MomentumOptions.com Pre-Market Update for 4/24/2023
1Q Earnings, Small-Caps in Focus
8:00am (EST)
The stock market rebounded on Friday but the gains were limited as Wall Street wrapped up a frustrating week of action. Much of the tentativeness comes ahead of this week’s heavy dose of first-quarter earnings that will include some Tech and other key industries to watch.
Volatility continues to gives a neutral reading but is showing signs of a possible bottoming process. Heightened volatility could return if there are a few surprises to the downside and heavily-weighted index stocks miss earnings forecasts or revenue numbers.
The Nasdaq settled at 12,072 (+0.1%) with the afternoon peak hitting 12,097. Key resistance at 12,200 easily held. Continued closes above this level and the February 2nd peak at 12,269 would suggest a possible breakout towards 12,350-12,500. Support remains at 12,000-11,850. A drop below 11,800 and a close below the 50-day moving average would be bearish developments.
The S&P 500 traded to an intraday high of 4,138 while ending at 4,133 (+0.1%). Lower resistance at 4,150-4,200 was challenged but held. A pop above the latter and the February 2nd top at 4,195 would be a slightly bullish signal for strength to 4,250-4,300. Key support is at 4,100. A close below this level would imply a further fade towards 4,050-4,000 and the 50-day moving average.
The Dow went out at 33,808 (+0.1%) after making a run to 33,858. Key resistance at 34,000 easily held. Continued closes above this level would indicate upside towards 34,250-34,500 with the December 13th peak at 34,712. Support is at 33,750-33,500. A drop under the latter would signal a retest to 33,250-33,000 and the 50-day moving average.
Volatility Index
The Volatility Index (VIX) fell for the seventh time in eight sessions with the low at 16.58. Upper support at 16.50-16 held. A close below the latter would be a renewed bullish development for the market with downside action towards 15.50-15. Resistance is at 17.50-18.
Monday’s earnings announcements:
Before the open: Bank of Hawaii (BOH), Coca-Cola (KO), Credit Suisse (CS), Royal Philips (PHG), Sify Technologies (SIFY), Washington Trust Bancorp (WASH)
After the close: Aaron’s (AAN), Brown & Brown (BRO), Cadence Design Systems (CDNS), Cleveland-Cliffs (CLF), Five Star Bancorp (FSBC), Hexcel (HXL), Nabors Industries (NBR), PotlatchDeltic (PCH), Range Resources (RRC), Whirlpool (WHR)
Economic News
None
Market Thoughts
For the week, the Dow slipped 0.2%; the S&P was dipped four points, or 0.1%; and the Nasdaq fell 0.4%. As far as sector action, Financials showed the most strength after rising 2.4% for the week while Communication Services paced the laggards with a drop of -2.9%.
We mentioned in Thursday morning’s update, the longer-term technical setups for the S&P and the Dow remained in nice uptrend channels off the mid-March lows. This remains true for the Dow but there was a dip outside of the bottom uptrend channel for the S&P on Thursday’s weakness. Friday’s flat action was no help. This indicators can get “stretched” but the action was bearish.
The Nasdaq continues to consolidate just outside of its uptrend channel and is in a 17-session trading range. A close below 11,800 and the 50-day moving average will be our clue to possibly go short.
One of the easiest ways to play the index is thru the ProShares UltraPro Short QQQ (SQQQ) which moves higher if the Nasdaq, or QQQ’s, move lower. Monthly and weekly calls and puts are available to trade but the options can be pricey depending on volatility.
Key resistance is at $31.75-$32 with a close above the latter likely getting us into some kind of action. The recent all-time low tagged 29.18 on April 4th.
If the Nasdaq clears 12,250 and shows signs of breaking out, we can focus on the ProShares UltraPro QQQ (TQQQ) on continued closes above $28.50.
As a reminder, key support levels for the major indexes remain at: Dow 32,500; S&P 4,000; and Nasdaq 11,800. Continued closes back below this levels would have us seeking bearish setups. We talked about key resistance levels in our opening market commentary with the prior February and December peaks still in play.
As far as volatility, we have sounded like a broken record warning about a close above 18 and out of the downtrend channel would be a slight bearish development for the market. Before that we were harping about key support at 18.50 needed to be recovered. There is stretch to 20-20.50 and the 50-day moving average on a close above 18-18.50 before intense selling pressure could possibly return.
The RSI (relative strength index) readings for the major indexes came into last week near 60 and went out Friday at the same levels, for the most part. The Nasdaq’s RSI is at double-nickels. This indicator remains neutral for the market but could turn bearish if 50 fails to hold across the board.
We track the Russell 2000 as much as the other major indexes and Friday’s inability to recover the 1,800 level remains a concern. Last week’s peak reached 1,809 and held a longer-term downtrend line from the early February 2nd and 3rd peaks at 2,007 and 2,005. We will have more on this important development later in the week. Below is a chart of the IWM that mirrors the index.
We closed our 12th winning trade on Friday, a quick two-day 17% win in Pfizer (PFE). This upped the win rate to 75% for 2023. We didn’t like the pop back above $40 as we were looking for a retest to new 52-week lows so we banked profits.
Our other bearish PFE trade that we closed in early March netted us 262%. Perhaps, we get back in this week as earnings are due out next week and we remain bearish on the stock.
We also have some other stocks we are both bullish and bearish on so let’s see how today’s action unfolds. As usual, if we take action, we will send out a New Trade and Text Alert.
Momentum Options Play List
Closed Momentum Options Trades for 2023: 12-4 (75%). 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 “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the Otherwise, follow instructions at all times in the updates on Monday’s and Thursday’s along with the Text Alerts throughout the week.
DraftKings (DKNG, $21.97, up $0.59)
DKNG May 20 puts (DKNG230519P00020000, $0.80, down $0.16)
Entry Price: $0.80 (4/21/2023)
Exit Target: $1.60
Return: 0%
Stop Target: None
Action: Shares tested a high of $22.02 with longer-term and lower resistance from February 2022 at $22-$22.25 getting topped but holding. New support is at $21.25-$21.
We had these puts on our Watch List all last week as we have been patiently waiting for a run towards $21.50. We were targeting 70 cents but didn’t think we would get there and why we got in at 80 cents with the low reaching 75 cents.
While $21.50 was stretched, and cleared and held on Friday, we are hoping a triple-top is in the process of forming. This level held in February and last August before double-digit haircuts.
Regardless of price action, the bigger move will come next week, on May 4th, when the company announces earnings. A beat and raised guidance will likely confirm a breakout towards $25 and crush the premium in these puts. A miss, or lowered outlook, could send shares towards $17. If so, this trade will more than triple as the puts will be $3 in-the-money.