MomentumOptions.com Pre-Market Update for 12/5/2022
Jobs Report Hotter-Than-Expected
8:00am (EST)
The stock market was mixed on Friday after a strong jobs report led to a rocky open. Non-farm payrolls checked in at 263,000 versus forecasts for a reading of 200,000 with the unemployment rate holding steady at 3.7%.
All of the major indexes rebounded off the opening lows to trade into positive territory with the blue-chips and small-caps holding onto some of the gains. Despite the choppiness, the bulls got their second-straight weekly win as volatility fell to a multi-month low.
The Russell 2000 topped out at 1,898 for the second-straight day before closing at 1,892 (+0.6%). Key resistance at 1,900 was challenged but held. A close above this level and the mid-November peak at 1,905 would imply upside towards 1,925-1,950. Support is at 1,875-1,850. The index has been in a trading range between 1,825-1,900 for 15-straight sessions with a close below the former suggesting a near-term top. Below is a chart of the IWM.
The Dow ended at 34,395 (+0.1%) with the afternoon peak reaching 34,493. Key resistance at 34,500 was challenged but held. Continued closes above this level would be a bullish development for further upside towards 34,750-35,000. Support is at 34,000-33,750 and the 20-day moving average. A drop below 33,250 will be the clue to a near-term peak.
The S&P 500 tagged a morning low of 4,026 while finishing at 4,071 (-0.1%). Current and upper support at 4,050-4,025 and the 200-day moving average were breached but held. A move under 3,950 and the 20-day moving average would signal a near-term top. Key resistance is at 4,100 with upside to 4,150-4,200 on a close above this level.
The Nasdaq bottomed at 11,296 before settling at 11,461 (-0.2%). Upper support at 11,400-11,250 was tripped but held. A move below the latter would imply downside action to 11,150-11,000. A close below 10,900 and the 50-day moving average would be a warning sign of a possible top. Key resistance is at 11,500. Like the Russell, the index is also in a 15-session trading range between 11,000-11,500. A close above the latter would suggest additional strength towards 11,600-11,750 and levels from mid-September.
Volatility Index
The Volatility Index (VIX) was down for the fourth-straight session following the intraday slide to 18.95. Key support at 19 was breached but held on the close below the August low at 19.12. Continued closes below both levels could lead to a further pullback towards 18.50-18 with the April 4th low at 18.45. The January 52-week low touched 16.34.
Resistance remains at 20.50-21. The new warnings sign for a possible market peak would be if the VIX closes back above 22.50 and the 20-day moving average. However, there is wiggle room to 24 for the bulls with a close above this level likely getting 26.50-27 and the 200-day and 50-day moving averages in focus.
Market Analysis
The S&P 400 Mid Cap Index (MID) was up for the third time in four sessions with the peak reaching 2,585. Lower resistance at 2,575-2,600 was tripped but held by a point. A pop above the latter would suggest upside action towards 2,625-2,650 with the mid-August high at 2,646.
Support is at 2,550-2,525.
RSI (relative strength index) has flatlined with key support at 60 holding. A close below this level would indicate further weakness towards 55-50 and levels from early last month. Resistance is at 65-70.
Sector
The Financial Select Sector Spiders (XLF) extended its losing streak to two-straight after kissing a low of $35.61. Current and upper support at $36-$35.50 failed to hold. A close below the latter and the 20-day moving average would signal a retest towards $35-$34.50.
Resistance is at $36-$36.50.
RSI remains inna slight downtrend with key support at 60 holding. A close below this level would indicate weakness to 55-50 and levels from mid-October. Resistance is at 65-70.
Market Outlook
This week could have limited upside as Wall Street awaits the mid-month Fed update on interest rates. Although most talking heads have penciled-in a half-point hike instead of three-quarters, Friday’s jobs update muddied the waters once again.
The third-quarter earnings season is continuing to wind down but there are a few notable companies reporting this week that could be good setups for possible trades afterwards. The technical setup remains bullish over the near-term with the 50-day moving averages for the major indexes leveling out and showing signs of curling higher.
The 200-day moving averages for the major indexes are also flattening out and the 20-day moving averages remain in solid uptrends after holding during the first part of last week. The ongoing and bearish technical setup for the VIX is also bullish for the market over the near-term.
On that note, we have update our current trades so let’s go check the tape.
Momentum Options Play List
Closed Momentum Options Trades for 2022: 25-19 (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.
Pure Storage (PSTG, $29.61, down $0.64)
PSTG December 32 calls (PSTG221216C00032000, $0.25, down $0.25)
Entry Price: $1.75 (11/14/2022)
Exit Target: $3.50
Return: -86%
Stop Target: None
Action: Close the trade this morning to save the remaining premium.
Last week’s price action after earnings was a disappointment with too many layers of resistance to overcome by next Friday’s expiration.
Verizon Communications (VZ, $38.18, down $0.15)
VZ December 40 calls (VZ221216C00040000, $0.10, down $0.05)
Entry Price: $0.55 (11/2/2022)
Exit Target: $1.10
Return: -82%
Stop Target: None
Action: Prior and upper support at $37.75-$37.50 was breached but held following the fade to $37.70. Resistance is at $38.25-$38.50 and the 20-day moving average.
If shares close below $37 and the 50-day moving average this week, we will exit the trade to save the remaining premium.
Rocket Companies (RKT, $8.41, down $0.13)
RKT December 8 calls (RKT221216C00008000, $0.60, down $0.15)
Entry Price: $0.95 (9/9/2022)
Exit Target: $1.90
Return: -37%
Stop Target: None
Action: Friday’s low kissed $8.20 with upper support at $8.25-$8 getting tripped but holding. Resistance is at $8.50-$8.75 and the 200-day moving average.
A run past $9 will get these calls to at least $1 in-the-money and the trade into profitable territory. We were in this position a few weeks ago so hopefully we get a major breakout above the 200-day moving average on possible short-covering this week.