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MomentumOptions.com Pre-Market Update for 12/15/2022

Fed Hikes Half-Point

8:00am (EST)

The stock market showed continued momentum into Wednesday’s Fed announcement but gave up its gains despite Wall Street’s wish for a half-point increase. Comments from Chair Powell took the wind out of the bulls sails after he stated further tightening would come in the new year.

The Nasdaq traded down to 11,065 while closing at 11,170 (-0.8%). Near-term and upper support at 11,250-11,100 failed to hold. A fade below the latter would imply additional weakness towards 11,000-10,850 and the 50-day moving average. A close below 10,750 and the November 10th low at 10,779 would be a bearish development. The index has remained in a 23-session trading range between 11,000-11,500 with a close above the latter suggesting additional strength towards 11,750-12,000 and levels from the first half of September.

The Russell 2000 ended at 1,820 (-0.7%) following the afternoon slide to 1,812. Upper support at 1,825-1,800 was breached and failed to hold. A drop below the latter would imply ongoing weakness to 1,775-1,750 and the 50-day moving average. Resistance is at 1,850-1,875. Below is a chart of the IWM.

The S&P 500 went out at 3,995 (-1.4%) after touching a second half low of 3,965. Key support at 4,000 failed to hold. A move below 3,950 would indicate a retest towards the bottom of the trading range at 3,925-3,900. A close below 3,850 and the November 10th breakout low at 3,859 would suggest a near-term top with downside risk to 3,750-3,700. The early November 3rd bottom is at 3,698. The index has been in a downtrend since its January 4th all-time peak at 4,818 and remains in a five-week trading range that has been stretched to the upside past 4,050. Continued closes above 4,100-4,125 would clear the descending trend line and be a slightly bullish development for a push towards 4,150-4,200. The index has kissed 4,100 twice this month.

The Dow settled at 33,966 (-0.4%) with low hitting 33,704. Current and upper support at 33,750-33,500 was triggered but held. A close below 33,250 and the November 10th low at 33,167 would signal the start of a breakdown out of the trading range with additional weakness towards 33,000-32,750.

Volatility Index

The Volatility Index (VIX) fell for the second-straight session despite yesterday’s choppiness with the low at 21.07. Upper support at 21.50-21 was tripped and recovered. A drop below the latter would signal another fade towards 20-19.50.

Resistance is at 22-22.50 and the 20-day moving average followed by 23.50-24.

Market Analysis

The Spider Small-Cap 600 ETF (SLY) was down for the first time in three sessions following the late day fade to $84.65 and close back below the 200-day moving average. Upper support at $85-$84.50 was tripped but held. A move below the latter would indicate weakness to $83.75-$83.25 and the 50-day moving average.

Resistance is at $86-$86.50.

RSI (relative strength indicator) has rolled over with key support at 50 failing to hold. Continued closes below this level would suggest downside action to 45-40 and levels from mid-October. Resistance is at 55-60.

Sector

The Consumer Discretionary Select Spiders (XLY) has its two-session winning streak snapped following the pullback to $137.18. Upper support at $137.50-$137 was breached but held. A drop below the latter would suggest additional downside risk to $135.50-$135.

New resistance is at $140.50-$141 and the 50-day/ 20-day moving averages.

RSI is trending lower with key support at 40 holding. A close under this level would signal weakness to 35-30 and levels from the the first part of November. Resistance is at 45-50.

Market Outlook

To no major surprise, the current trading ranges for the major indexes have remained in play after this week’s big events concerning the Fed and the inflation report. With that said, it also wouldn’t be a surprise to see this current action continue into the New Year and the fourth-quarter earnings season.

The bears have done a little damage to the small-caps after stretching the bottom of the Russell’s trading range last week and are once again looking at lower lows.

The bulls pushed the Dow and the S&P 500 above their trading ranges to fresh monthly highs but have a little wiggle room before the bottom of the trading ranges crack.

The Nasdaq still has some breathing room before it reenters the danger zone with a close below 10,900 being a major warning signal.

The action in the VIX is still favoring the bulls with the 50-day moving average now below the 200-day moving average to form a death-cross. This technical setup typically indicates lower lows which would be a bullish signal for the overall market. The 26 level also held on Monday and Tuesday with a close back below 24 on Tuesday and Wednesday.

Once the trading ranges are firmly cracked, there could be upside or downside momentum of a quick 5%-10% move for the major indexes.

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, $13.55, down $0.22)

DKNG January 12.50 puts (DKNG230120P00012500, $0.75, up $0.05)

Entry Price: $0.70 (12/6/2022)
Exit Target: $1.40
Return: 7% 
Stop Target: None

Action: Shares tested a low of $13.34 with upper support at $13.50-$13.25 getting breached but holding for the second-straight day. Resistance remains at $14-$14.25 and the 50-day/ 20-day moving averages.

Rocket Companies (RKT, $8.19, down $0.28)

RKT December 8 calls (RKT221216C00008000, $0.30, down $0.30)

Entry Price: $0.95 (9/9/2022)
Exit Target: $1.35 (Limit Order)
Return: -74%
Stop Target: 25 cents (Stop Limit)

Action: The Stop Limit at 25 cents tripped yesterday. I was hoping to get another chance at getting a profit but after three months, the journey is over as we managed to save some premium.