MomentumOptions.com Pre-Market Update for 1/16/2023
Big Banks Rebound Off Opening Losses
8:00am (EST)
The stock market capped a winning week with Friday’s gains coming on a decent round of earnings from the Financial sector. Shares of Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC) were all very volatile despite topping Wall Street’s estimates but remained in strong uptrends off their December lows.
The Nasdaq closed at 11,084 (+0.7%) with the late day peak hitting 11,079. Prior and lower resistance from early November at 11,100-11,250 was challenged and held. A move above the latter would imply additional upside to 11,350-11,500.
The Russell 2000 made a run to 1,889 while going out at 1,887 (+0.6%). Key resistance at 1,900 was challenged and held. A close above this level and the December 1st and 2nd highs at 1,898 would signal further strength to 1,925-1,950. Below is a chart of the IWM.
The S&P 500 tested a high of 4,003 before settling at 3,999 (+0.3%). Key resistance at 4,000 was cleared but held for the second-straight day. Continued closes above this level and the 200-day moving average would suggest another trip towards 4,050-4,100.
The Dow ended at 34,302 (+0.3%) after tapping a second half high of 34,342. Lower resistance at 34,250-34,500 was cleared and held. A pop above the latter would indicate a further run to 34,750-35,000 with the December 13th high at 34,712.
Volatility Index
The Volatility Index (VIX) was down for the second-straight session after kissing a fresh 52-week low of 18.01. New and upper support at 18-17.50 was challenged and held. A drop below the latter would be an ongoing bullish development for the market with downside action towards 16.50-16.
Lowered resistance is at 19-19.50.
Market Analysis
The SPDR S&P 500 ETF (SPY) extended its winning streak to four-straight with the high at $399.10. Mid-December and lower resistance at $399-$399.50 was cleared but held. A close above the latter would signal additional strength to $401-$401.50.
Support is at $393.50-$393 and the 200-day moving average.
RSI (relative strength index) remains in an uptrend with key resistance at 60 getting cleared and holding. Continued closes above this level would suggest further upside action towards 65-70 and levels from mid-August. Support is at 55-50.
Sector
The Dow Jones Transportation Average (TRAN) had its five session winning streak snapped following the pullback to 14,240. Fresh and upper support at 14,250-14,100 was tripped but held. A close below the latter would signal a back test towards 14,000-13,850 and the 50-day/ 200-day moving averages.
Resistance is at 14,400-14,550.
RSI has flatlined with key support at 60 holding. A drop below this level would indicate weakness towards 55-50 and levels from earlier this month. Resistance is at 65-70.
Market Outlook
The close below 20 on the VIX this past Thursday and hold on Friday remains an ongoing bullish development. The major indexes also cleared and held several layers of resistance last week including major moving averages and nice round numbers.
The recent action in the VIX has been a beautiful clue in predicting higher highs for the overall market and I specifically said, coming into last week, a close above 24 or below 19 could be in the works.
For new subscribers, a rising VIX means a lower market and falling VIX typically indicates market momentum. After holding key resistance at 24 and 26 in December and the cascading lows to start 2023, we can now focus on a possible push towards the 16.50-16 area and levels from last January.
It is important to note the VIX bottomed out last January just above the 16 level while the major indexes were topping out. This was also before the start of earnings season last year and it will be interesting to see if history repeats itself.
With three weeks of heavy earnings, a test to 16.50-16 on the VIX would likely push the major indexes past the recent December highs. The October and November 2021 lows on the VIX pushed the 15 area.
Continued closes back above 20 this week, or next, on the VIX would be a slightly bearish development moving forward and would be the first sign the market has tagged a near-term top.
The market is closed today and the next Daily update will be Wednesday morning. I would like to add one or two new trades this week and I’m targeting possible calls in Pfizer (PFE), and calls or puts in DraftKings (DKNG). If I take action, I will send out a Text Alert.
Momentum Options Play List
Closed Momentum Options Trades for 2023: 3-0 (100%). 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.
CSX (CSX, $32.42, down $0.07)
CSX February 33 calls (CSX230203C00033000, $0.70, down $0.05)
Entry Price: $0.75 (1/9/2023)
Exit Target: $1.50
Return: -7%
Stop Target: None
Action: Shares traded in a tight range throughout last week with Friday’s low at $32.08. Support at $32-$31.75 was approached and held. Resistance is at $32.50-$32.75.
A golden cross has formed and typically indicates higher highs. A close above $33 would be a very bullish development and would get the trade moving in the right direction.
