Pre-Market Update for 12/28/2020

Small-Caps Lead Weekly Gains

8:00am (EST)

The market traded in a tight range on Thursday with the major indexes settling mostly higher for the shortened session after attempts to alter a $2.3 trillion coronavirus aid package was blocked by the Republican party.

President Trump’s demand for extensive changes and leaving benefits for millions of Americans is now at risk with House Speaker Pelosi saying the chamber will now vote on the stimulus-check increase on Monday.

The S&P 500 settled on its session high of 3,703 (+0.4%). Near-term and lower resistance at 3,700-3,725 was reclaimed. A close above the latter and the current all-time peak at 3,726 would indicate strength towards 3,750-3,775.

The Nasdaq fell 8 points shy of its record high after ending at 12,804 (+0.3%) and the morning high tapping 12,833. Current and lower resistance at 12,800-12,900 was cleared and held. A move above the latter would suggest momentum towards 13,000-13,100.

The Dow finished at 30,199 (+0.4%) while trading to a high of 30,209. Near-term and lower resistance at 30,250-30,500 was challenged but held. A pop above the latter would signal further upside towards 30,750-31,000 with the current lifetime top at 30,343.

The Russell 2000 tagged a fresh all-time high of 2,013 before closing lower at 2,003 (-0.2%). Uncharted territory and lower resistance at 2,010-2,030 was breached but held. A close above the latter would indicate continued upside towards 2,040-2,060. Below is a chart of the IWM.

For the week, the Russell 2000 jumped 1.6% and the Nasdaq gained 0.4%. The Dow added 0.2% while the S&P 500 slipped 0.2%.

The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) extended its losing streak to three-straight sessions after trading down to 21.39. Prior and upper support at 21.50-21 was breached and held. A close below the latter would suggest another backtest towards 20.50-20.

Lowered resistance is 22.50-23 followed by 24-24.50.

The Wilshire 5000 Composite Index (NYSE: WLSH) was up for the third-straight session with the intraday high reaching 39,181. Current and lower resistance at 39,200-39,300 was challenged but held. A move above the latter and last week’s all-time peak at 39,292 would indicate momentum towards 39,400-39,500.

Support is at 39,000-38,900 with a close below the 38,500 level signaling a possible near-term top.

RSI (relative strength index) has been flatlining with key resistance at 70 holding. A close above this level would indicate additional strength towards 75-80 and levels from late August/ early September. Support is at 65-60.

The SPDR S&P Homebuilders ETF (NYSEArca: XHB) remains in a six-session trading range following the intraday bounce to $59.30. Near-term and lower resistance at $59-$59.50 was cleared and held. A close above the latter and last Friday’s all-time peak at $59.72 would signal additional strength towards $60.50-$61.

Support is at $58.50-$58 followed by $57.50-$57.

RSI is back in an uptrend with lower resistance at 65-70 holding. A move above the latter would suggest additional strength towards 75-80 and levels from August. Key support is at 60.

While December has been another solid month for the stock market, the official “Santa Claus rally” is just getting underway. The seven-day trading period starts on Christmas Eve and ends during the first week of January. Any gains help aid December in being the best performing month of the year for the stock market. 

According to historical data dating back to 1950, the S&P 500 has posted an average return of 1.3% and is positive 78% of the time during the last five trading days of December and the first two trading days of January.

While Wall Street is looking for a strong finish to end 2020, if a Santa Claus rally doesn’t materialize, it could serve as a warning sign that January might see a weak start for the stock market.

Over the past 20 years, the five times the stock market posted negative returns during the Santa Claus rally period, the month of January settled lower each time.

Momentum Options Play List

Closed Momentum Options Trades for 2020: 45-11 (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.

AT&T (T, $28.69, down $0.06)

T February 30 calls (T210219C00030000, $0.55, unchanged)

Entry Price: $0.48 (12/22/2020)
Exit Target: $1.00
Return: 15%
Stop Target: None

Action: Shares tested an intraday low of $28.50 with upper support at $28.50-$28.25 and the 50-day moving average getting breached but holding. Resistance remains at $28.75-$29. A close above the latter and the 200-day moving average would be a more bullish signal of a near-term bottom.

Boston Scientific (BSX, $34.59, up $0.22)

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 $34.63 with lower resistance at $34.75-$35 getting challenged but holding. Support remains at $34.25-$34.