MomentumOptions.com Pre-Market Update for 12/12/2022

Trading Range Lows Back in Focus

8:00am (EST)

The stock market trended mostly lower on Friday with some afternoon strength with the outcome favoring the bears. The losses still held the bottom of the current trading ranges, but ones that are getting stretched, that have now been in play for just over a month, or 21 trading sessions.
 
The Russell 2000 ended at 1,796 (-1.2%) and the session low. Upper support at 1,800-1,775 failed to hold and represented the first close back below 1,800 since November 9th. A drop below the latter and the 50-day moving average would imply ongoing weakness to 1,750-1,725 and levels from early November. Resistance is at 1,825-1,850 and the 200/ 20-day moving averages. Below is a chart of the IWM.

The Dow settled at 33,476 (-0.9%) with the second half low hitting 33,462. Near-term and upper support at 33,500-33,250 was triggered and failed to hold. A close below the latter and the November 10th low at 33,167 would be a bearish development. This represents the prior breakout and the bottom of the trading range with additional weakness towards 33,000-32,750. Resistance is at 33,750-34,000 and the 20-day moving average.

The S&P 500 went out at 3,934 (-0.7%) after touching an afternoon low of 3,933. Prior and upper support at 3,950-3,925 was breached and failed to hold. A move below 3,900 would signal a further pullback towards 3,875-3,850 with the November 10th low at 3,859. Resistance is at 3,975-4,000 and the 20-day moving average.

The Nasdaq traded down to 10,999 while closing at 11,004 (-0.7%). Near-term and upper support at 11,050-10,900 failed to hold. A fade below the latter and the 50-day moving average would suggest additional weakness towards 10,750 with the November 10th low at 10,779. There is gap down potential to 10,500-10,250 on a close below 10,750. Resistance is at 11,250-11,400 and the 20-day moving average with a close above 11,500 being a more bullish development.

Volatility Index

The Volatility Index (VIX) was up for the fourth time in five sessions with the peak hitting 23.21. Lower resistance at 23-23.50 was cleared but held for the third-straight session. A close above 24 would be a warning sign for Wall Street with upside risk to 26 and the 50/ 200-day moving averages.

Support remains 22-21.50 with the bulls needing a close back below 21 to regain momentum. The double-bottom low from mid-August and earlier this month proved to be a bearish setup coming into last week.

Market Analysis

The Wilshire 5000 Composite Index (WLSH) remains in a much more refined 20-day trading range after tagging a low of 39,000. Key support at 39,000 was kissed and held. A move below the latter would signal weakness to 38,500-38,250 and the 50-day moving average.

Resistance is at 39,750-40,000 and the 20-day moving average.

RSI (relative strength index) is rolling over with key support at 50 failing to hold. Continued closes below this level would imply weakness to 45-40 and levels from mid-October. Resistance is at 55-60.

Sector

The Spider Gold Shares (GLD) were up for the fourth-straight session after reaching a peak of $168.09. Key resistance at $168 was cleared but held. Continued closes above this level would imply further strength towards $169.50-$170.

Support is at $166.50-$166.

RSI is still showing strength with key resistance at 65 holding. A close above this level would signal additional upside to 70 and the mid-November peak. Support is at 60-55.

Market Outlook

For the week, the Russell tanked 5.3%; the Nasdaq sank 4%; the S&P 500 stumbled 3.4%; and the Dow was down 2.8%. The small-caps were the main concern but the index did hold the 50-day moving average despite after being the only index that failed to hold its trading range.

The biggest outcome of a longer trading range is typically a bullish or bearish breakout. Given the length of the current ones, it wouldn’t be surprising to see the major indexes move 10% from current levels.

This would suggest fresh monthly highs, or new 52-week lows. The time frame would be longer for a bullish breakout given the overhead resistance levels. A complete breakdown out of the current trading ranges by the rest of the major indexes would likely be a quicker move as investors sell into month end for tax purposes.

This week’s economic news events, along with another Fed update on interest rates, could play major catalysts in determining the next major trend that will likely last into yearend. A rebound to the top of the trading ranges could also imply an ongoing trading range at least into next week.

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, $13.96, down $0.65)

DKNG January 12.50 puts (DKNG230120P00012500, $0.70, up $0.10)

Entry Price: $0.70 (12/6/2022)
Exit Target: $1.40
Return: 0% 
Stop Target: None

Action: Friday’s low touched $13.88 with upper support at $14-$13.75 failing to hold. Resistance is at $14.25-$14.50.

Rocket Companies (RKT, $8.27, down $0.23)

RKT December 8 calls (RKT221216C00008000, $0.50, down $0.15)

Entry Price: $0.95 (9/9/2022)
Exit Target: $1.90
Return: -47% 
Stop Target: 25 cents (Stop Limit)

Action: Shares traded to a low of $8.26 with upper support at $8.25-$8 getting challenged and holding. Resistance is at $8.50-$8.75.