MomentumOptions.com Pre-Market Update for 10/13/2022

Volatility Holds 35

8:00am (EST)

The stock market traded in another tight range on Wednesday following the release of the latest Fed minutes and another worse-than-expected update on inflation. The Producer Price Index was up 0.4% in September versus forecasts for a rise of 0.2%.

As far as the minutes, the Federal Reserve indicated restrictive monetary policy would be ongoing until inflation meaningfully comes down. On a side note, mortgage rates topped 7% after coming into the year at 3%.

The S&P 500 fell for the sixth-straight session after closing at 3,577 (-0.3%) while kissing a low of 3,573. Upper support at 3,575-3,550 was breached but held for the second-straight day. A move below the latter and Tuesday’s 52-week low at 3,568 would signal additional weakness to 3,525-3,500.

The Russell 2000 ended at 1,687 (-0.3%) with the intraday low at 1,671. Upper support at 1,675-1,650 was tripped but held. A drop below the latter would be a renewed bearish development with weakness towards 1,725-1,750. Below is a chart of the IWM. 

The Dow tested a low of 29,136 before settling at 29,210 (-0.1%). Key support at 29,000 was challenged but held. A close below this level would indicate a further fade to 28,750-28,500 with the late September 52-week low at 28,715.

The Nasdaq traded down to 10,372 while going out at 10,417 (-0.1%). Upper support at 10,400-10,250 was tripped but held for the second-straight day. A move below the latter would suggest a further pullback towards 10,150-10,000.

Volatility Index

The Volatility Index (VIX) had its four session winning streak snapped with the low at 33.11. New and upper support at 33.50-33 was breached but held. A close below the latter would signal a retest towards 31.50-31.

Key resistance is at 35.

Market Analysis

The S&P 400 Mid Cap Index (MID) fell for the fifth time in six session after trading to a low of 2,244. Upper support at 2,250-2,225 was tripped but held. A close below the latter would suggest downside action towards the 2,000 area with last month’s 5@-week bottom at 2,185.

Resistance is at 2,275-2,300.

RSI (relative strength index) is showing signs of rolling over with key support at 40 holding. Continued closes below this level would indicate further weakness towards 35-30 and late September levels. Resistance is at 45-50.

Sector

The Materials Select Sector (XLB) fell for the second-straight day with the low hitting $68.51. Upper support at $69-$68.50 failed to hold. A close below the latter would signal weakness towards $67.50-$67 with the recent 1-year low at $66.85.

Near-term resistance is at $69-$69.50.

RSI remains in a downtrend with key support at 40 failing to hold. Continued closes below this level would be a bearish development for downside to 35-30 and levels from late last month. Resistance is at 45-50.

Market Outlook

Once again, the bulls held the VIX below 35 for the second-straight day. However, a golden cross is close to forming with the 50-day moving average on track to clear the 200-day moving average. This tends to be a technical indicator that signals higher highs and would not be good news for the market.

These two indicators also remain in nasty downtrends for the major indexes and continue to suggest a bear market into 2023 remains in play. I have a lot to cover this morning for our current trades so let’s go check the tape.

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.

Walgreens Boots Alliance (WBA, $31.94, down $0.67)

WBA October 31 puts (WBA221021P00031000, $0.90, up $0.25)

WBA October 33 calls (WBA221021C00033000, $0.80, down $0.35)

Entry Price: $1.70 (10/12/2022)
Exit Target: $3.40
Return: 0% 
Stop Target: None

Action: The recent 52-week low tagged $30.39 with 10-year support at $30.50 holding into the closing bell on October 7th. The next level of key support comes in at $27ish from June 2010 and could come into play on an earnings miss or lowered guidance.

This would be the beauty of the trade as the puts would be at least $4 in-the-money. The calls would drop to a nickel or a few pennies but it wouldn’t matter.

The company has topped estimates four-straight quarters and analysts are looking for a profit of 77 cents a share. A solid beat and a rosy outlook for the rest of the year could have shares pushing $35-$36 and the 50-day moving average.

The company will report earnings this morning and I’m looking for shares to move 8%-10%, or more. The goal is to have the call or put option increase to $1.70, or better, to at least cover the cost of the trade, and more importantly, make us a profit.

One side of the trade will see the premium deflate, depending on price action, but both the call and put could suffer if shares don’t make a dramatic move. I’m looking for shares to clear $35 or fall below $29 this morning and possibly into next week. If shares stay between $31-$33 we could exit the entire trade to save the remaining premium.

I could have a Profit or Trade Alert at some point after the open, so stay locked-and-loaded.

Tyson Foods (TSN, $63.78, down $0.17)

TSN October 70 calls (TSN221021C00070000, $0.10, unchanged)

Entry Price: $0.50 (10/3/2022)
Exit Target: $1.00
Return: -80% 
Stop Target: None

Action: Exit the trade this morning to save the remaining premium.

Shares need to make a 10% move by next Friday to give us a chance but too many resistance levels make this an unlikely outcome.

ProShares Bitcoin Strategy ETF (BITO, $11.77, up $0.11)

BITO October 10.50 puts (BITO221021P00010500, $0.15, down $0.05)

Entry Price: $0.51 (9/22/2022)
Exit Target: $1.05
Return: -72% 
Stop Target: None

Action: Shares snapped a five session slide after testing a high of $11.80. Lower resistance at $11.75-$12 was recovered. Support remains at $11.50-$11.25.

Rocket Companies (RKT, $6.73, unchanged)

RKT December 8 calls (RKT221216C00008000, $0.35, unchanged)

Entry Price: $0.95 (9/9/2022)
Exit Target: $1.90
Return: -63% 
Stop Target: None

Action: Lower resistance at $6.75-$7 was cleared but held with the peak reaching $6.79. Support remains at $6.50-$6.25.

Diana Shipping (DSX, $4.06, up $0.08)

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: Lower resistance $4.10-$4.20 was challenged but held following the bounce to $4.08. Support is at $4.00-$3.90.