MomentumOptions.com Pre-Market Update for 12/7/2022
Key Support Levels Hold
8:00am (EST)
The stock market showed continued weakness on Tuesday following negative comments from a couple of banking CEO’s at the Goldman Sachs financial conference. Bank of America’s (BAC) CEO told investors the company’s research shows negative growth in the first half of 2023 while Goldman Sachs’ CEO stated economic growth is slowing and possible job cuts could be coming.
The Nasdaq traded down to 10,956 while closing at 11,014 (-2%). Near-term and upper support at 11,000-10,850 was tripped but held. A fade below the latter and the 50-day moving average would suggest additional weakness towards 10,750-10,600.
The Russell 2000 ended at 1,812 (-1.5%) following the intraday slide to 1,802. Upper support at 1,825-1,800 failed to hold. A drop below the latter would imply ongoing weakness to 1,775-1,750 and the 50-day moving average. Below is a chart of the IWM.
The S&P 500 went out at 3,941 (-1.4%) after touching an afternoon low of 3,918. Prior and upper support at 3,925-3,900 was breached but held. A move below the latter would be a bearish development for a further pullback towards 3,875-3,850.
The Dow settled at 33,596 (-1%) with the second half low hitting 33,418. Near-term and upper support at 33,500-33,250 was triggered but held. A close below the latter would signal additional weakness towards 33,000-32,750.
Volatility Index
The Volatility Index (VIX) was up for the second-straight day following the intraday surge to 22.60. Key resistance at 22.50 was cleared but held. A close above this level and the 20-day moving average would suggest ongoing strength to 23.50-24.
Rising support is at 21.50-21.
Market Analysis
The Spiders Dow Jones Industrial Average ETF (DIA) was down for the third time in four sessions after tagging a low of $334.72. Prior and upper support at $335-$334.50 was breached but held. A drop below the latter would suggest a further fade towards $333-$332.50.
Resistance is at $337.50-$338 and the 20-day moving average.
RSI is in a downtrend with key support at 50 holding. A move below this level would indicate weakness to 45-40 and levels from mid-October. Resistance is at 55-60.
Sector
The Industrials Select Sector Spider (XLI) was down for the second-straight day following the pullback to $98.68. Current and upper support at $99-$98.50 was tripped but held. A close below the latter would signal additional weakness to $97.50-$96.
Resistance is at $100-$100.50.
RSI is in a downtrend with upper support at 55-50 holding. A move below the latter would suggest downside action towards 45-40 and mid-October levels. Resistance is at 60-65.
Market Outlook
The bottom of the current trading ranges are back in play so today will be crucial for the bulls to hold key levels into the closing bell. For the major indexes: Russell 1,800; Nasdaq 11,000; S&P 3,900; and Dow 33,000.
I mentioned coming into the week there is wiggle room up to 24 on the VIX on a close above 22.50. Key support and resistance levels can get stretched but back-to-back closes below support on the major indexes and above backup resistance on the VIX would be a bearish development for the market.
Momentum Options Play List
Closed Momentum Options Trades for 2022: 25-21 (54%). 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.
DraftKings (DKNG, $14.20, down $0.63)
DKNG January 12.50 puts (DKNG230120P00012500, $0.70, up $0.15)
Entry Price: $0.70 (12/6/2022)
Exit Target: $1.40
Return: 0%
Stop Target: None
Action: Key support at $14 was breached but held following the intraday slide to $13.97 and close back below the 20-day and 50-day moving averages. Resistance is $14.75-$15.
Longer-term support is at $11 and an area that could come back into play by mid-January. A drop below $13.50 would likely induce additional selling pressure towards $12.50-$12 over the near-term.
A downtrend channel from the mid-August peak above $21 remains in play following the September, October, and November highs as lower monthly lows were also made.
Rocket Companies (RKT, $8.26, up $0.01)
RKT December 8 calls (RKT221216C00008000, $0.50, unchanged)
Entry Price: $0.95 (9/9/2022)
Exit Target: $1.90
Return: -47%
Stop Target: 25 cents (Stop Limit)
Action: Tuesday’s peak reached $8.85 with the calls trading up to 80 cents. Key resistance at $9 was challenged and held for the second-straight day. Support is at $8-$7.75 and the 20-day moving average.
