MomentumOptions.com Pre-Market Update for 9/23/2020

Bulls Bounce but Do Little Damage

8:00am (EST) 

The market rebounded on Tuesday, snapping a four-day losing streak for two of the three major indexes, as traders looked past rising coronavirus case counts around the world and intensifying political tensions in DC. 

Fed Reserve Chairman Jay Powell expressed cautious optimism that the economy is rebounding from the pandemic-induced recession with federal support but that more help from the government is likely needed. Meanwhile, Treasury Secretary Steven Mnuchin said the White House was interested in reaching a deal with lawmakers on a fresh stimulus package.

The Nasdaq tagged an intraday peak of 10,979 before finishing at 10,963 (+1.7%). Prior and lower resistance at 10,900-11,000 was recovered. A move above the latter would suggest further strength towards 11,150-11,250.

The S&P 500 closed at 3,315 (+1.1%) with the midday high reaching 3,320. Lower resistance at 3,300-3,325 was reclaimed. A close above the latter would indicate further upside towards 3,375-3,400.

The Russell 2000 tested a high of 1,497 before going out at 1,496 (+0.8%). Current and lower resistance at 1,485-1,500 was breached and held. Continued closes above the latter would be a bullish signal for a retest towards 1,510-1,525.

The Dow traded to an afternoon high of 27,333 while ending at 27,228 (+0.5%). Prior and lower resistance at 27,250-27,500 was cleared but held. A pop above the latter would be a bullish signal for additional strength towards 27,750-28,000.

In economic news, Existing Home Sales rose 2.4% to 6,000,000 in August, better than expectations of 5,965,000, following July’s 24.7% surge to 5,860,000. Sales rose in all 4 regions, led by the Northeast. August single family sales increased another 1.7% to 5,370,000 versus gains of 23.9% in July to 5,280,000. Condo/coop sales jumped 8.6% to 630,000 after climbing 31.8% to 580,000 in July. The months’ supply of homes slipped to 3 from 3.1, as the lack of supply remains a headwind. Median sales prices jumped to a new record at $310,600 versus $305,500 in July.

Richmond Fed Manufacturing Index rose 3 points to 21 in September, beating forecasts for a reading of 12, after jumping 8 points to 18 in August. Employment increased to 23 from 17, with new order volume at 27 from 15, and shipments dropping to 13 from 22. The average growth rate of prices paid accelerated to 1.91% from 1.62% previously, with prices received at 0.93% from 1.43%. For the 6-month September activity index, shipments rebounded to 51 after dropping 24 points to 33 in August. The future employment gauge doubled to 47 from 23, with new order volume improving to 45 from 25, and capex at 35 versus 19. The future price indexes showed rising prices with the paid index at 2.16% versus 1.91%, and received at 1.36% from 0.81%.

Chain store sales posted a -0.9% decline over the first three weeks of September versus August. For the monthly pace compared to last year, sales improved to 0.1% year-over-year versus -0.6%. For the week, sales bounced to a 1.5% year-over-year clip versus -1.2% previously. The report noted that weather was the catalyst for the bounce in sales as cooler temperatures helped spur demand for seasonal items, especially clothing.

The iShares 20+ Year Treasury Bond ETF (Nasdaq: TLT) zigzagged for the fourth-straight session following the intraday fade to $163.87. Near-term and upper support at $164-$163.50 was breached but held. A close below the latter reopens further weakness towards $162.50-$162.

Lowered resistance is at $164.50-$165 with more important recovery hurdles at $165.50-$166 and the 50-day moving average.

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The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) flipped-flopped for the third-straight session following the afternoon pullback to 26.48. Current and upper support at 26.50-26 was recovered. A close below the latter would indicate a retest towards 25.50-25 and the 50-day moving average.

Resistance remains at 29-29.50 and the 200-day moving average followed by 31-31.50.

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The Spiders Dow Jones Industrial Average ETF (NYSE: DIA) rebounded after reaching an intraday peak of $273.24. New and lower resistance at $273-$273.50 was breached but held. A move above the latter would indicate a retest towards $274-$274.50 and the 50-day moving average. 

Current support is at $270-$269.50 with backup help at $267.50-$267 and Monday’s low at $267.05.

RSI is showing signs of strengthening after holding support at 40. A close below this level would signal additional weakness toward 35-30 and levels from late March. Resistance is at 45-50.

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The Utilities Select Spider Fund (NYSE: XLU) snapped a four-session slide after trading to an morning high of $58.41. Near-term and lower resistance at $58-$58.50 was cleared and held. A close above the latter would be a slightly bullish signal for a retest towards $59-$59.50 and the 50/ 200-day moving averages. 

Current support is at $57.50-$57. A move below the latter and Monday’s low at $56.91 would indicate a further backtest towards $56-$55.50 and levels from early July.

RSI is trying to curl higher with lower resistance at 45-50 holding. A move above the latter would indicate additional strength towards 55-60. Support is at 40-35.

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Tuesday’s stock market gains were slightly encouraging but all of the major indexes remain trapped between their 50-day and 200-day moving averages. The 50-day moving averages remain in a longer-term uptrend while the 200-day moving averages have flatlined. A recovery of the latter would be bullish signals for additional strength and a retest towards prior highs.

Meanwhile, volatility continues to be a key indicator after closing lower while holding below its 200-day moving average. 

Perhaps the biggest concern later in the week is the possibility of the Food and Drug Administration getting tougher on a coronavirus vaccine. Late day news from a DC newspaper is saying the FDA is seeking to increase transparency and public trust as it approaches the decision of whether a prospective COVID-19 vaccine is safe and effective. 

The update could outline tough, new standards for an emergency authorization of a coronavirus vaccine. The new rules will likely make it exceedingly difficult for any vaccine to be approved by Election Day. As a result, the Healthcare and Drug sector could see heightened volatility once the announcement is made.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 32-10 (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.

AT&T (T, $28.51, down $0.12)

T October 28 puts (T201016P00028000, $0.60, flat)

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

Exit Target: $1.10

Return: 10%

Stop Target: None

Action: Tuesday’s low tapped $28.42 with upper support at $28.50-$28.25 getting breached but holding. Resistance remains at $28.75-$29.

I would like to see a close below $28.25 today. However, RSI held 30 and we need a close below this level. Otherwise, shares could be due for a short-term rebound after falling for 3-straight sessions.

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Rambus (RMBS, $13.36, down $0.09)

RMBS November 13 puts (RMBS201120P00013000, $0.80, unchanged)

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

Exit Target: $1.80

Return: -11%

Stop Target: None

Action: Current and upper support at $13.25-$13 was breached but held for the 2nd-straight on the fade to $13.17. Resistance remains at $13.75-$14 and the 200-day moving average.

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