MomentumOptions.com Pre-Market Update for 12/6/2022
S&P Falls Back Below 4,000
8:00am (EST)
The stock market retreated on Monday as economic news came in above forecasts. Specifically, the Institute for Supply Management’s (ISM) services index for November checked in at 56.5 versus estimates of 53.5.
Factory orders rose 1% with expectations for an advance of 0.7%. The losses kept the recent trading ranges intact with volatility possible forming a near-term double bottom from last week and a possible bearish signal for major indexes.
The Russell 2000 finished at 1,840 (-2.8%) with the late day low tapping 1,834. Upper support at 1,850-1,825 and the 200/ 20-day moving averages failing to hold. A close below the latter would indicate weakness to 1,800-1,775 and the 50-day moving average. Below is a chart of the IWM.
The Nasdaq ended at 11,239 (-1.9%) after bottoming at 11,193. Upper support at 11,250-11,100 failed to hold. A drop below the latter 20-day moving average would imply a further slide to 10,900-10,750 and the 50-day moving average.
The S&P 500 traded down to 3,984 before settling at 3,998 (-1.8%). Key support at 4,000 was breached and failed to hold. Continued closes below this level would signal ongoing weakness towards 3,975-3,950 and the 20-day moving average.
The Dow closed at 33,947 (-1.4%) with the low touching 33,846. Near-term and upper support at 34,000-33,750 failed to hold. A move below the latter and the 20-day moving average would suggest a further pullback towards 33,500-33,250.
Volatility Index
The Volatility Index (VIX) snapped a four-session slide after trading to a high of 21.29. Lower resistance at 21-21.50 was cleared but held. A pop above the latter would imply strength to 22.50-23 and the 20-day moving averages.
Support is at 20-19.50.
Market Analysis
The Spider Small-Cap 600 ETF (SLY) was down for the second time in three sessions following the intraday fade to $85.93. Upper support at $86-$85.50 was tripped but held. A move below the latter and the 200-day moving average would indicate weakness to $84-$83.50.
Resistance is at $88-$88.50.
RSI (relative strength indicator) is in a downtrend with key support at 50 holding. A close below this level would suggest downside action to 45-40 and levels from mid-October. Resistance is at 55-60.
Sector
The MSCI Emerging Markets iShares (EEM) remained in a four-session trading range after tagging a low of $38.99. Upper support at $39-$38.50 was breached but held. A close below the latter would indicate a further slide towards $38-$37.50 and the 20-day moving average.
Resistance is at $39.50-$40 and the 200-day moving average.
RSI has rolled over with key support at 60 holding. A drop below this level would imply weakness towards 55-50 and levels from early November. Resistance is at 65-70.
Market Outlook
I could have one, possibly two, new bearish trades, if the market shows ongoing weakness. Another up day in the VIX, and a close above 22.50, could start to signal some upcoming selling pressure for the market.
Momentum Options Play List
Closed Momentum Options Trades for 2022: 25-20 (56%). 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, $37.07, down $1.11)
VZ December 40 calls (VZ221216C00040000, $0.05, down $0.05)
Entry Price: $0.55 (11/2/2022)
Exit Target: $1.10
Return: -91%
Stop Target: None
Action: Close the trade this morning to save the remaining premium.
I mentioned if shares closed below $37 and the 50-day moving average this week, we would exit the position. Yesterday’s action created too many overhead levels of resistance without a catalyst to get us above $40 by next Friday.
Rocket Companies (RKT, $8.25, down $0.16)
RKT December 8 calls (RKT221216C00008000, $0.50, down $0.10)
Entry Price: $0.95 (9/9/2022)
Exit Target: $1.90
Return: -47%
Stop Target: 25 cents (Stop Limit)
Action: Monday’s high hit $8.90 before shares closed lower with the calls peaking at 95 cents. This was the second time we came close to making a profit but got denied.
This has been frustrating to say the least as this has been a three-month long trade. If shares fall below $8, it will likely represent a near-term top, and why I have place a Stop Limit at 25 cents.
