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MomentumOptions.com Pre-Market Update for 1/2/2023

Bears Have Best Year Since 2008

8:00am (EST)

The stock market wrapped up 2022 on a down note with Friday’s pullback capping Wall Street’s worst year since 2008. The weekly losses were minimal and kept another round of trading ranges intact along with a slightly bullish Santa rally heading into 2023.

The Russell 2000 bottomed at 1,747 before finishing at 1,761 (-0.3%). Current and upper support at 1,750-1,725 was breached but held. A close below the latter would imply a further slide towards 1,700-1,675 with the October 13th 52-week low at 1,641. Resistance is at 1,775-1,800 and the 20-day and 50-day moving averages. Below is a chart of the IWM.

The S&P 500 settled at 3,839 (-0.3%) after stumbling to a low of 3,800. Upper support at 3,800-3,750 was kissed but held. A drop below the latter would suggest additional weakness to 3,725-3,675 with the November 3rd low at 3,698. Resistance is at 3,850-3,900 and the 50-day and 20-day moving averages.

The Dow ended at 33,147 (-0.2%) and back below its 50-day moving average with the low touching 32,847. Near-term and upper support at 33,000-32,750 was cracked but held. A close below the latter would signal downside risk to 32,500-32,250 and the 200-day moving average. Current resistance is at 33,250-33,500 and the 20-day moving average.

The Nasdaq tested a low of 10,324 before going out at 10,466 (-0.1%). Upper support at 10,400-10,250 was tripped but held. A fade below the latter and last Wednesday’s low at 10,207 would indicate a retreat towards 10,150-10,000 with the October 13th 52-week low at 10,088. Resistance is at 10,500-10,650 followed by 10,750-10,900 and the 20-day and 50-day moving averages.

Volatility Index

The Volatility Index (VIX) remained in a tight range for the fourth-straight session with the high at 22.40. Key resistance at 22.50 was challenged but held. A close above this level would imply another run towards 23.50-24 and the 50-day moving average.

The VIX tested two key areas of resistance in December, 24 and 26, with both levels holding. The 50-day (and 200-day) moving average held on both occasions and will be the most important clues to look for again this month. A close above 24 and the 50-day moving average would be a warning sign for another retest to 25.50-26 and the 200-day moving average. A close above 26 would be a very bearish development for the overall market.

Support is at 21-20.50 followed by 19.50-19. The market topped out in mid-August after the VIX failed to close below 19 and again in early December.

Market Analysis

The Spider Small-Cap 600 ETF (SLY) was down for the third time in four sessions following the intraday pullback to $81.55. Upper support at $82-$81.50 was tripped but held. A move below the latter would indicate weakness to $80.50-$80.

Resistance is at $82.50-$83.

RSI (relative strength indicator) has rolled over with key support at 45 holding. A close below this level would suggest downside action to 40-35 and levels from last month. Resistance is at 50-55.

Sector

The Utilities Select Spider (XLU) was down for the second time in three days with the low at $69.84. Current and upper support at $70-$69.50 was busted but held. A close below the latter and the 200-day moving average would suggest downside action to $69-$68.50 and the 50-day moving average.

Resistance is at $71.50-$72.

RSI held key support at 50. A close below this level would signal weakness towards 45-40 and levels from late October. Resistance is at 55-60.

Market Outlook

For the week: the Dow dipped 0.2%; the S&P slipped 0.1%; the Nasdaq lost 0.3%, and the Russell was up less than a point. For the year, the Nasdaq sank 33%; the S&P tanked 19%; and the Dow declined 9%.

As far as the Santa rally, there are technically two trading days left for the results to play out. So far, the action is mostly bullish. The Dow up about 120 points; the S&P is higher by 17 points; the Nasdaq is down 10 points, and the Russell has gained 7 points.

The market is closed today in observance of the New Year holiday and earnings remain light ahead of next week’s unofficial start to the fourth-quarter earnings season. There are a number of jobs reports scheduled throughout the week along with the Fed minutes from its December policy meeting, which Wall Street will pore over for clues on the central bank’s next move.

The biggest takeaways from last week is that the Dow and the S&P have remained in 10-session ranges and follows previous trading ranges that lasted from mid-November and into early December. The new ranges are between 32,500-33,500 for the Dow and 3,775-3,900 for the S&P.

The Russell has been trapped between 1,775-1,725 over the same time frame while the Nasdaq has been more volatile while trending mostly lower. In fact, Nasdaq tagged a multi-month low last Thursday at 10,207 and will likely be the first to crack the October 52-week lows if January turns out bearish.

We feel pretty confident with the open trades we have going into 2023 and we are in great shape to play a possible breakout, or breakdown, once the trading ranges are resolved. This might take another week or so until the action becomes more decisive but we have both bullish and bearish setups ready to go while we wait.

Momentum Options Play List

Closed Momentum Options Trades for 2023: 0-0 (0%). 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.

Pfizer (PFE, $51.24, down $0.09)

PFE January 50 puts (PFE230120P00050000, $0.80, up $0.05)

Entry Price: $0.80 (12/22/2022)
Exit Target: $1.60
Return: 0% 
Stop Target: None

Action: Friday’s low hit $50.74 with current and upper support at $51-$50.50 getting tripped but holding. Resistance is at $51.50-$52 and the 20-day moving average.

DraftKings (DKNG, $11.39, up $0.12)

DKNG January 12.50 puts (DKNG230120P00012500, $1.45, down $0.10)

Entry Price: $0.70 (12/6/2022)
Exit Target: $2.10 (closed 1/3rd at $1.85 on 12/27/2022, 1/3rd at $1.40 on 12/29/2022)
Return: 124% 
Stop Target: $1.05, raise to $1.15 (Stop Limit)

Action: Raise the Stop Limit at $1.05 to $1.15 on the remaining third of the position. If tripped, the return will be 110%, overall.

Key support at $11 held for the third-straight day with the session low kissing $10.94. The puts peaked at $1.77. I mentioned the trade could be running its course on a close back above $12 but we will likely be stopped out if shares clear $11.75 this week.