MomentumOptions.com Pre-Market Update for 10/7/2020
Late Day Trump Tweet Rattles Wall Street
The stock market was choppy throughout much of Tuesday’s action despite a decent jobs report that showed nearly 6.5 million openings. The small-caps were cruising after surging past prior resistance levels from early August while Tech struggle as ongoing stimulus talks and Fed speak remained in focus.
The sudden afternoon reversal came after President Trump said he was ending talks with House Speaker Nancy Pelosi over another stimulus package while adding she is not negotiating in good faith. The negative news caused a spike in volatility and a higher close with a key level of resistance holding.
The Nasdaq tested a final hour low of 11,124 before ending at 11,154 (-1.6%). Current and upper support at 11,200-11,100 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 3,360 (-1.4%) following the afternoon drop to 3,354. Near-term and upper support at 3,375-3,350 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 a late day low of 27,728 while closing at 27,772 (-1.3%). Current and upper support at 27,750-27,500 was tripped but held. A move below the latter and the 50-day moving average would suggest a retest towards 27,250-27,000.
The Russell 2000 closed on the session low at 1,577 (-0.3%). Prior and upper support at 1,490-1,475 was breached and failed to hold. A move below the latter would indicate further weakness towards 1,465-1,450.
The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) was up for the sixth-straight session after trading to an intraday high of 30. Lower resistance at 29.50-30 was cleared but held. A close above the latter and the 200-day moving average would be a bearish signal for the stock market with upside risk towards 32-32.50.
Support remains at 27-26.50 followed by 25.50-25 and the 50-day moving average.
The Wilshire 5000 Composite Index (NYSE: WLSH) was down for the second time in three sessions despite tagging an intraday high of 35,405. Prior and lower resistance from early September at 35,250-35,500 was breached but held.
The fade to 34,615 failed to hold upper support at 34,750-34,500. A close below the latter and the 50-day moving average would indicate additional weakness towards 34,250-34,000.
The Consumer Discretionary Select Spiders (XLY) tested an afternoon low of $147.21. Near-term and upper support is at $147.50-$147 was tripped and failed to hold. A close below the latter would reopen downside risk towards $146-$145.50.
Lowered resistance at $149-$149.50 followed by $151-$151.50.
RSI is back in a downtrend after failing to hold upper support at 55-50. A close below the latter would suggest additional weakness towards 45-40 and levels from mid-September. Resistance is at 60.
Yesterday’s late day reversal was a bearish signal for additional near-term weakness for the major indexes, especially if the VIX closes above the 30 level today. There is stretch towards 32 on opening weakness this morning with likely panic selling on a move above this level. The late September peak tagged 38.28.
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.
Bank of America (BAC, $24.37, down $0.25)
BAC November 26 calls (BAC201120C00026000, $0.85, down $0.15)
Entry Price: $0.85 (10/5/2020)
Exit Target: $1.70
Stop Target: 65 cents (Stop Limit)
Action: Set a Stop Limit at 65 cents.
Tuesday’s peak reached $25.19 with fresh and lower resistance at $25-$25.25 and the 50-day moving average getting breached but holding. The late day fade to $24.28 failed to hold upper support at $24.50-$24.25.
If shares fall below the $24 level, we could take a small loss (20 cents in premium) and exit the trade.
General Motors (GM, $30.40, down $0.56)
GM January 35 calls (GM210115C00035000, $1.40, down $0.20)
Entry Price: $1.20 (9/28/2020)
Exit Target: $2.40
Stop Target: $1.35, lower to $1.25 (Stop Limit)
Action: Lower the Stop Limit from $1.35 to $1.25. I wanted to lower the stop limit as the options closed on the session low and just a nickel above our prior Limit Order. I don’t usually lower stop limits but this will allow a little wiggle room for the trade and still give us a slight profit instead of a loss.
Shares fell for the first time in 4 sessions despite the midday high reaching $31.45. Lower resistance at $31.25-$31.50 was cleared but held. The pullback to $30.30 afterwards failed to hold upper support is at $30.50-$30.25.
Rambus (RMBS, $13.69, up $0.
RMBS November 13 puts (RMBS201120P00013000, $0.60, down $0.05)
Entry Price: $0.90 (8/21/2020)
Exit Target: $1.80
Stop Target: None
Action: Tuesday’s peak reached $13.99 with lower resistance at $13.75-$14 getting cleared but holding. Upper support at $13.75-$13.50 also failed to hold on the backtest to $13.66. A death cross remains in play with the 50-day moving average firmly below the 200-day moving average and still in a major downtrend.