MomentumOptions.com Pre-Market Update for 10/12/2020

Bulls Get Weekly Win Ahead of 3Q Earnings Season

8:00am (EST) 

The stock market extended its winning streak to three-straight sessions after closing higher on Friday following a slight breakthrough in stimulus talks. President Trump upped his counter offer to $1.8 billion but Senate Majority Leader Mitch McConnell said a coronavirus stimulus package will not likely happen before the election.

Despite the ongoing uncertainty, the major indexes closed out a solid week while pushing prior and multi-month resistance levels. The higher Friday close was also a slightly bullish signal, but more importantly, the lowered volatility heading into the start of the 3Q earnings season was also a bonus for the bulls.

The Nasdaq tapped a late day high of 11,581 while closing at 11,579 (+1.4%). Prior and lower resistance from early September at 11,500-11,600 was cleared and held. A close above the latter would indicate further upside towards 11,700-11,800.

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The S&P 500 finished at 3,477 (+0.9%) with intraday high hitting 3,482. Laye August and lower resistance at 3,475-3,500 was reclaimed. A move above the latter would suggest a retest towards 3,450-3,475 and levels from early September.

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The Russell 2000 tested a morning peak of 1,645 before settling at 1,637 (+0.6%). Longer-term and lower resistance from February at 1,635-1,650 was recovered. A close above the latter would signal another run towards 1,660-1,675. Below is a chart of the IWM.

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The Dow tagged an first half high of 28,676 while going out at 28,586 (+0.6%). Prior and lower resistance from early September at 28,500-28,750 was cleared and held. A move above the latter would be an ongoing bullish development with additional strength towards 29,000-29,250 and prior peaks from early September.

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For the week, the Russell 2000 surged 6.4% while the Nasdaq zoomed 4.6%. The S&P 500 rallied 3.8% and the Dow soared 3.3%.

Technology was the strongest sector after rising 1.5% while Consumer Discretionary and Healthcare gained 1% and 0.9%, respectively. Energy led sector weakness after stumbling 1.6%.

The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) fell for the third-straight session with the morning low reaching 24.03. Current and upper support at 25.50-25 and the 50-day moving average was recovered. 

Lowered resistance is at 26.50-27 followed by at 29.50-30 and the 200-day moving average.

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The Spider Small-Cap 600 ETF (NYSE: SLY) was up for the third-straight session and for the seventh time in eight sessions after testing a morning high of $66.39. Prior and lower resistance from early August at $66-$66.50 was cleared but held. A close above the latter would be an ongoing bullish signal for a retest towards $67.50-$68 and levels from mid-February.

Rising support is at $65.50-$65 followed by $64-$63.50.

RSI (relative strength indicator) is in an uptrend with key resistance at 70 holding. A close above this level would signal additional strength towards 75 and the early June peak. Support is at 65-60.

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The iShares PHLX Semiconductor ETF (Nasdaq: SOXX) extended its winning streak to three-straight sessions with the intraday and fresh all-time high hitting $326.12. Uncharted territory and lower resistance $326-$326.50 was cleared but held. A close above the latter would indicate an ongoing breakout with upside potential towards the $327.50-$330 area.

Near-term and rising support at $323-$322.50 followed by $321-$320.50.

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The major indexes are showing signs of making a serious run towards all-time highs with the small-caps leading the way. While tech has gotten all of the headlines, it is important to note the rotation has been healthy with a number of sectors also on the verge of all-time highs. However, with the Financial sector in focus this week with earnings, they need to perform well.

The Financial Select Sector Spiders (XLF) remains roughly 20% off its 52-week peak just south of the $31 level. The chart below shows an uptrend since the start of the month with higher highs and higher lows. 

A golden cross is also in the process of forming with the 50-day moving average on track to clear the 200-day moving average. This is typically a bullish technical pattern for continued upside. If shares can clear and hold $25.50 this week, there is a good chance a run towards $26.50 and the early June peak could come into play. If shares fall back below the $24.50 level, it would confirm a near-term top.

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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: 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.

Freeport McMoRan (FCX, $17.23, up $0.43)

FCX November 18 calls (FCX201120C00018000, $1.00, up $0.15)

Entry Price: $0.95 (10/9/2020)

Exit Target: $1.90

Return: 5%

Stop Target: None 

Action: Friday’s late day peak reached $17.26 with prior and lower resistance at $17.25-$17.50 getting cleared but holding. A close above the latter and the mid-September 52-week could lead to a run towards the $20 level on a breakout. Fresh support is at $17-$16.75.

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Bank of America (BAC, $25.36, up $0.12)

BAC November 26 calls (BAC201120C00026000, $1.05, flat)

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

Exit Target: $1.70

Return: 24%

Stop Target: 90 cents (Stop Limit)

Action: Shares tested a high of $25.49 with lower resistance at $25.50-$25.75 getting challenged but holding. Support is at $25-$24.75 on a close back below the 50-day moving average. 

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General Motors (GM, $32.16, down $0.05)

GM January 35 calls (GM210115C00035000, $2.00, flat)

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

Exit Target: $2.40

Return: 67%

Stop Target: $1.80 (Stop Limit)

Action: Lower resistance at $32.50-$32.75 was breached but held for the 2nd-straight session. A move above the $33 level could lead a breakout towards $34-$34.50 and levels from mid-February. Support is at $32-$31.75.

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Rambus (RMBS, $14.45, up $0.29)

RMBS November 13 puts (RMBS201120P00013000, $0.30, down $0.10)

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

Exit Target: $1.80

Return: -67%

Stop Target: None 

Action: Shares traded to a high of $14.49 with lower resistance at $14.25-$14.50 getting cleared and holding. New support at $14.25-$14 and the 200/50-day moving averages.

The company will report earnings in early November and usually disappoints expectations. I would like to stay in the trade but price action is moving against us. I talked about closing the position if $14.50 is cleared and held so let’s see how today goes.

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