MomentumOptions.com Pre-Market Update for 10/19/2020

Late Day Selling Pressure Weighs on Small-Caps, Tech

8:00am (EST)

The stock market finished mixed on Friday after spending much of the session pushing prior resistance levels. Better-than-expected economic news and fresh developments on the release of a coronavirus cure by the end of November helped bullish sentiment on the open before late day selling pressure weighed on the small-caps and the Tech sector. 

The Dow tested a morning peak of 28,842 while closing at 28,606 (+0.4%). Current and lower resistance at 28,750-29,000 was cleared but held. A close above the latter would indicate additional strength towards 29,250-29,500 and levels from February.

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The S&P 500 settled at 3,483 (+0.01%) following the intraday run to 3,515. Prior and lower resistance at 3,500-3,525 was breached but held. A move above the latter would suggest a retest towards 3,550-3,575 with the all-time high from September at 3,588.

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The Nasdaq faded to a late day low of 11,648 before closing at 11,671 (-0.4%). Near-term and upper support at 11,700-11,600 failed to hold. A close below the latter would indicate a further backtest towards 11,500-11,400.

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The Russell 2000 finished on its session low of 1,633 (-0.3%). Current and upper support at 1,635-1,620 was tripped and failed to hold. A move below the latter would signal further weakness towards 1,615-1,600. 

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For the week, the Russell 2000 was lower by 0.3% while the Nasdaq added 0.8%. The S&P 500 rose 0.2% and the Dow nudged up 0.1%.

Healthcare led sector strength after advancing 1% while Industrials and Materials were higher by 0.7%. Energy was the leading sector laggard after sinking 2.3%.

The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) was up for the fifth-straight session after trading to a high of 27.46. Current and lower resistance at 27-27.50 failed to hold. A move above the latter would indicate a retest towards 30-30.50 and the 200-day moving average.

Support remains at 26.50-26 followed by 25.75-25.25 and the 50-day moving average.

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The Invesco QQQ Trust (Nasdaq: QQQ) fell for the fourth-straight session despite tagging a morning peak of $293.27. Near-term and lower resistance at $293-$293.50 was cleared but held. A close above the latter would indicate a retest towards the $295-297.50 area with Monday’s monthly peak at $297.46.

Support is at $288-$287.50 followed by $285.50-$285.

RSI (relative strength indicator) remains in a downtrend with upper support at 55-50 holding. Resistance is at 60.

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The Materials Select Sector Spider Fund (NYSE: XLB) rebounded after testing an intraday high of $66.57. Lower resistance at $66.50-$67 was cleared but held. A close above the latter and the mid-September all-time peak at $67.14 would be a bullish signal for a breakout towards $69.50-$70.

Current support is at $66-$66.50 followed by $65.50-$65.

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This week’s parade of earnings could produce wider price swings for stocks and the major indexes and the key indicator to watch will be the volatility level.  The index has remained trapped between its 50-day and 200-day moving averages for 26 trading sessions with the major indexes mired in a 6-session trading range.

The chance of another run towards all-time highs, or a breakdown out of the current trading range, will depend if the VIX closes below 25 or above 30 over the near-term. The 50-day moving averages have been in a solid uptrend since mid-May and could start to level out if the action remains choppy and a trading range continues into the Presidential election.

We have closed 8-straight winning trades since late August with a 118% winner (XLP), two 50% winners with high premiums (Advanced Micro Devices and General Motors), and a 45% double-digit payoff in AT&T.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 36-10 (78%). 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.

MGM Resorts International (MGM, $21.24, up $0.08)

MGM November 23 calls (MGM201120C00023000, $0.95, up $0.05)

Entry Price: $0.95 (10/16/2020)

Exit Target: $1.90

Return: 0%

Stop Target: None 

Action: Friday’s peak reached $21.48 with lower resistance at $21.50-$21.75 getting challenged but holding. Support is at $21.25-$21.

The 50-day moving averaged crossed above the 200-day earlier this month and is typically a bullish indicator for higher highs. Shares have been a mini trading range since mid-September and held the bottom last week along with the 200-day moving average. 

A move above $22 would be a bullish signal for higher highs. A close below the $20.50 level would be a bearish development with gap down potential towards $19.50-$19. Earnings aren’t due out until December.

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Freeport McMoRan (FCX, $17.15, down $0.06)

FCX November 18 calls (FCX201120C00018000, $0.85, down $0.05)

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

Exit Target: $1.90

Return: -10%

Stop Target: None 

Action: Lower resistance at $17.25-$17.50 was cleared but held with the peak reaching $17.30. Support is at $17-$16.75.

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Rambus (RMBS, $14.33, down $0.13)

RMBS November 13 puts (RMBS201120P00013000, $0.30, flat)

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

Exit Target: $1.80

Return: -67%

Stop Target: None 

Action: Shares tagged a low of $14.27 with upper support at $14.25-$14 getting challenged but holding. Resistance is at $14.50-$14.75.

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