MomentumOptions.com Pre-Market Update for 10/9/2020

Small-Caps Breaking Out

8:00am (EST) 

The stock market was up for the second-straight session following merger-and-acquisition news and ongoing, but shaky, stimulus talks. Morgan Stanley (MS) agreed to buy Eaton Vance (EV) for $56.50 in a deal valued at $7 billion.

Meanwhile, The back-in-forth battle between President Trump and Speaker Nancy Pelosi continued with both trying to negotiate a deal despite the heightened rhetoric. Volatility tagged its lowest level since mid-September but once again failed to clear and hold a key level of support.  

The Russell 2000 finished  at 1,628 (+1.1%) with the session high at 1,630. Prior and lower resistance from early February at 1,625-1,650 was breached and held. A close above the latter would be an ongoing bullish signal for a run towards 1,660-1,675.

The S&P 500 settled at 3,447 (+0.8%) following the intraday run to 3,446. Lower resistance from early September at 3,425-3,450 was recovered. A move above the latter would suggest a retest towards 3,475-3,500.

The Nasdaq reached a late day peak of 11,448 before ending at 11,420 (+0.5%). Fresh and lower resistance at 11,400-11,500 was cleared and held. A pop above the latter would indicate ongoing strength towards the 11,500-11,600 area.

The Dow tested a morning peak of 28,459 while closing at 28,425 (+0.4%). Current and lower resistance at 28,500-28,750 was challenged but held. A close above the latter would indicate additional strength towards 29,000-29,250.

The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) was down for the second-straight session after plunging to an opening low of 24.88. Prior support from last week at 25.50-25 and the 50-day moving average was breached but levels that held.

Resistance remains at 29.50-30 and the 200-day moving average.

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The S&P 400 Mid Cap Index (NYSE: MID) was up for the second-straight session and for the sixth time in seven after closing on the session peak of 1,991. Fresh and lower resistance at 2,000-2,050 was challenged but held. A close above the latter would indicate a run towards 2,075-2,125 with the late February all-time high at 2,109.

Near-term and rising support is at 1,950-1,900 and the 50-day moving average. A move below the latter would suggest a near-term top with additional weakness towards 1,850-1,800 and the 200-day moving average.

RSI (relative strength index) remains in an uptrend after clearing lower resistance at 65-70. A close above the latter and the August peak would signal additional strength towards 75 and the early June top. Support is at 60.

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The SPDR S&P Homebuilders ETF (NYSEArca: XHB) showed strength for the second-straight session after trading to an all-time high of $56.65. Unchartered territory and lower resistance at $56.50-$57 was cleared and held. A close above the latter would be an ongoing bullish signal for blue-sky upside towards $58-$58.50.

Rising support is at $56-$55.50 with backup help at $54.50-$54.

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A higher Friday (and Monday) would be a bullish signal ahead of the start of the third-quarter earnings season that gets underway on Tuesday. The Financials stocks will be predominantly featured throughout the week starting with Citigroup (C) and JPMorgan Chase (JPM) before Tuesday’s opening bell.

JPMorgan is expected to report a profit of $2.17 on revenue north of $28 billion. The company missed estimates by $1.06 in the first quarter but beat by 34 cents in the second quarter.

Wall Street analysts have pegged Citigroup earnings at 89 cents a share of revenue just above $17 billion. The company has topped forecasts over the past four quarters.

There is a chance for major moves by both stocks depending on the severity of the beat, or miss. The aforementioned numbers are the average based on the suit-and-ties homework with the high estimate for JPMorgan at $2.84 and the low at $1.68.

We have a position in the Financial sector with BAC and I have raised the Stop Limit to further protect profits. I also made another adjustment to our GM position.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 34-10 (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.

Bank of America (BAC, $25.24, up $0.36)

BAC November 26 calls (BAC201120C00026000, $1.05, up $0.10)

Entry Price: $0.85 (10/5/2020)

Exit Target: $1.70

Return: 18%

Stop Target: 85 cents, raise to 90 cents (Stop Limit)

Action: Raise the Stop Limit at 85 cents to 90 cents.

Thursday’s peak reached $25.22 with the option trading up to $1.05. Lower resistance at $25-$25.25 and the 50-day moving average was cleared and held. A close above the latter would be a bullish signal for continued strength towards $25.75-$26 and the 200-day moving average. Support is at $24.75-$24.50. 

BAC will report earnings on October 14th with other financial companies coming next week. Volatility will likely increase as the numbers start to come in better-or worse than expected and could impact shares. This is why we bumped up the Stop Limit by a nickel.

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General Motors (GM, $32.21, up $0.59)

GM January 35 calls (GM210115C00035000, $2.00, up $0.20)

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

Exit Target: $2.40

Return: 75%

Stop Target: $1.50, raise to $1.80 (Stop Limit)

Action: Raise the Stop Limit from $1.50 to $1.80. This will lock-in at least a 50% profit.

Fresh and lower resistance at $32.50-$32.75 was cleared but held on the gap higher to $32.63. A move above the $33 could lead a breakout towards $34-$34.50 and levels from mid-February. Rising support at $32-$31.75.

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Rambus (RMBS, $14.16, up $0.24)

RMBS November 13 puts (RMBS201120P00013000, $0.45, down $0.05)

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

Exit Target: $1.80

Return: -50%

Stop Target: None 

Action: Shares traded to a high of $14.25 with lower resistance at $14.25-$14.50 getting tagged but holding. New support at $14-$13.75 and the 200/50-day moving averages.

If shares clear $14.50 we will likely close the position. The company will report earnings in early November and usually disappoints expectations. 

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