MomentumOptions.com Pre-Market Update for 2/9/2023
Bears Recover Fresh Support Levels
8:00am (EST)
The stock market continued its recent whipsaw action with Wednesday’s losses pushing the bears back in control for the week. Some of the weakness in Tech came after a nearly 8% drop in Alphabet (GOOG) following a snafu with its AI rollout.
All of the major sectors were lower with Communication Services (-3.1%) and Utilities (-1.7%) being the weakest links. Volatility was heightened but held key resistance for the third-straight session.
The Nasdaq tested a low of 11,890 while settling at 11,910 (-1.7%). Upper support at 12,000-11,850 failed to hold. A drop below the latter would indicate further weakness towards 11,750-11,600.
The Russell 2000 ended at 1,942 (-1.5%) after tagging a low of 1,940. Fresh and upper support at 1,950-1,925 was breached and failed to hold. A fade below the latter would suggest a further slide to 1,925-1,900. Below is a chart of the IWM.
The S&P 500 kissed an afternoon low of 4,111 before closing at 4,117 (-1.1%). Upper support at 4,150-4,100 failed to hold. A move below the latter would imply a retest towards 4,050-4,000.
The Dow traded down to 33,899 while finishing at 33,949 (-0.6%). Current and upper support at 34,000-33,750 failed to hold. A drop below the latter and the 50-day moving average would suggest a further fade towards 33,500-33,250.
Volatility Index
The Volatility Index (VIX) flip-flopped for the fifth-straight session with the high at 20.12. Key resistance at 20 was breached but held. Continued closes above this level would imply upside to 20.50-21 and the 50-day moving average.
Support is at 18.50-18.
Market Thoughts
The pullback off last Thursday’s 2023 highs was not a surprise as the major indexes had reached overbought conditions at 70 and above with the RSI (relative strength index) levels pushing 75 on the Nasdaq (and the Russell 2000). This week has been somewhat choppy but the action is looking like a short-term consolidation period, as long as the bottom support ranges hold.
It has been more evident in the Dow as the index has been hovering around the 34,000 level for the past 10 sessions. The other major indexes remain in strong uptrends after bottoming out in late December.
The golden cross that formed in the S&P 500 last month confirmed the run to higher highs into last Thursday. I mentioned throughout January the 50-day moving average was on track to clear the 200-day moving average and one of the main thesis as to why I stayed bullish.
If the current action can hold key support levels that served as prior resistance, the near-term outlook remains bullish. Specifically, a close below 4,000 on the S&P; 33,000 on the Dow; and 11,500 on the Nasdaq would be bearish developments and suggest near-term tops.
I also have been mentioning the first warning sign of a possible market top will be on a close back above 21-21.50 and the 50-day moving average on the VIX. The bulls have done a great job of holding down 20 as the last close above this level occurred on January 19th, or 14 sessions ago. However, continued closes back below 18 is needed for the market to regain momentum.
February always seems to be a tricky month to trade as it represents the weakest month in a typically bullish cycle from December thru April. If January is a weak month, February can be as a stabilizer depending if the market is oversold. Right now, we are seeing a little bit of both.
Trading ranges can be a drag on option premiums and why I have stayed on the sidelines this week. The market is doing exactly what we are expecting and in the meantime, we have some good trade setups forming that we can use March and April options to play the upcoming action.
Momentum Options Play List
Closed Momentum Options Trades for 2023: 3-1 (75%). 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 Otherwise, follow instructions at all times in the updates on Monday’s and Thursday’s along with the Text Alerts throughout the week.
Barrick Gold (GOLD, $18.34, down $0.16)
GOLD March 21 calls (GOLD230317C00021000, $0.15, down $0.05)
Entry Price: $0.47 (2/1/2023)
Exit Target: $1.00
Return: -67%
Stop Target: None
Action: Wednesday’s low tapped $18.11 with current and upper support at $18.25-$18 getting tripped but holding. Resistance is at $18.75-$19.
