MomentumOptions.com Pre-Market Update for 10/29/2020

Nasdaq and Small-Caps Close Back Below 50-Day Moving Averages

8:00am (EST)

Wall Street closed lower on Wednesday as the surge in coronavirus cases here at home and across the pond continued to weight on sentiment. Disappointing earnings and guidance, along with the failure to pass additional stimulus didn’t help matters as the major indexes showed overall weakness for the third-straight session.

The Nasdaq ended at 11,004 (-3.7%) after plunging to a late day low of 10,999. Prior and upper support from late September at 11,000-10,900 was breached but held. A move below the latter would suggest further downside risk towards 10,800-10,700.

The S&P 500 settled at 3,271 (-3.5%) following the late day backtest to 3,268. Upper support at 3,275-3,250 failed to hold. A drop below the latter would signal further downside risk towards the 3,225-3,200 area.

The Dow tagged an afternoon low of 26,497 while closing at 26,519 (-3.4%). Longer-term and upper support at 26,750-26,500 was breached and failed to hold. A close below the latter would suggest additional weakness towards 26,250-26,000 and the 200-day moving average.

The Russell 2000 traded to a low of 1,542 before finishing at 1,543 (-3%). Prior and upper support at 1,550-1,535 was tripped and failed to hold. A move below the latter would indicate further weakness towards 1,525-1,510.

The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) extended its winning streak to three-straight sessions after surging to an intraday high of 40.77. Prior and lower resistance from early June at 40.50-41 was cleared but held. A move above the latter would signal additional upside towards 42-44 with the June peak at 44.44.

Fresh support is at 37.50-37 followed by 35-34.50. A close back below 34 would signal a possible near-term top.

The S&P 400 Mid Cap Index (NYSE: MID) fell for the third-straight session after closing on the session low of 1,895. Fresh and upper support at 1,900-1,875 was breached and failed to hold. A close below the latter would likely lead to a further backtest towards 1,850-1,825.

Lowered resistance is at 1,925-1,950 and the 50-day moving average.

RSI (relative strength index) remains in a downtrend with upper support at 45-40 failing to hold. A close below the latter would suggest weakness towards 35-30 and levels from last month. Resistance is at 50.

The Dow Jones Transportation Average ($TRAN) was down for the third-straight session with the intraday low tagging 10,937. Prior and upper support from mid-September at 11,000-10,900 was breached and failed to hold. A move below the latter would signal additional weakness towards 10,800-10,700 and levels from early August.

Lowered resistance is at 11,100-11,200 followed by 11,300-11,400 and the 50-day moving average.

RSI (relative strength index) is in an downtrend with upper support at 35-30 holding. A close below the latter would indicate additional weakness towards 25-20 and levels from late February/ early March. Resistance is at 40.

The market has clearly turned its focus towards the Presidential election next Tuesday and it remains to be seen how nervous investors will be. The only question is if the results will be known Tuesday night, or if it drags on for days and weeks.

Facebook (FB), Twitter (TWTR), and Alphabet (GOOGL) are reporting numbers after today’s closing bell and will certainly impact trading on Friday’s open. I would still like to add new trades this week but the chances of the major indexes testing their 200-day averages look pretty good.

This could represent the opportunity to go long (or short) as a snapback rally could ensure if the 200-day MA’s hold. If not, there could be a much more serious correction coming down the pipeline.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 38-10 (79%). 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 and Text Alerts.

Rambus (RMBS, $13.77, down $0.31)

RMBS November 13 puts (RMBS201120P00013000, $0.40, up $0.10)

Entry Price: $0.90 (8/21/2020)
Exit Target: $1.80
Return: -56%
Stop Target: None

Action: Prior and upper support at $13.75-$13.50 held on the close on the session low and back below the 50-day moving average. Lowered resistance is at $14-$14.25.