MomentumOptions.com Pre-Market Update for 10/5/2020
Bulls Sweep Weekly Wins/ Profit Alert (AMD)
The market struggled on Friday following overnight news President Trump and his wife tested positive for COVID-19. A mixed unemployment report and better-than-expected consumer confidence provided some relief off the opening lows with the blue-chips and small-caps showing midday strength.
Despite the overall losses, the major indexes had a solid week while volatility held a key level of resistance. The acrion is signaling continued choppiness and possible trading ranges into the new week with the start of third-quarter earnings the following week.
The Russell 2000 closed at 1,539 (+0.5%) with the late day high reaching 1,544. Prior and lower resistance from mid-September at 1,535-1,550 was breached and held. A move above the latter and the 50-day moving average would indicate additional upside towards 1,560-1,575. Below is a chart of the IWM.
The Nasdaq tested an afternoon low of 11,033 before ending at 11,075 (-2.2%). Current and upper support at 11,100-11,000 was breached and failed to hold. A close below the latter and the 50-day moving average would be a renewed bearish signal with backtest potential towards 10,850-10,750.
The S&P 500 settled at 3,349 (-0.9%) following the morning drop to 3,323. Near-term and upper support at 3,350-3,325 and the 50-day moving average failed to hold. A close below the latter would signal further downside risk towards 3,300-3,275.
The Dow tapped an opening low of 27,382 while closing at 27,682 (-0.5%). Current and upper support at 27,500-27,250 was tripped but held. A move below the latter would suggest additional weakness towards 27,000-26,750.
The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) extended its winning streak to four-straight sessions after hitting an intraday high of 29.90. Prior resistance from last week at 29-29.50 and the 200-day moving average was breached but levels that held.
New support is at 27-26.50 followed by 25.50-25 and the 50-day moving average.
The SPDR S&P 500 ETF (NYSEArca: SPY) fell for the just the second time in seven sessions after bottoming out at $331.19. Current and upper support at $331.50-$331 was tripped but held. A close below the latter would indicate additional weakness towards the $330.50-$330 area.
Lowered resistance is at $336-$336.50 followed by $338.50-$339.
RSI is rolling over with key support at 50 holding. A close below this level would signal weakness towards 45-40. Resistance is at 55-60.
The Consumer Staples Select SPDR Fund (NYSE: XLP) had its two-session winning streak snapped on the pullback to $63.60. Near-term and upper support at $64-$63.50 was breached but held. A close below the latter and the 50-day moving average would indicate a retest towards $62.50-$62.
Resistance is at $64.50-$65. A close below the latter would be an renewed bullish signal for a possible run towards $67-$67.50 with the early September all-time high at $67.61.
RSI reversed course with upper support at 55-50 failing to hold. There is weakness towards 45-40 on a close below the 50 level. Resistance is at 55-60.
A closer look at the VIX chart shows the index has traded between its 50-day and 200-day moving averages for 16 trading sessions. Once this trading range breaks to the upside, or downside, the next MAJOR stock market trend should come into play.
Specifically, if the VIX clears and holds the 30 level along with the 200-day moving average, the major indexes will like test, and break the September lows. If the VIX can recover the 25 level and the 50-day moving average then the market could retest it all-time peaks.
The 3Q earnings season won’t come into play until next week so the likelihood of a choppy action and trading ranges remain in play. Although September resulted in lower lows, there were two major trading ranges.
The bounce off the lows has the major indexes near the top of the first trading ranges that lasted from early September into mid-month. A break above these levels would be a bullish development with the VIX back below 25.
If the stock market starts the week off with lower lows than Friday, there is a good chance the second trading range and a retest to the September lows comes back in focus. This will like;y have the VIX trading in the 30-32.50 range.
Despite Friday’s sloppiness, we were able to lock-in a 50% return on our AMD calls while getting a scratch for our GM position. I should have new trades this week, and as possible as early as today, so stay locked-and-loaded.
Momentum Options Play List
Closed Momentum Options Trades for 2020: 34-10 (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, $81.80, down $3.06)
AMD November 90 calls (AMD201120C00090000, $4.75, down $1.05)
Entry Price: $3.60 (9/28/2020)
Exit Target: $7.20 (Limit Order on half at $5.40 triggered on 10/1)
Stop Target: $5.40 (Stop Limit)
Action: The Stop Limit at $5.40 on the other half of the trade was tripped on Friday after the calls traded in a range of $5.90-$4.61. We will keep AMD on the Watch List if shares clear and hold $85, or fall below $80, for another possible trade.
The overall return was 50% but more importantly, we collected $1.80 in premium from the entry price. This will help finance “cheaper” call or put options on our next set of trades.
General Motors (GM, $30.46, up $0.08)
GM January 35 calls (GM210115C00035000, $1.55, up $0.10)
Entry Price: $1.20 (9/28/2020)
Exit Target: $2.40
Stop Target: $1.20 (Stop Limit)
Action: Shares tested a high of $30.90 with prior and lower resistance at $30.50-$30.85 getting recovered. Rising support is at $30-$29.75 and the 50-day moving average.
Rambus (RMBS, $13.48, down $0.35)
RMBS November 13 puts (RMBS201120P00013000, $0.65, up $0.10)
Entry Price: $0.90 (8/21/2020)
Exit Target: $1.80
Stop Target: None
Action: Prior and upper support at $13.50-$13.25 failed to hold on the close on the session low. Resistance remains at $13.75-$14.