MomentumOptions.com Pre-Market Update for 11/3/2022

Fed Stays Aggressive

8:00am (EST)

The stock market traded lower into Wednesday afternoon’s Fed update with the selling pressure accelerating into the closing bell. To no surprise, the Central Bank raised interest rates by another 75 basis points with Fed Chair Powell saying it would be very premature to talk about a pause.

The rate hike lifted the federal funds rate to a new range of 3.75%-4% and the highest level since 2008. In the press conference, Powell also stated that interest rates may need to rise above the 4.6% previously estimated.

The Russell 2000 ended on its session low of 1,789 (-3.4%). Fresh and upper support at 1,800-1,775 failed to hold. A fade below the latter and the 50-day moving average would signal weakness to 1,750-1,725. Below is a chart of the IWM. 

The Nasdaq tapped a low of 10,522 while settling at 10,524 (-3.4%). Prior and upper support at 10,650-10,500 failed to hold. A move below the latter would suggest additional weakness towards 10,400-10,250.

The S&P 500 went out at 3,759 (-2.5%) after tagging a low of 3,758 ahead of the closing bell. New and upper support at 3,775-3,750 was tripped and failed to hold. A close below the latter would indicate a further fade to 3,725-3,700 and the 20-day moving average.

The Dow reached an afternoon low of 32,139 before finishing at 32,147 (-1.6%). Fresh and upper support at 32,250-32,000 was breached and failed to hold. A drop below the latter would imply additional weakness towards 31,750-31,500.

Volatility Index 

The Volatility Index (VIX) traded in another tight range with the high touching 26.62. Lowered resistance at 26.50-27 was cleared but held. A close above the latter and the 200-day moving average would signal strength to 28-28.50 and the 50-day moving average.

Key support remains at 25.50.

Market Analysis

The Spider Small-Cap 600 ETF (SLY) had its eight-session winning streak snapped following the pullback to $82.43. New and upper support at $82.50-$82 was breached but held. A move below the latter would indicate downside action towards $81-$80.50 and the 50-day and 20-day moving averages.

Resistance is at $84-$84.50.

RSI (relative strength indicator) is in a downtrend with key support at 50 holding. A close below this level would suggest weakness to 45-40 with the latter holding throughout last month. Resistance is at 55-60.

Sector

The Communication Services (XLC) extended its losing streak to three-straight sessions after kissing a low of $46.53. Mid-October and upper support at $47-$46.50 failed to hold. A fade below the latter and the recent 52-week low of $46.47 would signal ongoing weakness towards $45.50-$45.

Lowered resistance is at $47.50-$48.

RSI remains weak with upper support at 35-30 holding. A close below the latter would indicate additional weakness towards 25-20 and levels from late September. Resistance is at 40-45.

Market Outlook

Monday morning’s comments:

“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.”

Following Wednesday’s close, the Nasdaq and the S&P closed just above 10,500 and 3,750. Wow. The Dow and the Russell could be next to test this week’s downside targets if there is continued weakness today.

The one bit of good news is that the VIX held its 200-day moving average for the third-straight day following last Friday’s close below this level. It would be a renewed bullish development for the market if the VIX falls below 25 and the major indexes can rebound today and into Friday’s closing bell.

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.

Verizon Communications (VZ, $37.71, up $0.34)

VZ December 40 calls (VZ221216C00040000, $0.45, up $0.09)

Entry Price: $0.55 (11/2/2022)
Exit Target: $1.10
Return: -18% 
Stop Target: None

Action: Yesterday’s peak reached $38.35 with prior and lower resistance from late September at $38.25-$38.50 getting cleared but holding. Support is at $37-$36.75 and the 20-day moving average.

KraneShares CSI China Internet ETF (KWEB, $20.38, up $0.12)

KWEB November 24 calls (KWEB221118C00024000, $0.20, unchanged)

Entry Price: $0.58 (10/21/2022)
Exit Target: $1.20
Return: -65% 
Stop Target: None

Action: Shares made a run to $21.11 with key resistance at $21 getting cleared but holding for the second-straight day. Support is at $20-$19.75.

Rocket Companies (RKT, $6.61, down $0.30)

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

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

Action: Upper support at $6.50-$6.25 was challenged but held with the low at $6.59. Resistance is at $6.75-$7 and the 20-day moving average. Earnings are due out after today’s closing bell.

Diana Shipping (DSX, $4.22, down $0.16)

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 closed on the session low of $4.22 with upper support at $4.30-$4.20 failing to hold. Resistance is at $4.40 and the 50-day moving average.