MomentumOptions.com Pre-Market Update for 5/23/2019
Bears Return but Bulls Hold Support
8:00am (EST)
The market opened lower on Wednesday while trading in tight ranges throughout the session as Wall Street prepared for the latest Fed minutes while digesting ongoing trade rhetoric. The major indexes made an attempt towards positive territory after the Fed said it would remain patient when evaluating rate moves but it wasn’t enough to avoid a lower close.
The Russell 2000 dropped 0.9% after testing an intraday low of 1,528. Near-term support at 1,535-1,520 was split on the close below the latter with risk towards 1,500 on a move below the latter.
The Nasdaq gave back 0.5% following the intraday backtest to 7,738. Current and upper support at 7,750-7,700 was breached but held with weakness towards 7,650-7,600 on a move back below the latter.
The Dow declined 0.4% after trading to an intraday low of 25,755. Prior and upper support at 25,750-25,500 held with risk towards 25,250-25,000 on a close below the latter and the 200-day moving average.
The S&P 500 was down 0.3% with the late day low reaching 2,851. Crucial and major support at 2,850 held with downside potential towards 2,825-2,800 on a close below this level.
Utilities led sector strength after rising 0.8%. Healthcare was up 0.6% while Real Estate and Consumer Staples gained 0.5%.
Energy paced sector laggards after sinking 1.6%. Consumer Discretionary tanked 1% and Industrials and Materials were down 0.8% and 0.7%, respectively.
The FOMC Minutes showed that members raised their expectations for full-year economic growth and said that earlier concerns they had about a slowdown had abated. Despite their general optimism, the committee held the line on interest rates, primarily citing a lack of inflation pressures that allow the central bank to watch how events unfold before making any further moves.
The minutes also expressed a more upbeat tone as a number of participants observed that some of the risks and uncertainties that had surrounded their outlooks earlier in the year had moderated, including those related to the global economic outlook, Brexit, and trade negotiations.
New York Fed John Williams reiterated he sees no strong argument to move rates one way or another currently while adding monetary policy is really well positioned and near his neutral interest rate. He went on to say the economy is still in a very good place, and he still sees a strong labor market and a low unemployment rate.
Williams said some of the risks from abroad have receded somewhat. On inflation, he said pressures are essentially nonexistent and added some factors may be holding prices down.
Boston Fed Eric Rosengren said the economy is better than people were expecting but tariffs are one of the biggest risks. He said there is a lot of uncertainty over the outcome of the trade war, and uncertainty is bad for the economy. It is his assumption that the U.S. and China will eventually come together, but he’s not sure when and it wouldn’t have a large impact on his forecast on the economy.
Rosengren said if that assumption is wrong, analysts will have to think differently about monetary policy. Tariffs are a tax on imported goods, and so that will increase the price of those imports, he added.
St. Louis Fed President James Bullard said the Fed may have raised rates too much last year, adding rates are at a good place in the U.S. right now, if anything the Fed is a little restrictive. He said he was concerned that the Fed may have slightly overdone it with the December rate hike but that he was pleased that the committee pivoted.
The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 2-session slide after testing an intraday high of $126.33. Lowered resistance at $126-$126.50 was cleared and held . A close above the latter gets the 52-week peak at $126.69 in play with near-term upside towards $127.50-$128 on a breakout.
Near-term support remains at $125.50-$125.
The S&P 500 Volatility Index ($VIX) traded in a tight range while tapping an intraday lower low of 14.42. Upper support at 14.50-14 and the 50-day moving average held into the close.
Lower resistance at 15-15.50 was tested with the intraday peak reaching 15.44. Backup help is at 16.50-17 and the 200-day moving average.
The Spider S&P 500 ETF (SPY) was down for the 3rd time in 4 sessions following the backtest to $285.10 and 4th-straight close below the 50-day moving average. Upper support at $285-$284.50 held with move below $283 being a more bearish signal.
Resistance remains at $286.50-$287. Continued closes above the latter would be a slightly bullish signal for additional strength.
RSI is back in a downtrend with support at 45-40. A close below the latter would be a bearish signal for additional weakness towards 35-30 and the monthly lows. Resistance is at 50.
The Technology Select Sector Spiders (XLK) also fell for the 3rd time over the past 4 sessions after testing a low of $74.45. Current and upper support at $74.50-$74 was breached but held. A close below the latter and Monday’s low of $73.71 would be a renewed bearish development with further risk towards $73-$72.50.
Near-term resistance is at $75-$75.50. Continued closes above $75.75 and the 50-day moving average would be a more bullish signal for continued strength.
RSI is in a slight downtrend with support at 40. A move back below this level would signal additional weakness 35-30 with the latter representing the monthly low.resistance is at 45-50 with a move above the latter signaling additional strength.
Today’s earnings announcements:
Before the open: Best Buy (BBY), Brady (BRC), Hormel Foods (HRL), Medtronic (MDT), Pointer Telocation (PNTR), RBC Bearings (ROLL), Sina (SINA), TD Bank Group (TD), Toro (TTC), Viomi Technology (VIOT), Weibo (WB)
After the close: Autodesk (ADSK), Deckers Brands (DECK), Hewlett Packard Enterprises (HPE), HP (HPQ), Intuit (INTU), NextGen Healthcare (NXGN), Ross Stores (ROST), Splunk (SPLK), ViaSat (VSAT)
There were slightly bullish signs despite yesterday’s slight pullback but this remains an extremely tough and tricky trading environment that will likely continue into next week as the month of May winds down.
While the temptation has been there to load up on short positions, I’ve spent 2019 playing upside momentum with call options while buying in on the pullbacks. I’ve only recommended 1 put option trade (IMAX) and I mentioned this would change if the VIX showed signs of going ballistic.
If lower lows are made this month by the end of this week, or next, the selling pressure will certainly increase and we can use put options to play an extended pullback. However, with the major indexes still within striking distance of all-time highs, a close back above near-term resistance levels should be a bullish signal for another breakout to higher highs.
Trading ranges can also be difficult to trade and there are many stocks and indexes stuck between their 50-day and 200-day moving averages. I have traded extremely light this month with a .500 average with winners and losers while remaining patient.
Yes, there are times where I just don’t want to force the action or do a trade out of boredom. The last thing I want to do is lose money and I’ve learned over the years it is best to be patient then trying to force the action. The good news is next week should give us the best clues of the month if a continued pullback is in store or if the bulls are ready to regain control of the action.
I want to trim a couple of positions this morning as I no linger have confidence in BAC or FOLD. With the portfolio getting lighter, we will be in tremendous shape to use July, August and September options to play the next major 5%-10% market move. Remember, over 70% of stocks usually follow the market’s trend so try to remain patient as we wait for confirmation from the VIX to see how this might shake out.
Momentum Options Play List
Closed Momentum Options Trades for 2019: 19-8 (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, $32.28, down $0.13)
T July 32 calls (T190719C00032000, $1.00, down $0.10)
Entry Price: $0.47 (5/15/2019)
Exit Target: $1.75
Return: 113%
Stop Target: 95 cents (Stop Limit)
Action: Upper support at $32.25-$32 was breached but held on the backtest to $32.12. Resistance remains at $32.50-$33
Cypress Semiconductor (CY, $15.41, flat)
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 tapped a high of $15.51 on Wednesday with lower resistance at $15.50-$15.75 holding. Support is at $15.25-$15.
Marvell Technology (MRVL, $22.60, up $0.20)
MRVL June 25 calls (MRVL190621C00025000, $0.35, flat)
Entry Price: $0.47 (5/16/2019)
Exit Target: $1.00
Return: -26%
Stop Target: None
Action: Shares traded up to $22.63 with lower resistance at $22.50-$22.75 and the 50-day moving average getting cleared and holding. Support is at $22.25-$22.
Bank of America (BAC, $28.49, down $0.20)
BAC June 31 calls (BAC190621C00031000, $0.05, down $0.03)
Entry Price: $0.55 (5/8/2019)
Exit Target: $1.10
Return: -91%
Stop Target: None
Action: Close the trade today to save the remaining premium. We can look at a possible reentry point on a close back above $29.25-$29.50, or a possible bearish play on a close below $28.
Amicus Therapeutics (FOLD, $11.86, down $0.45)
FOLD July 15 calls (FOLD190719C00015000, $0.15, down $0.10)
Entry Price: $1.10 (4/12/2019)
Exit Target: $2.20
Return: -86%
Stop Target: None
Action: Close the trade today to save the remaining premium. The technical outlook has weakened following the failed breakout near the $14 level earlier this month and a disappointing earnings report.