MomentumOptions.com Pre-Market Update for 9/21/2020

S&P 500 Closes Back Below 50-Day Moving Average

8:00am (EST)  

The market closed lower on Friday, notching a third-straight weekly loss excluding the small-caps, amid uncertainty about a fresh round of fiscal stimulus from Washington. Weaker-than-expected economic news and concerns about tensions between the U.S. and China also weighed on sentiment.

The choppy trading action also marked quadruple witching and happens on the third Friday of every March, June, September and December. Volatility tends to heighten and when four classes of option contracts expire. The losses pushed the major indexes back into prior trading ranges with current volatility actually closing lower for the session.

The S&P 500 settled at 3,319 (-1.1%) after testing a late day low of 3,292 on the close back below its 50-day moving average. Prior and upper support at 3,325-3,300 was breached and failed to hold. A close below the latter would suggest additional weakness towards 3,275-3,250.

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The Nasdaq finished at 10,793 (-1.1%) following the afternoon fade to 10,639. Prior and upper support at 10,700-10,600 was breached but held. A drop below the latter would signal a further pullback towards 10,500-10,400 and levels from late July.

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The Dow traded to an intraday low of 27,487 before ending at 27,657 (-0.9%). Prior and upper support at 27,500-27,250 was breached but held. A move below the latter and the 50-day moving average would indicate a further pullback towards 27,000-26,750.

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The Russell 2000 showed strength on the open before tapping a low of 1,519 while finishing at 1,536 (-0.4%). Prior and upper support at 1,525-1,510 and the 50-day moving average was tripped but held. A close below the latter would reopen a further backtest towards 1,500-1,485.

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For the week, the S&P 500 fell 0.7% and the Nasdaq was lower by 0.6%. The Dow slipped 8 points, or 0.03% while the Russell 2000 rallied 2.7%.

This week’s earnings are extremely light with AutoZone, Inc. (NYSE: AZO), KB Home (NYSE: KBH) and Nike, Inc. (NYSE: NKE) highlighting Tuesday’s action. These companies should provide further insight on how the economic recovery is going with the retail and homebuilder sectors likely being impacted. 

An analyst at Needham raised the firm’s price target on Nike to $132 from $113 while keeping a Buy rating on the shares. Another analyst at Morgan Stanley analyst raised the firm’s price target on Nike to $142 from $121 and kept an Overweight rating on shares. 

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Meanwhile, an analyst at DA Davidson kept a Buy rating for AutoZone and a $1,380 price target, saying the company should outperform Wall Street’s forecasts.

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Volatility was a little heightened for the week but held key levels of resistance to keep the stock market in non-panic mode. Tech is back in correction territory as this week’s losses have pushed the Nasdaq more than 10% lower from the beginning of the month all-time high of 12,074. However, the small-caps bucked the trend to offset some of the bearishness. 

This is signaling a continued trading range with the bulls needing to avoid lower lows. If that start to happen regularly this week, selling pressure could return with further backtest toward late July levels for the major indexes.

We are in great shape no matter what happens this week as we will be locking-in profits on FCX on a pullback, or racking up further gains if shares can continue to tap fresh 52-week peaks. Our 2 bearish trades still look prime for profits and a continued pullback in the market will likely benefit these trades. 

The portfolio is light and how you want to be positioned during trading ranges and sector rotations. There are a few trades I would like to add this week, one is on a stock that is showing signs of an explosive breakout.

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, $17.00, down $0.03)

FCX November 18 calls (FCX201120C00018000, $1.20, down $0.05)

Entry Price: $1.05 (9/16/2020)

Exit Target: $2.10

Return: 14%

Stop Target: $1.05, raise to $1.10 (Stop Limit)

Action: Raise the Stop  Limit from $1.05 to $1.10.

Friday’s fresh 52-week high reached $17.50 with new and lower resistance at $17.50-$17.75 getting tapped but holding. The options traded up to $1.43. Support remains at $16.75-$16.50.

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AT&T (T, $28.93, down $0.14)

T October 28 puts (T201016P00028000, $0.44, up $0.04)

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

Exit Target: $1.10

Return: -20%

Stop Target: None

Action: Shares tested a low of $28.91 with upper support at $29-$28.75 failing to hold. Resistance remains at $29.25-$29.50.

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Rambus (RMBS, $13.71, down $0.20)

RMBS November 13 puts (RMBS201120P00013000, $0.70, up $0.05)

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

Exit Target: $1.80

Return: -22%

Stop Target: None

Action: Upper support at $13.75-$13.50 failed to hold on Friday’s tumble to $13.54. Resistance is at $14-$14.25 and the 200-day moving average.

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