MomentumOptions.com Pre-Market Update for 5/20/2019
Bears Snatch Weekly Win From Bulls
8:00am (EST)
The market showed some strength shortly after a lower open on Friday following news the trade front with the EU, Mexico and Canada is easing with the U.S. set to remove steel and aluminum tariffs on Canada and Mexico. However, weakness returned late in the session following reports of stalling trade negotiations with China with the major indexes making lower lows into the close.
The end result was a down for week for the market with volatility once again spiking towards key resistance levels. The technical outlook for the major indexes remain bullish but the upcoming week will be an important test if there is a return of weakness.
The Russell 2000 dropped 1.4% after tapping a low of 1,524 ahead of the closing bell. Near-term and upper support at 1,535-1,520 was breached but held with a close below the latter and last week’s low signaling additional weakness towards the 1,500 level.
The Nasdaq fell 1% following the late day pullback to 7,810 and close back below the 50-day moving average. Upper support at 7,800-7,750 held with risk towards 7,700-7,650 on a move below the latter.
The S&P 500 was lower by 0.6% after trading to an opening low of 2,854 while also closing back below its 50-day moving average. Crucial support at 2,850 held with a move below this level getting 2,825-2,800 back in play.
The Dow gave back 0.4% after trading to an intraday low of 25,657. Current and upper support at 25,650-25,400 was breached but held with a close below the latter and the 200-day moving average being a bearish development.
For the week, the Russell 2000 tanked 2.5% and the Nasdaq sank 1.3%. The S&P 500 declined 0.8% while the Dow was down 0.7%.
Utilities were the only sector that showed strength after rising 0.5%. Industrials and Energy paced sector laggards after sliding 1.1% and 1%, respectively. Consumer Discretionary and Technology fell 0.8%
The best performing sectors for the week included Real Estate (1.5%), Utilities (1.4%), Energy (1.5%) and Consumer Staples (0.8%). Financials (-2.2%) were the worst performing sector followed by Industrials (-1.9%) and Consumer Discretionary (-1.2%).
In economic news, Consumer Sentiment Index checked in at 102.4 in the preliminary May reading versus forecasts of 97.5, and the highest reading since January 2004. The May print follows a 1.2 point drop to 97.2 in April. Nearly all of the improvement was in the expectations component, which jumped to 96 from 87.4. The current conditions index edged up to 112.4 versus 112.3. The 12-month inflation gauge climbed to a 2.8% rate versus 2.5% last month. The 5-year index rose to a 2.6% clip from 2.3%, also the highest since January.
Quarterly Services Survey Report revealed a 5.6% Q1 year-over-year gain in the aggregate selected services measure. For the larger components, there was a 7.1% year-over-year surge in the finance and insurance component, but a lean 4.5% year-over-year rise for the healthcare and social assistance component.
E-Commerce Retails Sales were up 3.6% for the quarter.
Leading Indicators for April were up 0.2% to 112.1 versus expectations for a rise of 0.3% for the month. Seven of the 10 components made positive contributions, led by stock prices and the leading credit index. Two components contributed negatively, led by the 0.08% drop in new ISM orders, while the workweek was unchanged.
Baker-Hughes reported the U.S. rig count was down 1 rig to 987, with oil rigs down 3 to 802, gas rigs up 2 to 185, and miscellaneous rigs unchanged at 0. The U.S. Rig Count is down 59 rigs from last year’s count of 1,046, with oil rigs down 42, gas rigs off 15, and miscellaneous rigs declining by 2. The U.S. Offshore Rig Count is up 2 rigs to 22 and up 3 rigs year-over-year.
The iShares 20+ Year Treasury Bond ETF (TLT) held positive territory for much of the session with the high reaching $126.30. Current and lower resistance at $126-$126.50 held by a penny with the 52-week high at $126.69.
Support is at $125.50-$125 with a move below $124.50 signaling additional weakness towards $124-$123.50 and the 50-day moving average that remains in a strong uptrend.
RSI is somewhat neutral with resistance at 65 and the monthly peak. A close above this level would be a bullish signal for a possible push towards 70-75 and late March highs. Support is at 60 with risk towards 55-50 on a move below this level.
The S&P 500 Volatility Index ($VIX) traded to a morning peak of 16.81 with resistance at 16.50-17 getting split and the 200-day moving average holding. A close back above the 17.50 level would be another warning signal for the market with risk towards 20-20.50.
Support remains at 15-14.50 with a close below the latter and the 50-day moving average signaling a return of bullish momentum for the market.
The Russell 3000 Index ($RUA) had its 3-session winning streak snapped following the pullback to 1,682 into the closing bell. Upper support at 1,680-1,665 held on the close back below the 50-day moving average. A move below the latter opens up risk towards 1,650-1,635 and the 200-day moving average.
Resistance is at 1,690-1,705 with last week’s peak reaching 1,704. Continued closes above the 1,700 level keeps upside potential towards 1,710-1,725 in play.
RSI is in a slight downtrend with support at 45-40. A move below the latter reopens risk towards 35-30 with the latter representing the monthly bottom. Resistance is at 50 with a move back above this level signaling a return of strength and a possible run towards 55-60.
The Financial Select Sector Spiders (XLF) are trying to build a base of support above the 50-day moving average with Friday’s low tapping $26.75. A close below this level could lead to another backtest towards $26.50-$26.25 and the 200-day moving average.
Near-term and current resistance is at $27-$27.25. Continued closes above the $27.50 level would be a more bullish signal for a retest towards the $27.75-$28 area.
RSI is in a slight downtrend with support at 45-40 and the latter representing the month low. A move below 40 would be a bearish signal with risk towards 35 and the March low. Resistance is at 50 and prior support from earlier this month. A move above 55 would signal a return of momentum.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed Friday at 63.10% and session low. Near-term and upper support at 62.5%-60% held. A move below the latter and last week’s low of 61.16% would being a bearish development for additional weakness towards the 57.5%-55% area and late March lows. Resistance is at 65%-67.5% with Friday’s and last Thursday’s peak reaching 66.99%. A close above the latter would be a slightly bullish signal for additional strength towards 67.5%-70%.
The percentage of S&P 500 stocks trading above the 50-day moving average settled at 47.32% with the session low reaching 45.34%. Current support at 45%-42.5% held. A move below the latter opens up additional weakness towards the 40%-37.5% area. Near-term resistance is at 50%-52.5% with a move above the latter signaling additional strength towards 55%-57.5%.
I mentioned last week I would like to see the Financials lead the next leg of the market higher but they ended up being the worst sector performer last week. The VIX closing back above 15 has me cautious to start the week and I will be watching the 17.50 level like a hawk.
Momentum Options Play List
Closed Momentum Options Trades for 2019: 19-6 (76%). 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 “NewTrade” 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.
Cypress Semiconductor (CY, $15.55, down $0.39)
CY September 17 calls (CY190920C00017000, $0.65, down $0.10)
Entry Price: $0.75 (5/16/2019)
Exit Target: $1.50
Return: -13%
Stop Target: None
Action: Shares tapped a low of $15.52 with fresh support at $15.50-$15.25 following the close back below the 50-day moving average. A close below the latter would be a slightly bearish development. Lowered resistance is at $15.75-$16. These options have 123 days before expiration.
Marvell Technology (MRVL, $22.62, down $0.48)
MRVL June 25 calls (CY190621C00025000, $0.41, down $0.06)
Entry Price: $0.47 (5/16/2019)
Exit Target: $1.00
Return: -13%
Stop Target: None
Action: Upper support at $22.75-$22.50 was breached and failed to hold following the backtest to $22.51. Lowered resistance is at $23-$23.25. The June options have 32 days before expiration.
AT&T (T, $31.80, up $0.18)
T July 32 calls (T190719C00032000, $0.75, up $0.10)
Entry Price: $0.47 (5/15/2019)
Exit Target: $1.00
Return: 60%
Stop Target: 50 cents, raise to 60 cents (Stop Limit)
Action: Raise the Stop Limit at 50 cents to 60 cents to further protect profits.
Fresh and lower resistance at $31.75-$32 was cleared and held with Friday’s peak reaching $31.88 and the options tapping a high of 82 cents. Support remains at $31.50-$31.25. The July options have 60 days before expiration.
Bank of America (BAC, $28.40, down $0.19)
BAC June 31 calls (BAC190621C00031000, $0.08, down $0.02)
Entry Price: $0.55 (5/8/2019)
Exit Target: $1.10
Return: -85%
Stop Target: None
Action: Upper support at $28.25-$28 was breached but held on the close back below the 200-day moving average with Friday’s low reaching $28.22. Resistance is at $28.50-$28.75.
Viavi Solutions (VIAV, $12.80, down $0.47)
VIAV June 14 calls (VIAV190621C00014000, $0.10, down $0.10)
Entry Price: $0.40 (5/2/2019)
Exit Target: $0.80
Return: -75%
Stop Target: None
Action: Shares plunged to a low of $12.79 with fresh and upper support at $12.75-$12.50 and the 50-day moving average holding. Lowered resistance is at $13-$13.25. I would like to see a close back above the latter this week.
Amicus Therapeutics (FOLD, $12.25, down $0.33)
FOLD July 15 calls (FOLD190719C00015000, $0.30, down $0.15)
Entry Price: $1.10 (4/12/2019)
Exit Target: $2.20
Return: -73%
Stop Target: None
Action: Upper support at $12.25-$12 and the 200-day moving average held on Friday’s fade to $12.21. Lowered resistance is at $12.50-$12.75.
BlackBerry (BB, $8.45, down $0.18)
BB June 10 calls (BB190621C00010000, $0.05, flat)
Entry Price: $0.35 (4/12/2019)
Exit Target: $0.70
Return: -86%
Stop Target: None
Action: Close the trade this morning to save the remaining premium. The major moving averages are starting to roll over and there could be additional weakness in the weeks ahead. If shares can clear $8.75-$9 down the road, we may look into another bullish position.