MomentumOptions.com Pre-Market Update for 11/16/2020
Small-Caps Tag Record High/ New Trade (XLF)
Wall Street closed higher on Friday to close out a strong week, overall, with the S&P 500 closing at a record high while the Russell 2000 also tagging a fresh all-rime peak. Better-than-expected earnings from Cisco Systems Inc. (Nasdaq: CSCO) and Walt Disney Co. (NYSE: DIS) helped the blue-chips after both companies reported better-than-expected earnings.
Tech also closed higher but lagged after posting a weekly loss. Meanwhile, volatility continued to ease but remains slightly elevated as ongoing coronavirus and fresh lockdowns in Chicago and New York remain a concern going forward.
The Russell 2000 tagged a late day high of 1,749 while settling at 1,744 (+2.1%). Unchartered territory and lower resistance at 1,740-1,755 was cleared and held. A close above the latter would be an ongoing bullish signal for continued momentum towards 1,760-1,775.
The Dow traded to an intraday peak of 29,559 before closing at 29,479 (+1.4%). Current and lower resistance at 29,500-29,750 was tripped but held. A move above the latter would indicate additional upside towards 30,250-30,500 and fresh all-time highs.
The S&P 500 ended at 3,585 (+1.4%) after topping out at 3,593 just before the closing bell. Current and lower resistance at 3,585-3,600 was cleared but held. A close above the latter would suggest a retest towards 3,625-3,650 with last Monday’s all-time high at 3,645.
The Nasdaq tapped an afternoon high of 11,849 while finishing at 11,829 (+1%). Near-term and lower resistance at 11,800-11,900 was recovered. A pop above the latter would signal another run towards 12,000-12,100 with the current lifetime peak at 12,108.
For the week, the Dow zoomed 4.1% and the S&P 500 gained 2.1%. The Russell 2000 skyrocketed 5.6% while the Nasdaq lost 0.6%.
The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) settled lower for the eighth time in 10 sessions with the intraday low tapping 22.74. Current and upper support at 23-22.50 was breached but held. A close below the latter and Monday’s low at 22.41 would indicate further weakness towards 22-21.50 and levels from late August.
Lowered resistance is at 24.50-25 followed by 26-26.50.
The Wilshire 5000 Composite Index (NYSE: WLSH) rebounded with the second half high tapping 37,072. Near-term and lower resistance at 36,750-37,000 was cleared and held. A close above the latter would indicate a retest towards 37,250-37,500 with Monday’s all-time peak at 37,565.
Support is at 36,500-36,250 with a close below 36,000 signaling a possible near-term top.
RSI is in an uptrend after clearing and holding lower resistance at 60-65. A close above the latter would indicate additional momentum towards 70-75 and levels from late August. Support is at 55-50.
The Financial Select Sector Spider Fund (NYSE: XLF) snapped a two-session slide after testing an intraday high of $27.14. Current and lower resistance at $27-$27.25 was recovered. A move above the latter would indicate another run towards $27.50 with Monday’s high at $27.44.
Support is at $26.75-$26.50. A close above $26.25 would be a slightly bearish development with backtest potential towards $25.75-$25.50.
RSI is back in a slight uptrend after clearing and holding lower resistance at 65-70. A close above the latter would signal further strength towards 75 and the early June highs. Support is at 60.
I have a New Trade this morning that I would like to get into so please read the trade instructions carefully.
Momentum Options Play List
Closed Momentum Options Trades for 2020: 40-11 (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 and Text Alerts.
Financial Select Sector Spider Fund (XLF, $27.03, up $0.44)
Buy to Open XLF January 28 calls (VUZI210115C00005000, $0.60, up $0.12)
Action: I like these call options at current levels and you can use a Limit Order up to 75 cents to get the best fills. If the calls open lower, we will get better fill prices. These are the regular XLF January 28 calls that expire on January 15th, 2021.
The financial sector has lagged the overall market for 2020 with XLF coming into 2020 at $30.78 and showing a double-digit loss of -12%. Last Monday’s breakout from just below the $25 level to $27 was a bullish signal of a long overdue multi-month breakout.
The chart below shows the mid-August tops at $25.72 and $25.77 in back-to-back sessions and the early September peaks at $26.01 and $25.69. The mid-October highs tagged $25.59 and $25.51 in back-to-back sessions.
The “triple-top” breakout and continued closes above the $27 level last week is an indication of a nice floor of current support. Given the recent bullishness, there is a good chance a run towards $30 could be in the works if shares can clear and hold the $27.50 level and last Monday’s intraday peak at $27.44.
With the current 52-week peak from mid-February $31.38, a $30 price target looks very promising if $27.50 is cleared and held this month. To give a potential option trade plenty of time to play out, the aforementioned XLF January 28 calls offer a sweet, and cheap, risk/ reward setup heading into 2021.
If XLF shares can clear and hold $29.20 by the expiration date of January 15th, these calls will double from current levels as they would technically be $1.20 “in-the-money”. Even better would be a push past $29.80 as it would represent a total return of at least 200% from current levels with the calls worth at least $1.80.
The risk in this trade would be if shares fall below the $26.50 level and last Thursday’s low at $26.35 over the near-term. If this scenario happens, a backtest towards $25.75-$25.50 could quickly occur. This technical pattern would be known as a “back-and-fill” towards prior support levels.
To limit losses in the 25%-50% range and the possibly of the aforementioned call options expiring worthless, the trade would be closed to save the remaining premium if XLF closes below $26.25 this month or next.
Freeport McMoRan (FCX, $20.14, up $0.62)
Buy to Open FCX December 20 calls (FCX201218C00020000, $1.25, up $0.25)
Entry Price: $1.10 (11/13/2020)
Exit Target: $2.20
Stop Target: 80 cents
Action: Friday’s peak reached $20.22 with current and lower resistance at $20-$20.25 getting cleared and holding. A close above the latter would signal a retest towards $20.75-$21. Support is at $19.75-$19.50.