Pre-Market Update for 12/21/2020

Bulls Get Weekly Win

8:00am (EST)

Wall Street pulled back on Friday as Congress continues to struggle to pass a stimulus bill with members staying over the weekend to try and get a deal done. All of the major indexes managed to set fresh record highs on the open before late day selling pressure erased their gains, as well.

The ongoing climb in infections and hospitalizations continues to weigh on the immediate term outlook for the economy, while vaccines hold out the promise of a return to normal activities later next year.

The Dow traded to an afternoon low of 30,029 before finishing at 30,179 (-0.4%). Near-term and upper support 30,250-30,000 was tripped and failed to hold. A drop below the latter would suggest a retest towards 29,750-29,500.

The Russell 2000 tested an intraday low of 1,965 while closing at 1,969 (-0.4%). Current and upper support at 1,970-1,950 failed to hold. A move below the latter would suggest continued weakness towards 1,940-1,920. Below is a chart of the IWM.

The S&P 500 settled at 3,709 (-0.4%) following the late day pullback to 3,685. Current and upper support at 3,700-3,675 was breached but held. A close below the latter would indicate a further backtest towards 3,650-3,625.

The Nasdaq ended at 12,755 (-0.1%) with the afternoon low tagging 12,654. New and upper at 12,700-12,600 was triggered but held. A close below the latter would signal a continued pullback towards 12,500-12,400.

For the week, the Nasdaq surged 3.1% while the Russell jumped 3%. The Dow gained 1.3% and the S&P rose 0.5%.

The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) fell for the fourth-straight session despite the late day high reaching 23.77. Current and lower resistance at 23.50-24 was cleared but held. A close above the 24.50 level would suggest additional upside towards 25.50-26 and the 50-day moving average.

Support is at 21.50-21 followed by 20.50-20.

The Spider Small-Cap 600 ETF (NYSE: SLY) fell for the second time in three sessions despite testing an all-time high of $80.10. Key resistance at $80 was breached but held.

The fade to $78.89 afterwards failed to hold current and upper support at $79-$78.50. There is retest potential towards $77.50-$77 on a move below the latter.

RSI (relative strength indicator) is showing signs of rolling over after failing to hold key support at 70. Continued closes below this level would indicate additional weakness towards 65-60. Resistance is at 75 and the November high.

The Consumer Staples Select SPDR Fund (NYSE: XLP) remains in a 14-session trading range between $67-$68 following the late day pullback to $67.40. Near-term and upper support at $67.50-$67 was breached but held. A close below the latter would indicate additional weakness towards $66.50-$66 and the 50-day moving average.

Key resistance is at $68 with the mid-November all-time high at $68.18.

RSI remains in an uptrend with key resistance at 60 getting cleared and holding. Continued closes above this level would signal a retest towards 65-70 with the latter representing the mid-November peak. Support is at 55-50 and the latter holding since early November.

Volatility has not closed below the 20 level since February despite the stock market’s continued run to all-time highs throughout this month and in November. Typically, with the major indexes at all-time highs, volatility will trade into the low teens and possibly single-digits.

Volatility has not closed above 25 since mid-November and a level to watch into year-end and the first week in January. While this level has also been stretched this month with the intraday peak hitting 25.14, volatility has held 25. This will be a key signal to possibly lighten up on bullish positions if this were to change.

On the flip side, if volatility closes below 20 over the near-term, there is a good chance the major indexes will continue to trade towards higher record highs. Otherwise, trading ranges could develop into year-end as Wall Street awaits a stimulus deal and the outcome of the Georgia elections from the first week of January.

I have updated our current trades so let’s go check the tape.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 44-11 (80%). 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.

Boston Scientific (BSX, $35.45, up $0.06)

BSX February 31 puts (BSX210219P00031000, $0.50, down $0.05)

Entry Price: $0.85 (12/14/2020)
Exit Target: $1.70
Return: -41%
Stop Target: None

Action: Shares traded to a high of $36.13 with early November and lower resistance at $36-$36.50 and the 50-day moving average getting cleared but levels that held. Support is at $35-$34.50.

Grocery Outlet Holding (GO, $39.73, up $0.32)

GO January 40 calls (GO210115C00040000, $1.40, up $0.15)

Entry Price: $1.00 (11/30/2020)
Exit Target: $2.00
Return: 40%
Stop Target: $1.15 (Stop Limit)

Action: Set an initial Stop Limit at $1.15 to start protecting profits and to avoid a loss.

Friday’s high reached $40.25 with lower resistance at $40-$40.50 getting breached but holding. Rising support is at $39-$38.50.