Pre-Market Update for 11/2/2020

Bears Get Weekly and Overall Monthly Wins

8:00am (EST)

Wall Street was down for the fourth time in five sessions as heavy losses in Tech stocks highlighted Friday’s action despite mostly positive earnings results. Investors choose to sell-the-news while concentrating on the growing numbers of coronavirus cases and potential shutdowns along with the upcoming Presidential election.

The major indexes closed well off the session lows with the final hour bounce capping a losing week, and overall down month. Meanwhile, volatility set a fresh October high and will likely stay elevated well into November as Wall Streets awaits the outcome and how long it might take to announce a winner.

The Nasdaq traded an intraday low of 10,822 before finishing at 10,911 (-2.5%). Prior and upper support at 10,900-10,800 was breached but held. A close below the latter would indicate additional weakness towards 11,600-11,500 and levels from late September.

The Russell 2000 tapped an afternoon low of 1,526 before settling at 1,538 (-1.5%). Current and upper support at 1,540-1,525 failed to hold. A move below the latter would indicate a further backtest towards 1,515-1,500. Below is a chart of the IWM.

The S&P 500 closed at 3,269 (-1.2%) following the tumble to 3,233. Prior and upper support from mid-September at 3,250-3,225 was tripped but held. A move below the latter would signal further downside risk towards 3,200-3,175.

The Dow plunged to a low of 26,143 while closing at 26,501 (-0.6%). Upper support from late July at 26,250-26,000 and the 200-day moving average were breached but levels that held. A drop below the latter would suggest a retest towards 25,750-25,500.

For the week, For the week, the Dow plummeted 6.5% and the S&P 500 sank 5.6%. The Russell and the Nasdaq were down 5.5%. For the month, the Dow was down 4.6% and the S&P 500 fell 2.7%. The Nasdaq was off 2.3% while the Russell 2000 bucked the trend after rallying 2%.

The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) was up for the fourth time in five sessions after testing a morning peak of 41.09. Near-term and upper resistance at 40.50-41 was cleared but held for the third-straight session. A move above 41.50 would likely indicate upside towards 42-44 and levels from June.

Support is at 37-36.50 followed by 35.50-35. A close below the 34 level would be a more bullish signal for the stock market.

The Spiders Dow Jones Industrial Average ETF (NYSE: DIA) fell for the fifth time in six sessions after trading to a low of $261.41. Prior and upper support from late July at $261.50-$261 was breached but held. A move below the latter would indicate additional weakness towards $260.50-$260 and the 200-day moving average.

Lowered resistance is at $266-$266.50 followed by $268-$268.50.

RSI has flatlined with key support at 30 holding. A close below this level would signal weakness towards 25-20 and prior levels from March. Resistance is at 55-60.

The Dow Jones Transportation Average ($TRAN) was down for the fourth time in five sessions with the intraday low reaching 10,971. Current and upper support from mid-September at 11,000-10,900 was cracked but held. A close below the latter would be an ongoing bearish development with additional downside risk towards 10,800-10,700 and levels from early August.

Resistance is at 11,200-11,300 with more important recovery levels at 11,400 and the 50-day moving average.

RSI (relative strength index) is in a downtrend with upper support at 40-35 holding. A close below the latter would signal additional weakness towards 35-30 and levels from mid-March. Resistance is at 45-50.

With two days before the results of the Presidential Election, the major indexes will likely continue to join the Dow in testing late September and July lows. If the results are delayed, and the 200-day moving averages come into play, it will be a clear sign the market is waiting for a winner to be announced.

If the results are announced Tuesday night, a major trend could develop into yearend, bullish or bearish. The VIX should also provide a good clue on how the action shakes out if it clears and holds 44, or closes back below the 34 level this week.

With 10-straight winners in our pocket since mid-August, I’m looking to get more aggressive once the technical outlook unfolds. I would like to see a return to all-time highs but we can make just as much money in a down market as we can in a bullish market.

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.

AT&T (T, $27.02, up $0.26)

T December 28 calls (T201218C00028000, $0.55, up $0.05)

Entry Price: $0.55 (10/29/2020)
Exit Target: $1.10
Return: 0%
Stop Target: None

Action: Fresh and lower resistance at $27-$27.25 was cleared and held on Friday’s run to $27.04. Support is at $26.75-$26.50.

Shares seem oversold with the dividend now at 7.77%. It is too early to say if a near-term double bottom has been formed but these options were “cheap” and gives us a bullish and bearish position heading into Tuesday’s election.

Rambus (RMBS, $13.79, down $0.29)

RMBS November 13 puts (RMBS201120P00013000, $0.35, up $0.05)

Entry Price: $0.90 (8/21/2020)
Exit Target: $1.80
Return: -61%
Stop Target: None

Action: Lower resistance at $14-$14.25 was recovered on the bounce to $14.14. Upper support is at $13.75-$13.50 and the 50-day moving average.

Earnings are due out after today’s closing bell so we should know the fate of this trade on Tuesday’s open. This has been one of our longer trades this year but we think shares could sink on missed earnings or revenue.