Pre-Market Update for 12/29/2020

Bulls Push Another Round of Record Highs

8:00am (EST)

The market closed mostly higher on Monday with fresh record highs after President Trump signed the $2.3 trillion spending bill that will fund the government through September, and which also includes the $900 billion coronavirus pandemic relief package.

The S&P 500 traded to a late day record peak of 3,740 before ending at 3,735 (+0.9%). Fresh and lower resistance at 3,725-3,750 was cleared and held. A close above the latter would indicate additional momentum towards 3,775-3,800.

The Nasdaq kissed a lifetime high of 12,930 before finishing at 12,902 (+0.8%). Uncharted territory and lower resistance at 12,900-13,000 was cleared but held. A move above the latter would suggest additional strength towards 13,100-13,200.

The Dow closed at 30,403 (+0.7%) while trading to an all-time high of 30,525. New and lower resistance at 30,500-30,750 was breached but held. A close above the latter would signal further upside towards 31,000-31,250.

The Russell 2000 tapped a record high of 2,026 before closing slightly lower at 1,996 (-0.4%). Fresh and lower resistance at 2,020-2,040 was breached but held. A close above the latter would indicate continued strength towards 2,050-2,070.

The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) snapped a three-session slide despite the session low tagging 21.15. Near-term and upper support at 21.50-21 was tripped but held for the second-straight session. A move below the latter would suggest additional weakness towards 20.50-20.

Resistance remains 22.50-23 followed by 24-24.50.

The Invesco QQQ Trust (Nasdaq: QQQ) was up for the second-straight session after trading to a fresh all-time high of $313.17. Unchartered territory and lower resistance at $313-$313.50 was cleared but held. A close above the latter would indicate additional momentum towards the $314.50-$315 area.

New support is at $312-$311.50 followed by $310.50-$310.

RSI (relative strength indicator) is in an uptrend with key resistance at 70 holding. A close above this level would signal additional strength towards 75-80 and levels from early September. Support is at 65-60.

The iShares PHLX Semiconductor ETF (Nasdaq: SOXX) settled lower despite showing signs of breaking out of a four-session trading range with the morning peak reaching $377.70. Current and lower resistance $377-$377.50 was cleared but held. A close above the latter would indicate a retest towards the $380-$380.50 with this month’s all-time peak at $384.05.

Near-term and upper support at $372.50-$372 was breached but held on the second half fade to $372.16. A close below the latter would be a slightly bearish signal with downside risk towards $370.50-$370.

RSI is showing signs of rolling over with key support at 60 holding. A move below this level would signal additional weakness towards 55-50. Resistance is at the 65-70.

I have a big writeup on CSCO this morning after doing some research on Cisco Systems over the weekend.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 45-11 (80%). 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.

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Cisco Systems (CSCO, $44.92, up $0.38)

CSCO February 48 calls (CSCO210219C00048000, $0.65, up $010)

Entry Price: $0.60 (12/28/2020)
Exit Target: $1.20
Return: 9%
Stop Target: None

Action: Shares of Cisco Systems (CSCO) have struggled throughout 2020 and are basically flat for 2020 despite the strong gains posted throughout the Tech sector and the Nasdaq this year.

The company was once considered one of the “four horseman” of the Tech sector throughout the 1990’s, along with Dell, Microsoft and Intel and one of the best ways to play the internet as far as an investment.

While Microsoft has remained a steady force, Cisco Systems and the others have been replaced by the likes of Apple (AAPL), Facebook (FB), and Google (GOOGL) as leading horses to play the continued internet boom.

After coming into the year just above the $45 level shares of Cisco Systems are currently trading around the same level. While valuations can be debated on all of the aforementioned stocks, Cisco Systems trades at a current price-to-earnings of 18 and pays an annual dividend north of 3%, or $1.44.

While the yield may not look too great, the company’s relatively long payment history is pretty reliable as dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable, but something current shareholders of Cisco Systems need not to worry about.

Of the free cash flow the company has generated this year, Cisco Systems paid out 40% as dividends, suggesting the dividend is affordable. The company’s dividend is covered by both profits and cash flow and generally a sign that the dividend is sustainable.

Of course, with the 52-week low at $32.40, there is risk in owning shares of Cisco Systems at current levels. The 50% rebound off the March low to $48 in early August was impressive, until the company announced fourth-quarter earnings.

At the time, Cisco Systems topped Wall Street’s estimates by six-cents a share along with a revenue beat. However, the company said first-quarter revenue was expected to decline 9%-11% from the prior year, with forecasts at $12.25 billion.

Fast-forward to November, with Cisco Systems reporting first-quarter earnings of 76 cents a share versus expectations of 70 cents, another six-cent beat. Revenue came in at $11.9 billion but ahead of lowered forecasts at $11.85 billion.

For the current second-quarter, Cisco sees adjusted earnings per share coming in at 74-76 cents, above estimates of 73 cents but revenue growth at 0% to -2% year-over-year with forecasts at $11.63 billion.

With the company’s next earnings release scheduled for early February, the headline risk is of less importance than the current technical setup. The chart below shows a consolidation pattern between $44-$45 throughout much of December with the latter getting stretched and the monthly peak at $45.57.

If shares can clear and hold the $45.50 level, there is likely a good chance a run towards $48-$50 could be in the mix. With January options expiring mid-month, the February call options look like a better bet to give this trade more time to play out.

Both the 50-day and 200-day moving averages are curling higher, another positive technical development, and I like this trade going forward. However, a close below the $44-$43.50 levels would be a slightly bearish development if this were to occur at some point in January. This would likely signal a further backtest towards the moving averages with us cutting losses to save the remaining premium.

AT&T (T, $28.55, down $0.14)

T February 30 calls (T210219C00030000, $0.50, down $0.05)

Entry Price: $0.48 (12/22/2020)
Exit Target: $1.00
Return: 4%
Stop Target: None

Action: Shares tested an intraday low of $28.50 with upper support at $28.50-$28.25 and the 50-day moving average getting kissed but holding. Resistance remains at $28.75-$29. A close above the latter and the 200-day moving average would be a more bullish signal of a near-term bottom. Monday’s high tagged $28.96.

Boston Scientific (BSX, $34.92, up $0.33)

BSX February 31 puts (BSX210219P00031000, $0.45, down $0.05)

Entry Price: $0.85 (12/14/2020)
Exit Target: $1.70
Return: -53%
Stop Target: None

Action: Shares traded to a high of $35.06 with lower resistance at $35-$35.25 and the 50-day moving average getting challenged but holding. Support is at $34.50-$34.25.