MomentumOptions.com Pre-Market Update for 10/17/2022
Market Rolls Over, Again
The stock market gave back its opening gains on Friday while failing to capitalize on the prior day’s historic turnaround rally as Wall Street digested fresh earnings from the Financial sector. The big banks posted mixed results but took a back seat after a consumer survey showed inflation expectations were increasing.
Consumers expect prices will climb 5.1% over the next year, up from 4.7% in September, according to a survey from the University of Michigan. The losses wiped out the weekly gains for the major indexes, excluding the blue-chips, which posted its second-straight weekly win.
The Nasdaq tagged a low of 10,308 before closing at 10,321 (-3.1%). Near-term and upper support at 10,300-10,150 was challenged and held. A close below the latter and last Thursday’s 52-week low at 10,088 would be a fresh bearish development for a further fade towards 10,000-9,850.
The Russell 2000 finished at 1,682 (-2.7%) after testing a late day low of 1,681. Upper support at 1,700-1,675 was breached and failed to hold. A move below the latter would suggest ongoing weakness towards 1,650-1,625 with last week and the summer 52-week low at 1,641. Below is a chart of the IWM.
The S&P 500 tapped a low of 3,579 while ending at 3,583 (-2.4%). Current and upper support at 3,600-3,575 failed to hold. A close below the latter and would indicate a retest to 3,525-3,500 with last Thursday’s 52-week low at 3,491.
The Dow settled at 29,634 (-1.3%) with the intraday bottom at 29,614. Upper support at 29,750-29,500 failed to hold. A drop below the latter would indicate selling pressure towards 28,750-28,500 with last week’s yearly low at 28,614.
The Volatility Index (VIX) fell for the second-straight day after trading down to 31.63. Fresh and upper support at 32-31.50 was breached and held. A drop below the latter would likely lead to a further pullback to 30.50-30.
Lowered resistance is at 33.50-34.
The Spiders Dow Jones Industrial Average ETF (DIA) pulled back despite making a higher high at $304.36. Prior and lower resistance from the start of the month at $304-$304.50 was cleared but held. A close above $305 would be a possible bullish signal of a near-term bottom.
Shaky support is at $296-$295.50.
RSI is back in a downtrend with upper support at 45-40 holding. A move below the latter would indicate downside action towards 35-30 and levels from late last month. Key resistance is at 50.
The MSCI Emerging Markets iShares (EEM) was down for the first time in three sessions after tagging a low of $34.18. New and upper support at $34.25-$34 was breached and failed to hold. A close below the latter would indicate a retest towards $33.75-$33.50 with last Thursday’s 52-week low at $33.67.
Resistance is at $34.75-$35.
RSI is showing signs of rolling over with key support at 30 failing to hold. Continued closes below this level would signal weakness towards 25-20 and the September lows. Resistance is at 35-40.
For the week, the Dow was up 1.2%; the Nasdaq sank 3.1%; the S&P fell 1.6%; and the Russell was down 1.3%. The RSI levels for the major indexes are giving a neutral reading as they are near 40, on average, and are neither oversold or overbought.
The VIX made a lower low on the open and a lower high on Friday despite the whipsaw action. However, a golden cross in the VIX has formed with the 50-day moving average crossing above the 200-day moving average. This is typically a bullish signal for higher highs and would suggest lower lows in the major indexes.
Key resistance at 35 held throughout last week and a level that was also tested last month and in June. The VIX October 19th 35 calls that expire this Friday traded over 15,000 and has open interest of nearly 165,000 contracts. The closed at 60 cents. The VIX October 19th 29 puts traded nearly 22,000 contracts and has open interest above 120,000 contracts.
This is suggesting traders are expecting continued volatility this week to the upside, or downside, with the start of the third-quarter earnings season getting underway.
Momentum Options Play List
Closed Momentum Options Trades for 2022: 24-17 (59%). 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, $33.24, down $0.41)
WBA October 33 calls (closed at $0.90 on 10/14)
WBA October 31 puts (WBA221021P00031000, $0.07, down $0.03)
Entry Price: $1.70 (10/12/2022)
Exit Target: $2 (Limit Order on calls)
Stop Target: None
Action: We closed the calls at 90 cents on Friday to save the premium. I didn’t want to take the chance of holding them over the weekend as time decay will rapidly come into play this week. The calls are technically only 24 cents “in-the-money”.
The premiums for both options was $1.70 and we may be able to get a nickel or a dime for the puts into Wednesday or Thursday. However, if shares fall below $31, there is a chance we get more of the premium back that would also lower the overall loss on the position.
If shares fall to $30.20, technically, the puts will be 80 in-the-money and enough to get the trade back to even. This is one of the beautiful parts about a strangle or straddle option trade as there is a chance to make money on both options if volatility returns to the downside.
Key resistance at $34 was cleared but held foe the second-straight day with the peak reaching $34.24. Support is at $33-$32.75 and the 20-day moving average.
ProShares Bitcoin Strategy ETF (BITO, $11.80, down $0.15)
BITO October 10.50 puts (BITO221021P00010500, $0.10, unchanged)
Entry Price: $0.51 (9/22/2022)
Exit Target: $1.05
Stop Target: None
Action: Friday’s low tapped $11.77 with upper support at $11.75-$11.50 getting challenged but holding. Resistance is at $12-$12.25.
Rocket Companies (RKT, $6.67, down $0.10)
RKT December 8 calls (RKT221216C00008000, $0.35, unchanged)
Entry Price: $0.95 (9/9/2022)
Exit Target: $1.90
Stop Target: None
Action: Key resistance at $7 was cleared on the trip to $7.03 before shares closed in the red. Support remains at $6.50-$6.25.
Diana Shipping (DSX, $4.18, up $0.07)
DSX December 6 calls (DSX221216C00006000, $0.10, unchanged)
Entry Price: $0.40 (8/18/2022)
Exit Target: $1.00
Stop Target: None
Action: Key resistance $4.20 was challenged but held with the peak reaching $4.19. Support is at $4.10-$4.