MomentumOptions.com Pre-Market Update for 12/8/2022
Selling Pressure Continues
8:00am (EST)
The stock market showed ongoing weakness on Wednesday despite news China’s government will scale back some of its zero-covid policies. Instead of cheering, investors seemed more worried over Apple’s (AAPL) plan to postpone its future electric vehicle until 2026.
Elsewhere, Tesla (TSLA) announced it would cut its December output of the Model Y at its Shanghai plant by more than 20% from the previous month.
The production cut comes after Tesla recently reported record sales in China.
The Nasdaq extended its losing streak to four-straight sessions after testing a low of 10,910 while ending at 10,958 (-0.5%). Fresh and upper support at 10,900-10,750 was challenged and held along with the 50-day moving average. A move below the latter would be a bearish development with ongoing weakness to 10,650-10,500.
The Russell 2000 settled at 1,806 (-0.3%) with the intraday low at 1,805. Key support at 1,800 was challenged and held. A fade below this level would signal a further slide towards 1,775-1,750 and the 50-day moving average. Below is a chart of the IWM.
The S&P 500 was down for the fifth-straight session after finishing at 3,933 (-0.2%) with the low reaching 3,922. Current and upper support at 3,925-3,900 was breached but held for the second-straight day. A drop below the latter would imply a retest to 3,875-3,850.
The Dow closed over a point higher at 33,597 (-0.0%) after bucking the trend while trading up to 33,774. Near-term and lower resistance at 33,750-34,000 was cleared but held. A close above the latter and the 20-day moving average would suggest another run towards 34,250-34,500.
Volatility Index
The Volatility Index (VIX) extended its winning streak to three-straight with the high hitting 23.01 on the close back above the 20-day moving average. New and lower resistance at 23-23.50 was topped but held. A pop above 24 would be a bearish development for the overall market.
Rising support is at 22-21.50.
Market Analysis
The SPDR S&P 500 ETF (SPY) fell for the fifth-straight session with the low at $391.97. Upper support at $392-$391.50 was breached but held. A close below the latter would signal additional weakness to $390-$389.50.
Lowered resistance is at $395-$395.50.
RSI (relative strength index) is in a downtrend with key support at 50 failing to hold. Continued closes below this level would suggest further downside action towards 45-40 and levels from early November. Resistance is at 55-60.
Sector
The Real Estate Select Sector Spider (XLRE) snapped a four-session slide after tapping an intraday high of $38.51. Lower resistance at $38.50-$39 was cleared but held. A close above the latter would indicate additional strength towards $39.50-$40.
Support is at $37.75-$37.25.
RSI has flatlined with key support at 50 holding. A move below this level would imply upside action towards 45-40 and levels from early November. Resistance is at 55-60.
Market Outlook
The bottom of the current trading ranges for the major indexes have been in play the past two days: Russell 1,800; Nasdaq 11,000; S&P 3,900; and Dow 33,000. All of these support levels held on Wednesday with the Nasdaq being the exception but has wiggle room to 10,900 and the 50-day moving average.
I often mention support and resistance can get stretched so it will be important for the bulls to continue to hold the aforementioned levels the rest of the week. The trading ranges have now lasted 18 sessions with the Dow and the S&P 500 getting stretched to the upside last week while the Nasdaq and the Russell are currently being extended to the downside this week.
Coming into the week, the two key levels to watch to the upside on the VIX were at 22.50 and 24. Wednesday’s close above the former puts the latter in focus for the rest of the week. If 24 fails to hold, there could be some panic selling that would push the VIX towards 26-26.50.
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, $13.90, down $0.30)
DKNG January 12.50 puts (DKNG230120P00012500, $0.80, up $0.10)
Entry Price: $0.70 (12/6/2022)
Exit Target: $1.40
Return: 14%
Stop Target: None
Action: Key support at $14 failed to hold with the intraday low kissing $13.70. Lowered resistance is $14.25-$14.50 and the 50-day moving average.
Rocket Companies (RKT, $8.31, up $0.05)
RKT December 8 calls (RKT221216C00008000, $0.55, up $0.05)
Entry Price: $0.95 (9/9/2022)
Exit Target: $1.90
Return: -42%
Stop Target: 25 cents (Stop Limit)
Action: Wednesday’s high touched $8.49 with resistance at $8.50 holding. Support remains at $8-$7.75 and the 20-day moving average.
