MomentumOptions.com Pre-Market Update for 10/20/2022
Rally Stalls as Bears Reappear
8:00am (EST)
The stock market took another step back after two steps forward as Wednesday’s losses snapped a two-session winning streak by the bulls. The damage wasn’t as severe as last week’s volatility as the major indexes have traded in tighter ranges throughout the week.
The Russell 2000 ended at 1,725 (-1.7%) with the intraday low at 1,710. Upper support at 1,725-1,700 was tripped but held. A drop below the latter and the 20-day moving average would be a renewed bearish development with weakness towards 1,675-1,650. Below is a chart of the IWM.
The Nasdaq traded down to 10,592 while going out at 10,680 (-0.9%). Upper support at 10,650-10,500 was triggered but held. A move below the latter would suggest a further pullback to 10,400-10,250.
The S&P 500 closed at 3,695 (-0.7%) while kissing a low of 3,666. Current and upper support at 3,675-3,650 and the 20-day moving average were breached but levels that held. A close below the latter would signal a retest to 3,625-3,600.
The Dow tested a low of 30,226 before settling at 30,423 (-0.3%). New and upper support at 30,250-30,000 was violated but held. A slide below the latter would indicate an ongoing fade towards 29,750-29,500 and the 20-day moving average.
Volatility Index
The Volatility Index (VIX) snapped a two-session losing streak with the peak reaching 31.90. Lower resistance at 31.50-32 and the 20-day moving average were cleared but levels that held. A close above the latter would signal upside to 33.50-34.
Support is at 30.50-30.
Market Analysis
The Wilshire 5000 Composite Index (WLSH) was down for the first time in three sessions with the low at 36,601. Upper support at 36,750-36,500 was tripped but held. A close below the latter would signal additional weakness to 36,250-36,000.
Resistance is at 37,000-37,250.
RSI (relative strength index) has flatlined with key resistance at 50 holding. A close above this level would indicate strength to 55-60 and highs from the beginning of last month. Support is at 45-40.
Sector
The Technology Select Sector Spiders (XLK) showed weakness after testing an intraday low of $119.81. Current and upper support at $120-$119.50 was triggered but held. A fade below the latter would suggest a further slide towards $118-$117.50.
Resistance is at $121.50-$122 and the 20-day moving average.
RSI is showing signs of rolling over with upper support at 45-40 failing to hold. A close below the latter would signal additional weakness towards 35-30 and levels from last week. Key resistance is at 50.
Market Outlook
The failure for the major indexes to make higher highs once again highlights the fact that any short-term rally cannot be trusted. The sell the rip higher has been in play since mid-August and could be reversed, or continued, over the next two weeks as earnings season gets into full swing.
Companies have gotten off to a good start on the scorecard and yesterday’s tentative action could also just be a pause following a strong rally to start the week. Next week’s earnings action will likely start to have more of an impact on the overall market with some of the bigger names in Tech stepping up to the plate.
Key resistance levels to watch are: Dow 31,000; S&P 3,800; Nasdaq 11,250; and Russell 1,800. These levels are still shy of the 50-day moving averages but a continued week of solid earnings, and no major surprises, could have them in focus over the near-term.
On the flip side, key support is at: Dow 29,500; S&P 3,600; Nasdaq 10,500; and Russell 1,675. A drop below these levels will likely get another round of 52-week and two-years lows back in the mix.
We have action on two trades today that will lighten up the portfolio even further as we wait to see how the next major trend could unfold. We could use some index trades like QQQ or SPY to take advantage once we get confirmation so stay ready for some tactical trading.
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, $33.39, up $0.29)
WBA October 33 calls (closed at $0.90 on 10/14)
WBA October 31 puts (WBA221021P00031000, $0.03, down $0.02)
Entry Price: $1.70 (10/12/2022)
Exit Target: $2 (Limit Order on calls)
Return: -44%
Stop Target: None
Action: Close the trade this morning to save the remaining premium.
We basically broke even on the calls and took a loss on the puts. This type of hedge or strangle option strategy is a low risk investment for trying to capture massive moves on a stock based on earnings. We were close with WBA as shares nearly broke out above $34 but a level that has been holding since earnings came out.
In three months, we can revisit WBA as the stock benefitted from an earnings spin on management’s conference call with Wall Street. The current quarter is likely to be challenging with new 52-week lows for the stock a strong possibility.
ProShares Bitcoin Strategy ETF (BITO, $11.84, unchanged)
BITO October 10.50 puts (BITO221021P00010500, $0.03, down $0.02)
Entry Price: $0.51 (9/22/2022)
Exit Target: $1.05
Return: -93%
Stop Target: None
Action: Close the trade this morning to save the remaining premium.
We simply ran out of time for BITO. Shares did test a fresh 52-week low of $11.18 last week but have remained in an overall trading range for two months. This means a much larger breakdown or breakout will come once shares fall below $11 or clear $14. We will keep it on the Watch List.
Rocket Companies (RKT, $6.55, down $0.40)
RKT December 8 calls (RKT221216C00008000, $0.30, down $0.10)
Entry Price: $0.95 (9/9/2022)
Exit Target: $1.90
Return: -68%
Stop Target: None
Action: Upper support at $6.75-$6.50 and the 20-day moving average failed to hold following the late day fade to $6.53. Resistance is at $7-$7.25.
Diana Shipping (DSX, $4.16, down $0.09)
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: Yesterday’s low kissed $4.09 with upper support at $4.10-$4 and the 20-day moving average getting breached but holding. Resistance is at $4.20-$4.30.
