MomentumOptions.com Pre-Market Update for 6/3/2019
Bears Cap May with Fresh Lows
8:00am (EST)
The market struggled throughout Friday’s session following fresh rhetoric from President Trump to impose a 5% tariff on all Mexican imports starting June 10th. Additionally, duties of up to 25% could be imposed in the coming months if Mexico doesn’t take action to reduce or eliminate the number of illegal aliens crossing into the country.
The major indexes closed at fresh lows on the last trading day for May with prior support levels from January, February and March now in play. Volatility was once again on the rise but held the psychological 20 level into the closing bell.
The Nasdaq tumbled 1.5% following the late day backtest to 7,448 and close below its 200-day moving average. Prior and upper support at 7,450-7,400 was tripped but held with risk towards 7,350 and the March low of 7,332 on a move below the latter.
The Dow declined 1.4% after testing a low of 24,809 ahead of the closing bell. Prior and lower support from early February at 25,000-24,750 held on the close below the former with risk towards 24,500-24,250 on a move below the latter.
The Russell 2000 also plummeted 1.4% while bottoming at 1,461 and extending its losing streak to 4-straight sessions. Longer-term and upper support from mid-January at 1,465-1,450 was breached but held with a close below the latter getting 1,425-1,410 in play.
The S&P 500 was down for the 3rd time in 4 sessions after sinking 1.3% while tapping a late session low of 2,750 on the close back below the 200-day moving average. Lower support at 2,775-2,750 was kissed but held with further risk towards 2,725-2,700 and early February levels on continued weakness.
The Dow was down for the 6th-straight week after giving back 3% while the S&P 500 gave back 2.6%. The Russell 2000 dropped 3.3% and the Nasdaq was down 2.4%. For the month, the small-caps were hit for 8.1%; Tech tanked 7.9%; the blue-chips plummeted 6.7%; and the S&P sank 6.6%.
Real Estate and Utilities were the only sectors that showed strength after rising 0.8% and 0.5%, respectively. Energy and Technology fell 1.8% and 1.7% to lead sector weakness.
The were no sectors that closed higher for the week. Consumer Staples (-3.3%) and Utilities (-3.2%) were the worst performing sectors. For May, Real Estate (0.4%) was the only sector that showed strength while Energy (-9.5%) led sector laggards followed by Materials and Technology (-7.1%).
In economic news, Personal Income for April rose 0.5% with spending up 0.3% versus expectations for a rise of 0.3% and 0.2%, respectively. The 0.1% increase in March income was not revised, but spending was bumped up to a 1.1% gain from 0.9%, though February was nudged down to flat from 0.1%. Wages and salaries were up 0.3% versus 0.4%. Disposable income increased 0.4% from 0.1. The savings rate rose to 6.2% versus 6.1%. The PCE chain price index rose 0.3% from 0.2% while the core rate was up 0.2% from 0.1%. On a 12-month basis, the headline accelerated to a 1.5% year-over-year clip versus 1.4%. The core rate rose to 1.6% year-over-year from 1.5%.
Chicago PMI nudged up 1.6 points to 54.2 in May, topping forecasts of 53.6, and follows the 52.6 mark in April. The 3-month moving average slipped to 55.2 from 58.7.
Consumer Sentiment for May came in at 100, up from the 97.2 April reading, and below forecasts of 101.5. The strength was in the expectations index which rose to 93.5 versus April’s 87.4. The current conditions index slipped to 110.0 from last month’s 112.3 print. The 12-month inflation gauge climbed to a 2.9% clip from 2.5%, while the 5-year measure rose to 2.6%% from 2.3%.
Baker-Hughes reported the U.S. rig count was up 1 rig from last week to 984, with oil rigs up 3 to 800, gas rigs down 2 to 184, and miscellaneous rigs unchanged at 0.
The S&P 500 Volatility Index ($VIX) was up for the 3rd time in 4 sessions after surging to an afternoon high of 19.72. Near-term resistance at 18.50-19 was breached on the close near the middle with more crucial levels at 19.50-20. If the latter fails, there is upside risk towards 22-23.50 with the May peak at 23.38.
Current support is at 17.50-17 and the 200-day moving average. These levels likely need to be recovered by Monday’s close to avoid continued selling pressure.
RSI is just below near-term resistance at 60-65 with risk towards 70 and the May high if these levels are cleared this week. Support is at 55-50 with a close below the latter signaling additional weakness and being a slightly bullish signal for the market.
The Spiders Dow Jones Industrial Average ETF (DIA) fell for the 3rd time in 4 sessions following the late day fade to $248.22 and session low. Early February support at $248.50-$248 was breached and failed to hold. A close below the $247.50 level would be an ongoing bearish signal with risk towards the $255.50-$255 area and late January support.
Near-term resistance is at $249-$249.50. Continued closes above the $250 level would be a slightly bullish signal with more important hurdles at $$252-$252.50 and the 200-day moving average.
RSI is in a downtrend with support at 30 and the May low holding into the closing bell. A move below this level would signal additional weakness towards 25-20 and late December lows. Resistance is at 35-40.
The Health Care Select Sector Spider (XLV) was also down for the 3rd time in 4 sessions after testing an intraday low of $86.77. Prior and upper support from mid-May at $87-$86.50 was breached but held. A move below the latter would signal additional weakness towards $85.50-$84.50 and the mid-April low of $84.65.
Lowered resistance is at $87.50-$88 with more important hurdles at $89.50-$90. A recent death cross has formed with the 50-day moving average falling below the 200-day moving average. This is typically a bearish signal for lower lows down the road.
RSI is a slight downtrend with support at 40. A close below this level would signal additional weakness towards 35-30 and mid-April lows. Resistance is at 45-50.
The percentage of S&P 500 stocks trading above the 200-day moving average closed Friday at 48.31% with the session low tapping 47.12%. Early March and upper support at 50%-47.5% was breached and failed to hold. A move below the latter would being a bearish development for additional weakness towards the 45%-42.5% area and early February lows. Resistance is at 50%-52.5%. A close above 55% would be a slightly bullish signal for additional strength towards 57.5%-60%.
The percentage of Nasdaq 100 stocks trading above the 50-day moving average settled at 20.38% with the session low reaching 17.47%. Early January support at 20% held. A move below this level opens up additional weakness towards the 17.50%-12.5% area and extremely oversold levels. However, the December 24th low tapped 2.91 so there could still be a capitulation moment that could push single-digits. Near-term resistance is at 22.5%-25% with a move above the 30% level being more bullish and signaling additional strength towards 35%-37.5%.
The Q1 earnings season is nearly complete and will wrap up in a few weeks before a week or so of a quite period and the start of 2Q reporting in early July. Total earnings for the 483 S&P 500 members that have reported results, or roughly 97% of the index’s total membership, are up 0.2% on 4.7% higher revenues with 76.8% beating EPS numbers and 59% topping revenue estimates.
The Retail sector’s Q1 earnings results have been mixed compared to recent periods. Total earnings and revenues for the sector are up 13.2% and 8.1% respectively, with 75.8% beating EPS forecasts and 51.5% besting revenue estimates.
Total earnings for the Tech sector, and results from 96% of companies in the S&P 500 having reported, are down -6.9% from the same period last year on 2.6% higher revenues, with 81.3% topping EPS numbers and 67.2% ahead of revenue estimates.
Total earnings for the Finance sector, with all results in, were up 2.7% on 8.2% higher revenues, with 78.4% besting EPS estimates and 61.9% beating revenue forecasts.
For the small-cap S&P 600 index, Q1 results from 559 index members, or 93.2% of the index’s total membership, have been reported. Total earnings for these companies are down -17.7% from the same period last year on 3.1% higher revenues, with 54.9% ahead of EPS estimates and 56.4% beating revenue numbers.
Looking at Q1 as a whole for the small-cap index, total Q1 earnings are expected to be down -19.2% from the same period last year on 4.5% higher revenues.
For full-year 2019, total earnings for the S&P 500 index are expected to be up 2.1% on 2.6% higher revenues, and would follow the 23.3% earnings growth on 9.3% higher revenues in 2018. Double-digit growth is expected to resume in 2020, with earnings expected to be up 10.8%.
For 2019 Q2, total earnings for the S&P 500 index are expected to be down -1.8% on 4.4% higher revenues. Estimates for Q2, as well as full-year 2019, have come down with the current 2.1% growth rate for full-year 2019 down from 9.8% in early October 2018.
This week’s earnings schedule include a few key names but no major announcements today worth noting. This means political and economic news will take on more meaning this month as companies prepare for the next round of earnings in early July.
As of this writing, futures were showing continued weakness on Monday’s open. Once again, the VIX will be under pressure to hold the 20 level. If breached, I could have fresh New Trade alerts so stay locked-and-loaded throughout the session.
The portfolio remains light and we have 2 of 3 trades with outcomes nearly complete. With profits locked-in on CY, and MRVL’s fate likely being decided this week, that only leaves T as our one longer-term trade. While it appears the next batch of trades could be put options, the slow drip lower has made it difficult as the major indexes have only lost 1% a week, on average.
Downside put options have become super expensive and why I have avoided them. The good news is there are a number of individual stocks that are overvalued and have held up but are due for major pullbacks. I have 5-10 solid ideas so try to be just a tad more patient as we see how the start of the week unfolds.
Momentum Options Play List
Closed Momentum Options Trades for 2019: 20-8 (70%). 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.
AT&T (T, $30.58, down $1.28)
T July 33 calls (T190719C00033000, $0.15, down $0.20)
Entry Price: $0.47 (5/24/2019)
Exit Target: $1.00
Return: -68%
Stop Target: None
Action: Shares sank to a low reached $30.38 on Friday with upper support at $30.50-$30.25 and the 200-day moving average getting breached but holding. Lowered resistance is at $30.75-$31 with more important hurdles at $31.25 and the 50-day moving average.
While I was disappointed in the price action, the July options have 46 days before expiration. I still like the trade as long as $30 holds going forward.
Cypress Semiconductor (CY, $17.82, down $0.07)
CY September 17 calls (CY190920C00017000, $2.20, down $0.05)
Entry Price: $0.75 (5/16/2019)
Exit Target: $3 (closed half at $1.70 on 5/29)
Return: 160%
Stop Target: $1.60, raise to $1.90 (Stop Limit)
Action: Raise the Stop Limit at $1.60 to $1.90.
Shares tested a high of $18.14 lower resistance at $18-$18.25 getting cleared but ho.ding. The fade to $17.47 held upper support at $17.75-$17.50.
The September options expire in 109 days.
Marvell Technology (MRVL, $22.19, up $0.17)
MRVL June 25 calls (MRVL190621C00025000, $0.10, down $0.05)
Entry Price: $0.47 (5/16/2019)
Exit Target: $1.00 (Limit Order)
Return: -79%
Stop Target: None
Action: Lower resistance at $22.50-$22.75 and the 50-day moving average held on Friday’s trip to $22.64. Support is at $22-$21.75.
These options expire in 18 days and we will need shares to at least clear $23 this week. A move below $21.50 would be a fresh bearish signal and likely take us out of the position.