MomentumOptions.com Pre-Market Update for 10/6/2022
Rally Stalls Following OPEC Cut
8:00am (EST)
The stock market pulled back on Wednesday following the biggest two-day rally to start a quarter in 84 years. News that OPEC okayed its largest production reduction since 2020 weighed on sentiment.
The two million barrels a day cut pushed oil prices higher and doubled expectations for a million barrel decrease. The major indexes managed a nice rebound into the afternoon after trading into positive territory before weakness returned into the closing bell.
The Dow ended at 30,273 (-0.1%) after trading to an afternoon high of 30,454. Lower resistance at 30,500-30,750 was challenged but easily held. A pop above 31,000 would likely lead to a run towards 31,250-31,500 with more important hurdles at 31,750-32,000 and the 50-day moving average. A close below 29,750-29,500 would be a possible red flag for additional weakness to 29,250-29,000 with the recent yearly low at 28,715.
The S&P 500 closed at 3,783 (-0.2%) with the intraday high hitting 3,806. Fresh and lower resistance at 3,800-3,825 was cleared but held. A move above the latter and would suggest strength towards 3,875-3,900 and resistance levels from mid-September. A close below 3,700-3,675 would be a warning sign for a possible retest towards 3,625-3,600 with last Friday’s 52-week low at 3,584.
The Nasdaq tapped a late day peak of 11,210 before finishing at 11,148 (-0.3%). Prior and lower resistance from last month at 11,250-11,400 was challenged but held. A pop above the latter would signal further upside towards 11,500-11,650 with more hurdles at 11,800-11,950 and the 50-day moving average. A close back below 11,000-10,850 would be a slightly bearish development as it represents current support and prior resistance from the recent trading range. If breached, a backtest to 10,750-10,600 could come back into focus with the mid-June 52-week low at 10,565.
The Russell 2000 struggled throughout the day after tapping a low of 1,732 while settling at 1,762 (-0.7%). Current and upper support at 1,750-1,725 was breached but held. A close below 1,700 would indicate additional weakness towards 1,675-1,650 with the mid-June 52-week bottom at 1,641. A close back above 1,800 would be a slightly bullish development with further strength to 1,825-1,850 and the 50-day moving averages. Below is a chart of the IWM.
Volatility Index
The Volatility Index (VIX) extended its losing streak to four-straight sessions after trading down to 28.50 ahead of the closing bell. Near-term and upper support at 28.50-28 was kissed but held. A close below the latter would signal weakness towards 27-26.50.
Resistance is at 30-30.50. A close above 32-32.50 would be a slightly bearish signal for the market and likely indicate a near-term top. The 50-day moving average remains in an uptrend and is on track to clear the 200-day moving average. If so, this would form a golden cross and a technical setup for higher highs.
The RSI reading on the VIX tagged an overbought reading of 70 last week and a level that has been holding since late April. The January peak was just north of this level with the November 2021 top at 80.
Market Analysis
The Spiders Dow Jones Industrial Average ETF (DIA) had its two-session winning streak snapped despite making a higher high at $304.55. Prior and lower resistance from a couple of weeks ago at $304.50-$305 was cleared but held. A close above the latter would indicate additional gains to $305-$305.50.
Support is at $299-$298.50.
RSI has flatlined with key resistance at 50 holding. A move above this level would indicate upside action towards 55-60 and levels from the back half of August. Support is at 45-40.
Sector
The iShares PHLX Semiconductor ETF (SOXX) was up for the third-straight session with the peak reaching $351.56. New and lower resistance at $351.50-$352 was topped but held. A pop above the latter would indicate additional gains to $353.50-$354.
Support is at $336.50-$336.
RSI is showing signs of rolling over with key resistance at 50 holding. A close above this level would suggest upside action towards 55-60 and levels from late August. Support is at 45-40.
Market Outlook
Yesterday’s action was somewhat bullish after the major indexes made a dramatic comeback off the opening lows. The lower close was slightly expected following two days of hefty gains with fresh support levels holding into the close.
The fact the VIX closed below 30 for the second-straight day was also a positive signal for the rest of the week. As far as our current trades, they held up well so let’s go check the action.
Momentum Options Play List
Closed Momentum Options Trades for 2022: 24-16 (60%). 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.
Tyson Foods (TSN, $66.64, down $0.82)
TSN October 70 calls (TSN221021C00070000, $0.45, down $0.15)
Entry Price: $0.50 (10/3/2022)
Exit Target: $1.00
Return: -10%
Stop Target: None
Action: Yesterday’s low kissed $65.90 with current and upper support at $66-$65.50 getting tripped but holding. Resistance is at $67-$67.50.
ProShares Bitcoin Strategy ETF (BITO, $12.41, down $0.11)
BITO October 10.50 puts (BITO221021P00010500, $0.20, down $0.10)
Entry Price: $0.51 (9/22/2022)
Exit Target: $1.05
Return: -61%
Stop Target: None
Action: Shares tagged a low of $12.18 with upper support at $12.25-$12 getting breached but holding. Resistance is at $12.50-$12.75.
Rocket Companies (RKT, $7.05, down $0.13)
RKT December 8 calls (RKT221216C00008000, $0.45, down $0.05)
Entry Price: $0.95 (9/9/2022)
Exit Target: $1.90
Return: -53%
Stop Target: None
Action: Key support at $6.75 was challenged but held following the pullback to $6.80. Resistance is at $7.25-$7.50.
Diana Shipping (DSX, $4.09, up $0.07)
DSX December 6 calls (DSX221216C00006000, $0.10, unchanged)
Entry Price: $0.40 (8/18/2022)
Exit Target: $1.00
Return: -75%
Stop Target: None
Action: Wednesday’s peak reached $4.13 with lower resistance at $4.10-$4.20 getting cleared but holding. Support is at $4-$3.90.
