MomentumOptions.com Pre-Market Update for 10/1/2020

Bulls Rebound Despite Debate Chaos

8:00am (EST)  

The market settled higher on Wednesday despite a rowdy presidential debate as traders cheered better-than-expected economic news. Ongoing developments in positive coronavirus news also helped sentiment as the major indexes showed strength for the 4th time in 5 sessions.

Concerns about the DC zombies ability to provide the U.S. economy with another round of fiscal stimulus ahead of the November elections remained in play but were overlooked. The gains closed a nasty September with the prospects for October remaining shaky with volatility remaining slightly elevated.

The Dow traded to an afternoon peak of 28,026 before settling at 27,781 (+1.2%) and back above the 50-day moving average. Prior and lower resistance at 28,000-28,250 was tripped but held. A close above the latter would indicate additional upside towards 28,500-28,750.

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The S&P 500 ended at 3,363 (+0.8%) after topping out at 3,393. Lower resistance at 3,350-3,375 and the 50-day moving average was recovered. A close above the latter would suggest another push towards 3,400-3,425.

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The Nasdaq traded to a midday peak of 11,277 before closing at 11,167 (+0.7%). Near-term and lower resistance at 11,200-11,300 was breached but held. A move above the latter would indicate further strength towards 11,400-11,500.

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The Russell 2000 tapped an intraday high of 1,528 while settling at 1,507 (+0.2%). Current and lower resistance at 1,520-1,535 was breached but held. Continued closes above the latter would be a bullish signal for a retest towards 1,550-1,565 and the 50-day moving average.

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Healthcare showed the most sector strength after rallying 1.6% while Financials and Consumer Staples were up 1.4% and 1.2%. Energy and Industrials were the only sector laggards after falling 0.3%.

In economic news, MBA Mortgage Applications dropped -4.8% following the 6.8% jump in the prior week. The 12-month pace slowed to 39.3% year-over-year from 58.5% previously. Most of the weakness was seen in the refi component, which fell -6.5% after jumping 8.8% previously. The purchase index slipped -1.9% after a prior 3.4% gain. The 30-year mortgage rate fell to 3.05%, another all-time low, from 3.1%. The 5-year ARM slid to 2.95% from 3.19%.

ADP Employment Report showed a 749,000 rise in private payroll employment in September, almost double expectations, after an upwardly revised 481,000 increase in August.

Gross Domestic Product contracted at a -31.4% rate, continuing to improve marginally versus -31.7% in the second look, and -32.9% in the Advance report. Personal consumption declined at a -33.2 % pace versus -34.1% previously. Final sales sank at a -29.2% clip versus -28.9 in the prior look. Business fixed investment declined at a -27.2% rate from -26% while residential investment was down at a -35.6% clip versus the prior -37.9% reading. Trade worsened a bit with exports falling at a -64.4% rate from -63.2% previously, and imports at -54.1% from -54%. Government purchases were revised down to a 2.5% clip versus 2.8%. The GDP chain price index came in at -1.8% from -2%, with the core rate at -0.8% from -1%.

Chicago PMI surged 11.2 points to 62.4 in September versus forecasts for a print of 52.1.

Pending Home Sales Index rose 8.8% to 132.8 in August, another record high, and follows the 5.9% rise to 122.1 in July. Expectations were for a rise of 3.1%. Gains were across the four regions, but much of the strength was in the west (13.1%). On a 12-month basis the index posted a 20.5% year-over-year rate versus 15.4% previously.

The iShares 20+ Year Treasury Bond ETF (Nasdaq: TLT) was down for the second time in three sessions after tumbling to an intraday low to $162.55. Prior and upper support at $163-$162.50 was tripped but held. A close below the latter reopens downside risk towards $161-$160.50 with the late August low at $160.64.

Lowered resistance is at $164-$164.50 followed by $165.50-$166 and the 50-day moving average.

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The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) closed slightly higher for the second-straight session despite tagging a morning low of 25.06. Current and upper support at 25.50-25 and the 50-day moving average was breached but held for the second time in three sessions. A close below the 25 level would be a slightly bullish signal for the stock market.

Resistance remains at 27-27.50 followed by 29-29.50 and the 200-day moving average.

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The Spider Small-Cap 600 ETF (NYSE: SLY) was up for the fourth time in five sessions after testing a morning high of $61.77. Lower resistance at $61.50-$62 was cleared but held. A close above $62.75 and the 50-day moving average would be a more bullish signal for a retest towards $63.50-$64.

Current support is at $60.50-$60. A close below the latter would be a renewed bearish development with additional pullback potential towards $58.50-$58 and the late September low at $57.90.

RSI (relative strength indicator) has flatlined with upper support at 45-40 holding. A move below the latter would signal additional weakness towards 35-30 and levels from earlier in the month. Resistance is at 50.

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The Technology Select Sector Spiders (XLK) showed strength for the fourth time in five sessions with the intraday peak reaching $117.89. Lower resistance at $117.50-$118 was cleared but held a move above the latter would indicate a retest towards $119.50-$120.

Current support is at $116-$115.50 followed by $114.50-$114 and the 50-day moving average.

RSI is back in a slight uptrend with lower resistance at 55-60 holding. A move above the latter would signal additional strength towards 65-70. Key support is at the 50 level.

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

Momentum Options Play List

Closed Momentum Options Trades for 2020: 33-10 (77%). 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.

Advanced Micro Devices (AMD, $81.99, up $0.22)

AMD November 90 calls (AMD201120C00090000, $4.65, unchanged)

Entry Price: $3.60 (9/28/2020)

Exit Target: $5.40-$7.20 (Limit Order on half at $5.40)

Return: 30%

Stop Target: $4, raise to $4.20 (Stop Limit)

Action: Raise the Stop Limit from $4 to $4.20. Yesterday’s low was at $4.15 with the peak at $5.

Shares tested a high of $82.94 with lower resistance at $82.50-$83 getting cleared but holding for the 2nd-straight session. Support remains at $80-$79.50 and the 50-day moving average.

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General Motors (GM, $29.59, up $0.85)

GM January 35 calls (GM210115C00035000, $1.20, up $0.20)

Entry Price: $1.20 (9/28/2020)

Exit Target: $2.40

Return: 0%

Stop Target: None

Action: Wednesday’s peak reached $29.82 with lower resistance at $29.75-$30 getting cleared but holding. Support is at $29.25-$29 and the 50-day moving average.

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Rambus (RMBS, $13.69, down $0.05)

RMBS November 13 puts (RMBS201120P00013000, $0.60, flat)

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

Exit Target: $1.80

Return: -33%

Stop Target: None

Action: Prior and lower resistance at $13.75-$14 was cleared but held for the 3rd-straight session on test to $13.91 yesterday. Support remains at $13.50-$13.25.

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