MomentumOptions.com Pre-Market Update for 10/8/2020

Small-Caps Breaking Out

8:00am (EST)  

The stock market showed strong momentum throughout Wednesday’s action while recovering the previous session losses. The small-caps led the charge and appear to breaking out while the other major indexes are approaching prior resistance levels from early and mid-September.

The Russell 2000 tested an afternoon peak of 1,614 before settling at 1,611 (+2.1%). Current and lower resistance at 1,600-1,615 was recovered. A close above the latter would signal another run towards 1,600-1,615. Below is a chart of the IWM.

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The Dow tagged an intraday top of 28,369 while going out at 28,303 (+1.9%). Prior and lower resistance at 28,250-28,500 was cleared and held. A move above the latter would be an ongoing bullish development with additional strength towards 28,750-29,000.

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The Nasdaq tapped a late day high of 11,380 while closing at 11,364 (+1.9%). Near-term and lower resistance at 11,300-11,400 was cleared and held. A close above the latter would indicate further upside towards 11,500-11,600.

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The S&P 500 finished at 3,419 (+1.7%) with the late day high hitting 3,426. Current and lower resistance at 3,400-3,425 was recovered. A move above the latter would suggest a retest towards 3,450-3,475 and levels from early September.

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The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) fell for the first time in seven sessions with the afternoon low tapping 27.94. Current and upper support at 27.50-27 was challenged but held with more important recovery levels at 25.50-25 and the 50-day moving average.

Resistance remains at 29.50-30 and the 200-day moving average.

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The Invesco QQQ Trust (Nasdaq: QQQ) zig-zagged for the fourth-straight session following the intraday bounce to $280.74. Lower resistance at $280.50-$281 was cleared but held. A close above the latter would indicate further upside towards the $282-282.50 area with the beginning of the month peak at $282.88.

Current support is at $277.50-$277 followed by $276 and the 50-day moving average.

RSI (relative strength indicator) is back in an uptrend with key resistance at 55 holding. Continued closes above this level would signal additional strength towards 60-65. Support is at 50-45.

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The Health Care Select Sector SPDR Fund (NYSEArca: XLV) was up for the second time in three sessions with the second half high hitting $107.20. Current and lower resistance at $107-$107.50 was cleared but held on the close back above the 50-day moving average. A move above the $108 level would signal a possible retest towards $109.50-$110 with the early September and all-time peak at $109.74.

Support is at $106-$105.50 with backup help at $104-$103.50.

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Volatility remains the wildcard and has been trapped between the 50-day and 200-day moving averages for 19 trading sessions. More specifically, the VIX chart shows 25 and 30 holding since early September with a move below or above these levels likely setting the next major stock market trend.

I’ve talked about the likelihood of trading ranges to continue into earnings season, along with the mixed Monday/ Friday closes over the past few weeks. If there is no follow thru by the bulls today, the current environment should continue into next week.

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, $24.88, up $0.51)

BAC November 26 calls (BAC201120C00026000, $0.95, up $0.15)

Entry Price: $0.85 (10/5/2020)

Exit Target: $1.70

Return: 12%

Stop Target: 65 cents, raise to 85 cents (Stop Limit)

Action: Raise the Stop Limit at 65 cents to 85 cents.

Yesterday’s high tagged $25.11 with lower resistance at $25-$25.25 getting breached but holding for the 2nd-straight session. A close above the 50-day moving average would be a bullish signal. Support is trying to move up to $24.75-$24.50.

I raised the Stop Limit because the 200-day remains on track to fall below the 50-day moving average. This would form a death cross and is typically a bearish technical setup for lower lows. 

We don’t have to force the action and more importantly, we won’t lose cash if the Stop Limit is triggered. Financials have lagged the overall market for quite some time. We can find better setups if shares of BAC stall at current levels.

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General Motors (GM, $31.62, up $1.22)

GM January 35 calls (GM210115C00035000, $1.80, up $0.40)

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

Exit Target: $2.40

Return: 50%

Stop Target: $1.25, raise to $1.50 (Stop Limit)

Action: Raise the Stop Limit from $1.25 to $1.50. This will lock-in at least a 25% profit if shares fade from current levels.

Lower resistance at $31.75-$32 was cleared but held on the rebound to $31.76. Support is at $30.50-$30.25.

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Rambus (RMBS, $13.92, up $0.24)

RMBS November 13 puts (RMBS201120P00013000, $0.50, down $0.10)

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

Exit Target: $1.80

Return: -44%

Stop Target: None 

Action: Shares tagged $13.99 for the 2nd-straight session with lower resistance at $13.75-$14 getting recovered. Support at $13.50-$13.25. 

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