MomentumOptions.com Pre-Market Update for 10/31/2022

Dow/ S&P Recover 200 and 50-Day Moving Averages

8:00am (EST)

The stock market showed strength across the board on Friday despite mixed earnings as better-than-expected economic news fueled sentiment. Specifically, the core personal consumption expenditures price index for September was up 0.5% from August while personal spending rose 0.6%.

The Nasdaq went out at 11,102 (+2.9%) with the intraday peak reaching 11,117. Near-term and lower resistance at 11,000-11,150 was recovered. A close above the latter would indicate another run to 11,250-11,400 and the 50-day moving average.

The Dow traded to a high of 32,889 while settling at 32,861 (+2.6%). Prior and lower resistance from early July at 32,750-33,000 and the 200-day moving average were cleared and held. A pop above the latter would imply upside to 33,250-33,500.

The S&P 500 ended at 3,901 (+2.5%) after making a late day trip to 3,905. Key resistance at 3,900 was reclaimed. Continued closes above this level would suggest additional strength towards 3,925-3,950.

The Russell 2000 settled at 1,846 (+2.3%) following the afternoon push to 1,848. Lower resistance from early last month at 1,825-1,850 was topped and held. A move above the latter and the 200-day moving average would signal additional gains towards 1,875-1,900. Below is a chart of the IWM.

Volatility Index 

The Volatility Index (VIX) fell for the third time in four sessions while closing on the session low of 25.75. Prior and upper support at 26-25.50 was breached and held. A close below the latter would indicate weakness to 25-24.50.

Fresh resistance is at 26.50-27 and the 200-day moving average.

Market Analysis

The Wilshire 5000 Composite Index (WLSH) was up for the first time in three sessions with the high hitting 38,989. New and lower resistance at 38,750-39,000 was cleared but held. A close below the latter would signal additional strength to 39,250-39,500.

Support is at 38,500-38,250 and the 50-day moving average.

RSI (relative strength index) is back in an uptrend with key resistance at 60 holding. A close above this level would indicate strength to 65-70 and highs from mid-August. Support is at 55-50.

Sector

The iShares PHLX Semiconductor ETF (SOXX) remained in a mini four-session range with the peak reaching $334.24. Lower resistance at $334-$334.50 was cleared but held. A pop above the latter would indicate additional gains to $336-$336.50.

Key support is at $321-$320.50 and the 20-day moving average.

RSI rebounded with key resistance at 50 getting recovered. Continued closes above this level would suggest upside action towards 55-60 and levels from mid-August. Support is at 45-40.

Market Outlook

Last Thursday morning, I talked about how the Dow was poised to make a run at 32,500-32,750 and the 200-day moving average. With Friday’s close above these levels, the next upside targets are 33,500-34,000 and the August peak at 34,281. The blue-chips have led the rally off the mid-month lows for the overall market but now has an overbought RSI reading above 70. The August peak is around 75 and a level that has been holding since September 2018. However, RSI readings did hit the 80’s and pushed 90 in early 2018.

The S&P also closed above my near-term target of 3,900 and the 50-day moving average following Friday’s surge above both these levels. This area served as key support in early September following the pullback off the August highs. There are several areas of near-term resistance, obviously, but the September peak reached 4,119 and roughly where the 200-day moving average is currently hovering. The RSI reading is below 60 for the index and back in an uptrend with the August peak also north of 70.

The Russell made a run towards 1,850 and is likely to be the next index to clear its 200-day moving average. Continued closes above this level would imply continued strength towards 1,875-1,900. RSI is reasonable at just above 60 and could also make a run to the lows 70’s before being considered oversold.

Given the mixed earnings from Tech over the past week, it was no surprise to see the Nasdaq struggle. However, Friday’s gains pushed the index into positive territory for the week and challenging 11,250 again. The highs from last Tuesday and Wednesday are at 11,210 and 11,205 and must first be cleared with important hurdles at 11,350-11,500 and the 50-day moving average afterwards.

The close below 26.50 and the 200-day moving average on the VIX was an ongoing bullish signal for the market. Continued closes below 25 would likely signal weakness towards 23-22.50 with the September low at 22.64.

As far as support levels, it will be crucial the Nasdaq holds 10,500 on a pullback. The S&P has wiggle room to 3,750 on a retest and close back below 3,850 and the 50-day moving average. For the Dow, a close below 31,500 would suggest a possible near-term top. A drop below 1,750 on the Russell would also indicate the same deal.

Momentum Options Play List

Closed Momentum Options Trades for 2022: 24-18 (57%). 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.

KraneShares CSI China Internet ETF (KWEB, $19.07, down $0.76)

KWEB November 24 calls (KWEB221118C00024000, $0.15, down $0.05)

Entry Price: $0.58 (10/21/2022)
Exit Target: $1.20
Return: -74% 
Stop Target: None

Action: Friday’s low touched $18.65 with upper support at $18.75-$18.50 getting breached but holding. Lowered resistance is at $19.25-$19.50.

Rocket Companies (RKT, $6.71, up $0.36)

RKT December 8 calls (RKT221216C00008000, $0.25, up $0.05)

Entry Price: $0.95 (9/9/2022)
Exit Target: $1.90
Return: -74% 
Stop Target: None

Action: Lower resistance at $6.75-$7 was cleared but held following the run to $6.81. Support is at $6.50-$6.25.

Diana Shipping (DSX, $4.30, up $0.13)

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: Shares tested a high of $4.34 with lower resistance at $4.30-$4.40 getting cleared and holding. Support is at $4.20-$4.10 and the 20-day moving average.