MomentumOptions.com Pre-Market Update for 5/29/2019
VIX Stays Elevated, Closes Above 200-Day Moving Average
8:00am (EST)
The market showed strength on Tuesday’s open despite mixed economic news and continued trade rhetoric after President Trump said his administration was not ready to make a trade deal with China. The strength faded about an hour into the session with the major indexes assuming a tight trading range before a mostly lower close as selling pressure picked up in the final hour of action.
Near-term support levels held with the overall market barely avoiding lower lows. However, volatility is once again pushing key levels of resistance and remains at heightened levels.
The S&P 500 slipped 0.8% following the late day backtest to 2,801. Major support at 2,800 held for the 3rd-straight session with risk towards 2,775-2,750 and the 200-day moving average on a move below this level.
The Dow was off 0.9% after trading to a 2nd-half low of 25,342. Upper support at 25,500-25,250 failed to hold on the close back below the 200-day moving average with a move below the latter being an ongoing bearish signal.
The Russell 2000 fell 0.7% after tapping an afternoon low of 1,503. Near-term and upper support at 1,500-1,485 held with risk towards 1,475-1,460 on a close below the latter.
The Nasdaq was down 0.4% after tapping a low of 7,603. Major support at 7,600 held by a thread with a close below this level opening up risk towards 7,550-7,500 and the 200-day moving average
Communication Services was the only sector to show strength after rising 0.6%.
Consumer Staples and Utilities led sector weakness with losses of 1.6%. Healthcare sank 1.4%.
In economic news, S&P Corelogic Case-Shiller home price index for March climbed 0.7% to 214.09 for the 20-city composite, after increasing 0.17% to 212.61 in February. However, price appreciation slowed to a 2.68% year-over-year rate versus 2.95%, previously. The 10-city index increased 0.67% to 227.57 after the prior 0.16% gain to 226.06. The annual pace slowed to 2.33% year-over-year versus 2.53%.
FHFA House Price Index rose 0.1% to 273.4 in March, just below estimates for a gain of 0.2%, and follows the 0.4% rise to 273.1 in February, . Increases were seen in 5 of the 9 regions, led by a 1.1% gain in the West North Central. Declines were noted in the East North Central, the East South Central, and New England. Home prices increased 1.1% in Q1 and were up 5.1% from Q1 2018 to Q1 2019. Moreover, home prices were up in all 50 states and the District between the first quarters of 2018 and 2019, led by Idaho, Nevada, and Utah.
Consumer Confidence rose 4.9 points to 134.1 in May, after rising 5 points to 129.2 in April, while topping forecasts of 129.9. The index has rebounded from a 16-month low of 121.7 in January, and appears to be headed back towards the 18-year high of 137.9 that was tapped last October. Specifically, the current conditions index rose to 175.2 from 169 while the expectations component improved to 106.6 from 102.7. The labor market differential increased to 36.3 from 33.2 and represented the highest reading since December 2000. The 12-month inflation expectations gauge slipped to 4.4% versus 4.6%, previously.
Dallas Fed Manufacturing Survey dropped 7.3 points to -5.3 in May, after falling 4.9 points to 2 in April, and much weaker than expectations for a print of 6. The employment index bounced to 11.6 from 4.6, with wages slipping to 27.6 from 28.2. New orders declined to 2.4 from 9.8 while prices paid dipped to 7.4 from 7.9, with prices received at 0.7 from 0.6. The 6-month outlook index tumbled to 9.1, nearly halved from 18.4, with the future employment gauge at 28.9 from 33.4, and wages at 32.8 from 38.8. The 6-month new order index was at 35.2 from 35.9, with prices paid jumping to 28.9 to 14, prices received falling to 6.7 from 8, and future capex at 22.8 from 26.2.
The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 4-straight sessions after trading to a fresh 52-week peak of $128.90. Prior and upper resistance from January 2016 at $128-$128.50 was cleared and held with fresh hurdles at $129.50-$130 on continued momentum.
Rising support is at $128-$127.50. A close back below $127 would signal a possible near-term top.
The S&P 500 Volatility Index ($VIX) stayed elevated throughout the session after opening at 16.55 while reaching an intraday peak of 17.05. Near-term and upper resistance is 17-17.50 was breached but held on the close back above the 200-day moving average. A move above 18 reopens risk towards 20-22.
Support is at 16-15.50 followed by 15-14.50 and the 50-day moving average.
The S&P 400 Mid Cap Index ($MID) fell for the 3rd time in 4 sessions after testing a low of 1,843. Shaky and major support at 1,850 was breached and failed to hold with a close below 1,842 and the late March low likely leading towards 1,825-1,800 and late January support levels.
Near-term resistance is at 1,875-1,900 and the 200-day moving average. A close above these levels would be a slightly bullish signal a near-term bottom is in process.
RSI is in a downtrend with support at 35 and an area that has been tested twice this month. There is risk towards 30-25 and December lows on a close below 35. Resistance is at 40-45 with a move above the latter signaling a return of strength.
The Consumer Staples Select Spiders (XLP) extended its losing streak to 3-straight sessions following the pullback to $56.53. Near-term and upper support at $57-$56.50 was breached and failed to hold. A close below below the latter and the 50-day moving average would be an ongoing bearish development with additional weakness towards $56-$55.50 and early April support levels.
Lowered resistance is at $57-$57.50.
RSI is in a nasty downtrend with support at 40. A move below this level would signal additional weakness towards 35-30 and early January lows. Resistance is at 45-50.
Today’s earnings announcements
Before the open: Abercrombie & Fitch (ANF), Bank of Montreal (BMO), Canada Goose (GOOS), Dick’s Sporting Goods (DKS), Hamilton Lane (HLNE), Thermon Group Holdings (THR)
After the close: AmerCo (UHAL), Descartes Systems (DSGX), Keysight Technologies (KEYS), Palo Alto Networks (PANW), PVH (PVH), Qad (QADA), Semtech (SMTC), Tilly’s (TLYS), Veeva Systems (VEEV), Verint Systems (VRNT)
Yesterday’s market action once again has the bulls walking the plank and near the edge of a deep plunge to lower lows. May is typically weak and bearish and the month will come to a close on Friday. Although a pullback from the April peak was penciled-in following failed resistance, it is imperative lower lows aren’t made today and the VIX holds 18.
There is also a chance there is one last flush-out before higher highs can resume and the possibility of a summer rally ensuing at some point in June and into July. Usually, when the suit-and-ties are away while avoiding the summer doldrums, there is the potential for some serious upside momentum on lighter trading volume. Of course, there is also the possibility of a severe market selloff that could last into June and July if the tariffs tiffs pick up momentum and a full blown trade war with China is in play.
I’m still looking to get into bullish or bearish trades so stay locked-and-loaded this morning in case we get a sell signal for the market as I will be looking to add fresh put option trades. If the bulls showed strength on the open, we will be in wait-and-see mode.
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, $31.93, down $0.34)
T July 33 calls (T190719C00033000, $0.35, down $0.12)
Entry Price: $0.47 (5/24/2019)
Exit Target: $1.00
Return: -28%
Stop Target: None
Action: Tuesday’s low tapped $31.91 with upper support at $32-$31.75 getting breached and failed to hold. Resistance remains at $32.25-$32.50.
Cypress Semiconductor (CY, $15.40, down $0.07)
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 tested a low of $15.16 with upper support at $15.25-$15 getting tripped but holding. Resistance is at $15.50-$15.75.
Marvell Technology (MRVL, $21.35, down $0.57)
MRVL June 25 calls (MRVL190621C00025000, $0.15, down $0.05)
Entry Price: $0.47 (5/16/2019)
Exit Target: $1.00
Return: -68%
Stop Target: None
Action: Earnings are due out Thursday morning.
Fresh support is at $21.25-$21 following Tuesday’s backtest to $21.30. Lowered resistance is at $21.50-$21.75.