MomentumOptions.com Pre-Market Update for 9/24/2020

Bears Regain Momentum

8:00am (EST) 

The market continued its September struggle following another choppy session on Wednesday despite positive news on the coronavirus vaccine front and the extension to fund the government. Johnson & Johnson (JNJ) announced it is beginning a 60,000 patient phase 3 trial which will notably feature only one dose and is expected to cost $480 million.

Better-than-expected economic news was overlooked with the major indexes giving back their opening gains while trading lower throughout the session afterwards. Tech led the pullback with the major indexes avoiding lower lows for the month, excluding the small-caps.

The Russell 2000 went out on the session and monthly low of 1,451 (-3%). Prior and upper support at 1,465-1,450 failed to hold. A move below the latter would indicate further weakness towards 1,440-1,425.

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The Nasdaq ended at 10,632 (-3%) after plunging to a midday low of 10,612. Current and upper support at 10,700-10,600 was breached and failed to hold. A move below the latter would suggest further downside risk towards 10,500-10,400 and levels from late July.

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The S&P 500 settled at 3,332 (-2.4%) following the late day backtest to 3,323. Prior and upper support at 3,325-3,300 was breached but held. A close below the latter would signal further downside risk towards the 3,275-3,250 area.

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The Dow tagged an afternoon low of 26,716 while closing at 27,763 (-1.9%). Near-term and upper support at 26,750-26,500 was tripped but held. A close below the latter would suggest additional weakness towards 26,250-26,000.

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In economic news, MBA Mortgage Applications surged 6.8% after tumbling -2.5% in the prior week. The strength boosted the 12-month pace to 58.5% year-over-year from 20% previously. Most of the strength was in the refi index which climbed 8.8%, recovering from the prior -3.7% decline. It’s up 85.7% year-over-year versus 30.2% previously. The purchase index was up 3.4% after slipping -0.5% in the prior week and is up 25.5% year-over-year versus 6% preciously. The 30-year fixed mortgage rate rose to 3.10%, versus 3.07% previously, while the 5-year ARM was little changed at 3.19% versus 3.2%.

FHFA House Price Index rose another 1% to 293 in July, a new all-time high, after June’s 1% advance to 290. The index is up 6.5% year-over-year, versus the 5.8% pace previously. Home prices rose in all 9 regions, led by New England at 2% with six of the regions posting gains of 1% or higher. According to the report, over the May and July 2020 time frame, national prices increased by over 2%, a record price increase seen since the start of the index in 1991. A function of historically low interest rates, the rebound in demand, and the limited supply fueled the record increase. 

PMI Manufacturing Index nudged up 0.4 points to 53.5 in the flash September print after rising 2.2 points to 53.1 in August, and is the best reading since January 2019. Expectations were at 53.2. The output component improved to 53.3 from last month’s 52.7 print while the flash services index fell 0.4 ticks to 54.6 versus the 5 point pop to 55 August. The flash composite index slipped 0.2 points to 54.4 on the month versus the 4.3 point rise to 54.6 in August. New orders increased 1 point to 54.9 from 53.9.

The iShares 20+ Year Treasury Bond ETF (Nasdaq: TLT) rebounded despite testing a low of $163.48. Near-term and upper support at $163.50-$163 was breached but held. A close below the latter would signal a further pullback towards $162.50-$162.

Lower resistance at $164.50-$165 was cleared but held on the run to $164.53 afterwards with more important 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) closed higher despite tagging an opening low of 25.19. Prior and upper support from last week at 25.50-25 and the 50-day moving average was breached but held.

The bounce to 29.73 afterwards cleared but held lower resistance at 29-29.50 and the 200-day moving average. A close above the latter would indicate a retest towards 31-31.50.

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The SPDR S&P 500 ETF (NYSEArca: SPY) fell for the fifth time in six sessions after trading to an afternoon low of $322.10. Prior and upper support at $322.50-$322 was breached but held. A close below the latter would suggest additional weakness towards $320.50-$320.

Lowered resistance is at $327-$327.50 followed by $331-$331.50.

RSI is rolling over with key support at 40 failing to hold. This level had held since early April an reopens weakness towards 35-30. Resistance is at 45-50.

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The Materials Select Sector Spider Fund (NYSE: XLB) was down for the third time in four sessions with the late day low reaching $61.42. Prior and upper support at $61.50-$61 failed to hold. A close below the latter would be an ongoing bearish signal with additional backtest potential towards $60-$59.50 and levels from early August.

Lowered resistance is at $62-$62.50 and the 50-day moving average. A close above $64 would be a more bullish signal of a near-term bottom.

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I have updated our current positions so let’s go check the tape.

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, $27.87, down $0.64)

T October 28 puts (T201016P00028000, $1.00, up $0.40)

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

Exit Target: $1.10

Return: 90%

Stop Target: 80 cents (Stop Limit)

Action: Set an initial Stop Limit at 80 cents to start protecting profits.

Shares tumbled to a low of $27.84 with prior and upper support from late June at $28-$27.75 failing to hold. Lowered resistance is at $28.25-$28.50.

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Rambus (RMBS, $13.15, down $0.21)

RMBS November 13 puts (RMBS201120P00013000, $0.90, up $0.10)

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

Exit Target: $1.80

Return: 0%

Stop Target: None

Action: Shares closed on the session low with current and upper support at $13.25-$13 getting breached and failing to hold. Lowered resistance is at $13.50-$13.75.

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