MomentumOptions.com Pre-Market Update for 5/28/2019
Bears Get Another Weekly Win
8:00am (EST)
The market closed slightly higher on Friday while holding positive territory throughout much of session despite disappointing factory data. The S&P 500 showed some mild weakness after the open and was the only index that dipped into negative territory before returning to strength.
President Trump bolstered market sentiment after he said certain restrictions against Chinese tech companies could be addressed in a trade deal but it wasn’t enough to avoid another negative week. The good news is the major indexes held the late March lows for the second time this month while volatility eased into the holiday weekend.
The Russell 2000 rose 0.9% after testing a morning peak of 1,516. Near-term and lower resistance at 1,510-1,525 was cleared and held with a close above 1,530 being a more bullish signal for a near-term bottom.
It is too early to say if a triple-bottom is trying to form but Friday’s action was a start. The bounce off the previous low in February and March were followed by nice 2-week rallies afterwards. RSI is back in an uptrend but the 50/200-day moving averages are showing slight signs of rolling over. This will improve if there is a rally into month end and the start of June. A close above the 1,525 level would be a bullish start for the shortened week.
The Dow added 0.4% following the run to 25,670 shortly after the opening bell. Prior and lower resistance at 25,500-25,750 was cleared and held with more important hurdles at 26,000 and the 50-day moving average. More on the Dow below.
The S&P 500 climbed 0.1% after tapping a first half high of 2,841. Current and lower resistance at 2,850 held with a close back above 2,875 and the 50-day moving average signaling additional strength. More on the S&P in a minute…
The Nasdaq also edged up 0.1% following the morning run to 7,694. Prior and lower resistance at 7,700-7,750 was challenged but held with a close above 7,850-7,900 and the 50-day moving average leading to additional momentum.
Like the Dow and S&P 500, a triple bottom could also be in progress with the Nasdaq holding its late March lows and this month’s lows getting slightly stretched. A move below last week’s low of 7,585 would be a bearish signal for a further retest towards 7,550-7,500 and the 200-day moving average. A recovery of the 7,700 to start the week would help offset some near-term pressure with at least a move above 7,800 by week’s end providing a more bullish thesis.
The Nasdaq was down for the 3rd-straight week after flopping 2.3% and the Russell 2000 fell 1.4%. The S&P 500 extended its losing streak to 3-straight weeks as well after giving back 1.2% while the Dow was down 0.7%, its 5th-straight down week.
Financials were the strongest sector after rallying 0.8% while Materials gained 0.6%. Consumer Staples paced sector laggards with a decline of 0.4% while Utilities slipped 0.2%.
The best performing sectors for the week were Utilities (1.8%), Healthcare (1.3%) and Real Estate (0.3%). Energy (-3.3%) was the worst performing sector followed by Technology (-2.8%) and Consumer Discretionary and Communication Services (-2.1%).
In economic news, Durable Goods Orders fell 2.1% in April following a 1.7% March rebound, missing forecasts for a decline of 2%. Transportation orders declined 5.9%, erasing the prior 5.9% increase. Excluding transportation, orders were unchanged following the prior 0.5% decline, and better than forecasts for a dip of 0.1%. Non-defense capital goods orders excluding aircraft were down 0.9% from 0.3%. Shipments slid 1.6% after falling 0.5%. Nondefense capital goods shipments ex-air were flat from -0.6%. Inventories rose 0.4% versus 0.3% previously. The inventory-shipment ratio increased to 1.67 from 1.64.
Hughes reports reported the U.S. rig count was down 4 rigs from last week to 983, with oil rigs sliding 5 to 797, gas rigs up 1 to 186, and miscellaneous rigs unchanged at 0. The U.S. Rig Count is down 76 rigs from last year’s count of 1,059, with oil rigs declining 62, gas rigs down 12, and miscellaneous rigs off 2. The U.S. Offshore Rig Count was unchanged at 22 and is up 3 rigs year-over-year.
The S&P 500 Volatility Index ($VIX) was down for the 3rd time in 4 sessions while testing an intraday low of 15.52. Near-term support at 15.50-15 held with a move back below 14.75-14.25 and the 50-day moving average this week being a slightly bullish development heading into June.
Near-term resistance is 16.50-17 followed by 17.50-18 and the 200-day moving average. A close above the latter keeps risk towards 20-22 in play.
RSI has been hovering around the 50 area since mid-month with a move below 45 and the late April low signaling additional weakness. A close above 55-60 would be a bearish development for the market with strength towards 65-70 and the latter representing the monthly peak.
The Russell 2000 ETF (IWM) rebounded while trading to an intraday high of $151.09. Current and lower resistance at $151-$151.50 held. Continued closes back above the $152.50 level would signal a possible run towards the 200/50-day moving averages.
Near-term support is at $150-$149.50. A close below the latter and the late March low of $148.41 would signal a further backtest towards the $148-$147.50 area and early February levels.
RSI is back in a slight uptrend with resistance at 45-50. A move above the latter and prior support from earlier this month level would be a bullish development for additional strength towards 55-60. Current support is at 35 and the monthly low.
The Spider Gold Shares (GLD) was up for the 2nd-straight session after reaching a peak of $121.31. Lower resistance at $121.50-$122 and the 50-day moving average easily held with continued closes above the latter signaling a possible near-term bottom.
Near-term support is at $120.50-$120. A close below the $119.50 level and the late April/ early May lows would be a bearish development for additional weakness towards $119-$118.50 and the 200-day moving average.
RSI has leveled out after clearing resistance at 50. Continued closes above this level would be a bullish signal for a possible push towards 55-60 with the latter representing this month’s high. Support is at 45-40.
The 1Q earnings season is rapidly winding down with roughly 94%, or 468 S&P 500 members reporting numbers. Total earnings are up 0.1% on 4.8% higher revenues, with 76.7% besting EPS estimates and 59.6% topping revenue estimates.
With results from 72% of the Retail sector stocks in the S&P 500 out, total earnings and revenues for the sector are up 13.7% and 8.3% respectively, with 75% ahead of EPS estimates and 53.6% beating revenue estimates.
Total earnings for the Tech sector are down -7.7% from the same period last year on 3.1% higher revenues, with 82.5% beating EPS estimates and 71.9% topping revenue estimates, as 85% of Tech companies in the S&P 500 have reported.
Total earnings for the Finance sector with all results announced were up 2.7% on 8.2% higher revenues, with 78.4% topping EPS estimates and 61.9% ahead of revenue estimates.
Looking at Q1 as a whole, total S&P 500 earnings are expected to decline -0.2% from the same period last year on 5% higher revenues.
For the small-cap S&P 600 index, results from 548 index members or 91% of the index’s total membership are in the books. Total earnings for these companies are down -19.1% from the same period last year on 3.1% higher revenues, with 55.5% beating EPS estimates and 56.4% besting revenue estimates.
Looking at Q1 as a whole for the small-cap index, total Q1 earnings are expected to be down -19.9% 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 2.2% on 3.2% higher revenues, which would follow the 23.3% earnings growth on 8.7% higher revenues in 2018. Double-digit growth is expected to resume in 2020, with earnings expected to be up 10.8% that year.
For 2019 Q2, total earnings for the S&P 500 index are expected to be down -1.6% on 4.4% higher revenues. Estimates for Q2 as well as full-year 2019 have come down, with the current 2.2% growth rate for full-year 2019 down from 9.8% in early October 2018.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed Friday at 56.31%, the session low and matched in late March. Near-term support at 57.5%-55% was split on the close below the former. A move below the latter would being a continuing bearish development for additional weakness towards the 52.5%-50% area and early February lows. Resistance is at 58%-60%. A close above the latter would be a slightly bullish signal for additional strength towards 62.5%-65%.
The percentage of S&P 500 stocks trading above the 50-day moving average settled at 41.98% with the session high reaching 43.36%. Near-term resistance at 42.5%-45% held with a move above the latter signaling additional strength towards 47.5%-50%. Current support at 40%-37.5% with last week’s low tapping 37.42%. A move below 37.5% opens up additional weakness towards 35%-32.5% with the monthly low at 33.46%.
I wanted to cover the major indexes in more detail and why I included their charts in today’s update. Tuesday’s open will be an important tell for the market and it is imperative the bulls show some strength and get the session win.
The portfolio is extremely light and we are in great position to resume call buying or start to seriously look at some index and stock put options. A close, or move below last week’s market lows, along with a VIX reading above 18 this week will likely lead to continued selling pressure.
If the market does rebound, the momentum could last for a few weeks, as predicted, until another pause with choppy trading that could last into 2Q earnings season that begins in early July. Either way, the aforementioned technical signals should give us great clues on how the near-term action will unfold.
One idea I want to share with you on a possible trade and something I’m watching…Shares of Ally Financial (ALLY, $29.43, up $0.42) have been in a longer-term trading range since mid-April and this can be bullish or bearish the longer it stays intact. The 50-day moving average remains in a strong uptrend with the late April and 52-week high at $30.27
There was huge volume in the ALLY January 35 calls (2020) (ALLY200117C00035000, $0.70, up $0.15) as over 20,000 contracts exchanging hands. This could be repeat buying as there was another block of 20,000 contracts purchased earlier this month. While these calls are roughly 15% out-of-the-money, it appears traders are gearing up for a move past $30. The charts below shows the madness and overhead resistance at this level. If $30 is cleared, we don’t have to use the aforementioned options but instead I will focus on July calls. Stay locked-and-loaded and look for a possible New Trade Alert in case I take action today.
In the meantime, let’s go check on the current action.
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, $32.27, up $0.13)
T July 33 calls (T190719C00033000, $0.47, up $0.01)
Entry Price: $0.47 (5/24/2019)
Exit Target: $1.00
Return: 0%
Stop Target: None
Action: Shares traded to a high of $32.35 with lower resistance at $32.25-$32.50 getting cleared and holding. A close above the latter should get another run at $33 in play. Support is at $32-$31.75.
Cypress Semiconductor (CY, $15.47, down $0.03)
CY September 17 calls (CY190920C00017000, $0.60, flat)
Entry Price: $0.75 (5/16/2019)
Exit Target: $1.50
Return: -20%
Stop Target: None
Action: Shares made a run to $15.80 before fading into the closing bell with upper resistance at $15.50-$15.75. A close above $16 and the 50-day moving average would be a more bullish development. Support is at $15.25-$15.
Marvell Technology (MRVL, $21.92, down $0.20)
MRVL June 25 calls (MRVL190621C00025000, $0.20, down $0.05)
Entry Price: $0.47 (5/16/2019)
Exit Target: $1.00
Return: -57%
Stop Target: None
Action: Shares closed a penny off the low with fresh support at $21.75-$21.50 now in play. If shares close below the latter this week, we will likely exit the trade to save the remaining premium. Lowered resistance is at $22-$22.25 with a more important hurdle at $22.50 and the 50-day moving average.
Earnings are due out Thursday, before the open, and we will know the outcome of this trade by the end of the week.
I believe the company is going to have a blowout quarter with the potential for shares to move 10%-15% if the quarter is strong along with forward guidance.