Sales increased 0.6% in August and rose 0.7% excluding autos, following respective gains of 0.9% and 1.3% in July. Strength in sales came from eating and drinking establishments which rose 4.7% from the prior 4.1% gain. Clothing sales climbed 2.9% from 2.2% previously while furniture sales were up 2.1% from 0.9%. Building materials rebounded 2% from -2.4% while auto and parts sales edged up 0.2% after July’s -1% drop. Gas station sales were up 0.4% versus 4.4% and electronics sales rose 0.8% from 20.7%. Food/beverage sales dropped -1.2% from the prior 0.6% gain. Non-store retailer sales were flat from 0.3%.
Business Inventories edged up 0.1% in July, matching expectations and sales rose 3.2%. This represented the first increase in inventories since December and follows a -1.1% decline in June. Sales remained solid for a third straight month after climbing 8.6% in June and 8.5% in May. The inventory-sales ratio fell to 1.33 from 1.37.
NAHB Housing Market Index rose another 5 points to 83 in September, a fresh all-time high, after jumping 6 points to 78 in August and where forecasts were at. The single family index increased 4 points to 88 while the future sales index was up 6 points to 84. Meanwhile, the index of prospective buyer traffic surged 9 points to 73. The report noted that lumber prices have jumped more than 170% since the middle of April due to the fires in the west, and that’s boosted home prices more than $16,000 for a typical new single family home.
The iShares 20+ Year Treasury Bond ETF (Nasdaq: TLT) was down for the third straight session despite trading to a morning high of $164.89. Near-term and lower resistance at $165-$165.50 was challenged but held with more important hurdles at $166 and the 50-day moving average.
Upper support at $163-$162.50 was breached but held on the fade to $162.98 afterwards.
The iPath S&P Vix Short-Term Futures (NYSE: VIX) snapped a three session slide after tapping an intraday high of 26.59. Lower resistance at 26.50-27 was breached but held. A close above the latter would suggest a retest towards 28.50-29 and the 200-day moving average.
Support remains at 25.50-25 and the 50-day moving average.
The Wilshire 5000 Composite Index (NYSE: WLSH) fell for the first time in three session despite testing an afternoon high of 35,126. Current and lower resistance is at 35,000-35,250 was cleared but held. A move above the latter would indicate further upside towards 35,500-35,750.
Support at 34,750-34,500 failed to hold on the late day pullback to 34,679. A close below the latter would signal additional weakness towards 34,250-34,000 and the 50-day moving average.
The iShares PHLX Semiconductor ETF (Nasdaq: SOXX) was down for the first time in 3 sessions despite the intraday push to $304.39. Prior and lower resistance $304-$304.50 was cleared but held. A close above the $305 level would be a more bullish signal for a retest towards the $307.50-$310 area.
Near-term support at $299-$298.50 was breached but held on the backtest to $298.57 afterwards.
I have updated our current trades so let’s go check the tape.
Momentum Options Play List
Closed Momentum Options Trades for 2020: 31-10 (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.
Freeport McMoRan (FCX, $16.78, up $0.37)
FCX November 18 calls (FCX201120C00018000, $1.05, up $0.10)
Entry Price: $1.05 (9/16/2020)
Exit Target: $2.10
Stop Target: None
Action: Shares tested a fresh 52-week high of $17.15 with new and lower resistance at $17-$17.25 getting cleared but holding. Rising support is at $16.75-$16.50.
I’m expecting a run towards $19.50-$20 with the former representing the high level from December 2017. A move above the latter by mid-November will easily double these call options from current levels.
AT&T (T, $29.24, up $0.12)
T October 28 puts (T201016P00028000, $0.35, down $0.10)
Entry Price: $0.55 (9/10/2020)
Exit Target: $1.10
Stop Target: None
Action: Shares traded to an intraday high of $29.54 with lower resistance at $29.50-$29.75 getting breached but holding. Rising support is at $29-$28.75.
Rambus (RMBS, $14.09, up $0.36)
RMBS November 13 puts (RMBS201120P00013000, $0.60, down $0.15)
Entry Price: $0.90 (8/21/2020)
Exit Target: $1.80
Stop Target: None
Action: Yesterday’s peak reached a high of $14.24 with prior and lower resistance at $14-$14.25 and the 50-day moving average getting cleared but holding. New support is at $13.75-$13.50.