MomentumOptions.com Pre-Market Update for 11/14/2022
Wall Street Brushes Off Bitcoin Debacle
8:00am (EST)
The stock market showed continued strength on Friday despite another selloff in cryptocurrencies after FTX announced it is filing for Chapter 11 bankruptcy. Bitcoin sank 5%, and ether tumbled more than 3%.
The gains capped a winning, but volatile, week for the major indexes with the blue-chips within striking distance of its August peak. Meanwhile, volatility continued to ease after falling towards its lowest level since late August.
The Nasdaq closed at 11,323 (+1.9%) after making an intraday push to 11,352. Prior and lower resistance from mid-July at 11,350-11,500 was cleared but held. A pop above the latter would imply additional strength to 11,600-11,750.
The S&P 500 tagged a high of 4,001 while finishing at 3,992 (+0.9%). Key resistance from early September at 4,000 was cleared but held. Continued closes above this level would suggest ongoing momentum towards 4,050-4,100 and the 200-day moving average.
The Russell 2000 ended at 1,882 (+0.8%) and back above its the 200-day moving average with the high hitting 1,899. Prior and lower resistance from early September at 1,875-1,900 was recovered. A move above the latter would indicate upside towards 1,925-1,950. Below is a chart of the IWM.
The Dow tapped a high of 33,817 before settling at 33,747 (+3.7%). Lower resistance at 33,750-34,000 was cleared but held by a smidge. A close above the latter would signal a further run to 34,250-34,500 with the mid-August top at 34,281.
Volatility Index
The Volatility Index (VIX) fell for the second-straight day with the low at 22.37. Mid-August and upper support at 22.50-22 was breached but held. A slide below the latter would be an ongoing bullish development for the market with downside action towards 21-20.50.
Lowered resistance is 23.50-24.
Market Analysis
The Spider Small-Cap 600 ETF (SLY) was up for the fifth time in six sessions following the intraday trip to $88.39. Late August and lower resistance at $88-$88.50 was topped but held. A move above the latter would indicate strength to $89.50-$89.
New support is at $87-$86.50.
RSI (relative strength indicator) remains in a slight uptrend with key resistance at 65 holding. A close below this level would suggest upside to 70-75 and levels from mid-August. Support is at 60-55.
Sector
The Technology Select Sector Spiders (XLK) was up for the second-straight day after testing a high of $133.58. Early September and lower resistance at $133.50-$134 was cleared but held. A pop above the latter would suggest a further run towards $135.50-$136.
Support is at $130.50-$130.
RSI is trending higher with key resistance at 60 getting reclaimed. Continued closes above this level would imply additional strength towards 65-70 and levels throughout the first half of August. Support is at 55-50.
Market Outlook
All of the indexes posted a winning week and the strongest showing since June. The Nasdaq surged 8.1%; the S&P 500 soared 5.9%; the Russell jumped 4.6%; and the Dow rallied 4.2%.
Last week was a resumption of a comeback rally that began off the mid-October 52-week lows, but peaked coming into the month. The RSI readings for the major indexes, excluding the Dow, are near 60 and below overbought levels.
The RSI reading for the Dow is once pushing 70 and a level that had been holding since late October. There is a chance a pop to the August high at 75 comes into play if the index makes a run past the 34,000 level. Key support is now at 33,000.
The big focus this week will be on the S&P 500 as it is just 2% away from its 200-day moving average. If the index can clear and hold this level, it opens up the possibility of a run towards 4,200-4,300 and the August highs. Key support is at 3,900 and prior resistance that was cleared on last week’s breakout.
The close above the 200-day moving average sets the Russell up for a run towards its August 16th peak at 2,030. In early August, it only took the index seven days to hit 2,000 once 1,900 cleared so keep this in mind. Crucial support is at 1,825 should the index fall back below its 200-day moving average.
The Nasdaq was the clear winner last week with key resistance at 11,250 finally getting cleared and holding. This week’s challenge will be at the 11,500 level and prior support from early September. If cleared and held, it keeps upside potential towards 11,750-12,000 in play. If 11,250 fails to hold, there is wiggle room to 11,000 and the 50-day moving average.
As far as volatility, the 50-day and 200-day major moving averages on the VIX are showing signs of rolling over with the possibility of additional weakness towards 20-19 and the mid-August lows. When this area held, it was a clear signal the major indexes had peak. If this outcome were to play out again this month, or in December, it would likely signal another market peak.
The regular November options will expire this week and all of our current trades have mid-December expiration dates. I would like to add another new trade this week so stay locked-and-loaded.
Momentum Options Play List
Closed Momentum Options Trades for 2022: 25-18 (58%). 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, $38.30, down $0.22)
VZ December 40 calls (VZ221216C00040000, $0.40, down $0.10)
Entry Price: $0.55 (11/2/2022)
Exit Target: $1.10
Return: -27%
Stop Target: None
Action: Friday’s fade to $37.81 breached but held upper support at $38-$37.75 on the second-straight close above the 50-day moving average. Resistance is at $38.75-$39.
Rocket Companies (RKT, $8.13, up $0.81)
RKT December 8 calls (RKT221216C00008000, $0.60, up $0.30)
Entry Price: $0.95 (9/9/2022)
Exit Target: $1.90
Return: -37%
Stop Target: None
Action: Shares zoomed to a high of $8.16 with early July and lower resistance at $8-$8.25 getting cleared and holding. Rising support is at $7.75-$7.50.
The breakout above the month long trading range is a bullish development. However, RSI at 70 is flashing an overbought signal and a level that has been holding since July. It doesn’t mean shares can’t keep going higher with RSI pushing 75-80 but just an observation.
After being in this trade for two months, our patience is finally paying off. I would like to see a continued run towards $9 and the 200-day moving average. We should start seeing a profit if shares can clear $8.50 over the near-term.
Diana Shipping (DSX, $4.45, up $0.04)
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: Prior and lower resistance at $4.50-$4.60 was cleared but held after shares reached an intraday peak $4.57. Slightly rising support is at $4.40-$4.30 and the 50/20-day moving averages.
