MomentumOptions.com Pre-Market Update for 1/19/2023
VIX Closes Back Above 20
8:00am (EST)
The stock market backtracked on Wednesday as a tumble in Retail Sales and a stumble in wholesale inflation weighed on sentiment. Volatility closed back above 20 for the first time in four sessions.
The Dow sank to a late day low of 33,269 while closing at 33,296 (-1.8%) and back below the 50-day moving average. New and upper support at 33,500-33,250 failed to hold. A drop below the latter would imply ongoing weakness towards 33,000-32,750.
The Russell 2000 settled on the session low of 1,854 (-1.6%). Fresh and upper support at 1,875-1,850 was breached and failed to hold. A fade below the latter would be a slightly bearish development with weakness towards 1,825-1,800 and the 200-day/ 50-day moving averages. Below is a chart of the IWM.
The S&P 500 tagged a low of 3,926 before ending at 3,928 (-1.6%) and back under its 200-day moving average. Upper support at 3,950-3,925 failed to hold. A move below the latter and the 50-day moving average would indicate a further slide towards 3,925-3,900.
The Nasdaq went out at 10,957 (-1.2%) with the afternoon low touching 10,952. Current and upper support at 11,000-10,850 was breached and failed to hold. A close below the latter and the 50-day moving average would suggest weakness to 10,750-10,600.
Volatility Index
The Volatility Index (VIX) was up for the second-straight day with the high tapping 20.58. Lower resistance at 20.50-21 was topped but held. A pop above the latter would imply a push towards 22-22.50 and the 50-day moving average.
Support remains at 19-18.50.
Market Analysis
The Wilshire 5000 Composite Index (WLSH) fell for the second-straight day after kissing a low of 39,149. Near-term and upper support at 39,250-39,000 failed to hold. A move below the latter and the 50-day moving average would signal a further back test to 38,750-38,500.
Resistance is at 39,500-39,750 and the 200-day moving average.
RSI (relative strength index) is in a downtrend with key support at 50 holding. A close below this level would suggest weakness to 45-40 and levels from the back half of December. Resistance is at 55-60.
Sector
The Health Care Select Sector Spider (XLV) fell for the third time in four sessions following the pullback to $132.79. Upper support at $133-$132.50 was triggered and failed to hold. A close below the latter would suggest weakness towards $130.50-$130 and the 200-day moving average.
Resistance is at $135-$135.50 and the 50-day moving average.
RSI has rolled over with key support 40 holding. A close below this level would signal additional weakness to 35-30 and levels from late September. Resistance is at 45-50.
Market Outlook
The meltdown off the opening highs wasn’t too much of a surprise following the breakout above the prior trading ranges for the major indexes. Some of the technical indicators turned bearish and we will know by the end of the week if yesterday’s pullback was the start of something more serious.
Fourth-quarter earnings season heats up today with Netflix (NFLX) reporting numbers after the close. The results could have a big impact on Friday’s action as it is heavily owned by major institutions.
A close above 22.50 and the 50-day moving average on the VIX ahead of the weekend could cause further jitters into next week. A close back below 20 today and a hold into Friday’s close would be ideal for the bulls to keep a run towards the December highs for the major indexes in play.
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CSX (CSX, $32.23, down $0.37)
CSX February 33 calls (CSX230203C00033000, $0.60, down $0.10)
Entry Price: $0.75 (1/9/2023)
Exit Target: $1.50
Return: -20%
Stop Target: None
Action: Wednesday’s low touched $32.22 with upper support at $32.25-$32 failing to hold. Resistance remains at $32.50-$32.75.
