MomentumOptions.com Pre-Market Update for 9/30/2020

Bears Snap 3-Session Losing Streaks

8:00am (EST) 

The market closed lower Tuesday with the major averages pulling back for the first time in three sessions after trading in tight ranges. Continued good news from the housing market propelled the opening gains before nervousness ahead of the first presidential debate and the November election caused some nervousness. 

The event is not much of a market mover, however, as the average pullback for S&P 500 index is 0.3%. This could mean a slightly lower open for Wednesday but this debate could have a much bigger impact, not only over the near-term, but longer-term given the showdown and the estimated 100 million viewers that might have tuned in to watch.

The S&P 500 settled at 3,335 (-0.5%) following the intraday backtest to 3,327. Current and upper support at 3,325-3,300 was challenged but held. A close below the latter would signal further downside risk towards the 3,275-3,250 area.

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The Dow tagged an afternoon low of 27,338 while closing at 27,452 (-0.5%). Near-term and upper support at 27,500-27,250 failed to hold. A close below the latter would suggest additional weakness towards 27,000-26,750.

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The Russell 2000 closed at 1,504 with the session low hitting 1,492 (-0.4%). Prior and upper support at 1,500-1,485 was breached but held. A move below the latter would indicate further weakness towards 1,480-1,465. Below is a chart of the IWM.

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The Nasdaq ended at 11,085 (-0.3%) after trading to a midday low of 11,065. Current and upper support at 11,100-11,000 was tripped and failed to hold. A move below the latter would be a slightly bearish development and would suggest a retest towards 10,850-10,750.

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The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) snapped a three-session slide after testing a high of 27.43. Lower resistance at 27-27.50 was breached but held. A close above the latter would signal a retest towards 29-29.50 and the 200-day moving average.

Support remains at 25.50-25 and the 50-day moving average.

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The S&P 400 Mid Cap Index (NYSE: MID) had its three-session winning streak snapped after tagging an afternoon low of 1,838. Near-term and upper support at 1,850-1,825 was breached and failed to hold. A move below the latter and the 200-day moving average would suggest additional weakness towards 1,800-1,775 with the monthly low at 1,769.

Resistance is at 1,875-1,900 and 50-day moving average. A close above the latter would indicate another retest towards 1,925-1,950.

RSI (relative strength index) has flatlined with upper support at 45-40 holding. A move below the latter would indicate additional weakness towards 35-30 and levels from last week. Resistance is at 50 and the mid-month peak.

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The Real Estate Select Sector SPDR Fund (NYSE: XLRE) was down for the first time in 4 sessions after trading to a midday low of $34.88. Current and upper support at $35-$34.75 was breached but held.  A close below the latter reopens downside risk towards $34.25-$34.

New resistance is at $34.25-$34.50 following the close back below the 200-day moving average.

RSI is back in a downtrend after failing key resistance at 50. Support is at 45-40 with the latter representing the monthly low.

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Following last night’s presidential debate, futures were down marginally after the dust settled. 

I have updated our current positions, including key adjustments to our AMD trade,  so let’s go check the tape. 

Momentum Options Play List

Closed Momentum Options Trades for 2020: 33-10 (77%). 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 Daily‬ updates.

Advanced Micro Devices (AMD, $81.77, up $2.29)

AMD November 90 calls (AMD201120C00090000, $4.65, up $0.85)

Entry Price: $3.60 (9/28/2020)

Exit Target: $5.40-$7.20 (Limit Order on half at $5.40)

Return: 30%

Stop Target: $1.80, raise to $4 (Stop Limit)

Action: Raise the Stop Target from $1.80 to $4 and make it a Stop Limit to start protecting profits and to avoid a loss. Set a Limit Order at $5.40 to close half of the position.

Shares surged to a high of $82.55 with prior and lower resistance at $82.50-$83 getting cleared but holding. Fresh support is at $80-$79.50 and the 50-day moving average.

These are “expensive” options and we are up $1.05 in premium. I have 2 Exit Targets and want to close half of the trade at the 50% level. If the 2nd target is reached we should have at least a 75% gain from the overall position. I would still like to get to triple-digits, and the goal for all trades, and we can adjust the latter Exit Target on continued momentum. We will also move up the Stop Limit on further strength.

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General Motors (GM, $28.74, down $0.70)

GM January 35 calls (GM210115C00035000, $1.00, down $0.15)

Entry Price: $1.20 (9/28/2020)

Exit Target: $2.40

Return: -17%

Stop Target: None

Action: Shares tagged a low of $28.50 with upper support at $28.50-$28.25 getting kissed but holding. Lowered resistance is at $29-$29.25 on the close just below the 50-day moving average.

A golden cross has recently formed with the 50-day moving average closing above the 200-day moving average. This is typically a bullish signal for higher highs despite the fact shares have fallen in 7 of 8 sessions. However, a bottom is trying to form with the 50-day moving average holding in 3 of the past 4 sessions and we why we got into the position to start the week.

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Rambus (RMBS, $13.75, up $0.46)

RMBS November 13 puts (RMBS201120P00013000, $0.60, down $0.20)

Entry Price: $0.90 (8/21/2020)

Exit Target: $1.80

Return: -33%

Stop Target: None

Action: Prior and lower resistance at $13.75-$14 was cleared but held for the 2nd-straight session on the run to $13.94. Support is at $13.50-$13.25.

A death cross remains in play with the 50-day moving average on the verge of closing the 200-day moving average. This is typically a bearish signal for lower lows down the road.

I still like this trade as long as $14-$14.25 holds going forward. A close above $14.50 will likely force us out of the position.

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