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MomentumOptions.com Pre-Market Update for 2/20/2023

Volatility Holds Key Resistance

8:00am (EST)

The stock market was mixed on Friday as Fed speak and interest rate chatter caused some opening jitteriness. The technical damage was more of a concern as the yearlong uptrend channels are showing signs of cracking.

Energy and Technology were the weakest sectors after falling 3.6% and 1.3%, respectively. Volatility also issued a warning sign after clearing but holding its 50-day moving average.

The Nasdaq tested a low of 11,673 while settling at 11,787 (-0.6%). Upper support at 11,750-11,600 was breached but held. A drop below the latter would indicate further weakness towards 11,500-11,350.

The S&P 500 kissed an intraday low of 4,047 before closing at 4,079 (-0.3%). Upper support at 4,050-4,000 was tripped but held. A move below the latter would imply a retest towards 3,950-3,900 and the 50-day and 200-day moving averages.

The Dow traded up to 33,846 while finishing at 33,826 (+0.4%). Current and lower resistance at 33,750-34,000 was recovered. A pop above the latter would suggest a further run towards 34,250-34,500.
 

The Russell 2000 ended at 1,946 (+0.2%) after tagging a high of 1,947. Lower resistance at 1,950-1,975 was challenged and held. A close above the latter would suggest another retest towards the 2,000 level. Below is a chart of the IWM.

Volatility Index

The Volatility Index (VIX) was up for the second time in three sessions with the high at 21.30. Lower resistance at 21-21.50 and the 50-day moving average were breached but levels that held. A close above 22 would be a bearish development for the market.

New support is at 19.50-19.

Market Thoughts

February is typically a bearish month for the market but most of the major indexes, excluding the Dow, are still showing gains despite last week’s pullback. The Dow remains in a 17-session trading range and has held its 50-day moving average since late January. The index needs to clear and hold 34,250 on several occasions to build a base to test the December high at 34,712.

The S&P is only up three points for the month and will likely make a retest towards the 50-day and 200-day moving averages if Tuesday is a weak session. We will have to watch the RSI level if 50 fails to hold as it would confirm this retest, with RSI falling towards 40 and a level that has been holding since mid-December.

The Nasdaq came into the month at 11,584 and why crucial support at 11,600 needs to hold to start the week. Continued closes above the 12,000 level would be a slightly bullish signal with more serious resistance at 12,250 and the month peak at 12,269.

The VIX will be in focus with a close above 22 likely inducing some additional selling pressure. Last week’s low tapped 18.11 and the inability for the bulls to clear and hold 18 remains a concern. The monthly low is at 17.06.

The February 1st close was at 17.87 and the only time in the past year the VIX has held 18. For new subscribers, a falling VIX is bullish for the market, a rising VIX is bearish.

The RSI (relative strength index) levels for the major indexes are more neutral than bullish so the market isn’t overbought or oversold. This could signal an ongoing trading range for the rest of the month and wouldn’t be a big deal for the market.

Trading ranges often produce bigger breakouts, or breakdowns, so we just need to wait for the action to come to us. It won’t matter if the trend is bullish, or bearish, as we can make money in both environments.

The market is closed for a holiday so there won’t be any new trades today. Depending on the action, we could have new positions as early as Tuesday so stay locked-and-loaded.

Momentum Options Play List

Closed Momentum Options Trades for 2023: 3-2 (60%). 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.

S&P VIX Short-Term Futures (VXX, $11.67, down $0.01)

VXX March 13 calls (VXX230317C00013000, $0.55, up $0.02)

Entry Price: $0.60 (2/17/2023)
Exit Target: $1.20
Return: -8%
Stop Target: None

Action: Friday’s high tagged $12.14 with key resistance at $12 holding. Continued closes above this level would suggest strength towards $12.25-$12.50. Support is at $11.75-$11.50.

The monthly high hit $12.49 but more important resistance is at $13 and the 50-day moving average. Continued closes above this level by the end of the month would be ideal for this trade. The breakeven price is at $13.60, technically, by March 17th and when the options expire. A close back below $11 will likely force us out of the position.

Pfizer (PFE, $43.21, up $0.26)

PFE March 42.50 puts (PFE230317P00042500, $0.65, down $0.15)

Entry Price: $0.47 (2/14/2023)
Exit Target: $1.00 (closed half at 80 cents on 2/16/23)
Return: 54%
Stop Target: 50 cents (Stop Limit)

Action. We closed half of the trade last Thursday at 80 cents to lock-in a partial profit of 70%. Friday’s high reached 91 cents in the puts.

We are still looking for a triple-digit win but wanted to ensure at least a high double-digit return in case shares held the bottom of their current 17-day trading range.

Friday’s low of $42.58 and slight breakdown out of this range was a slightly bearish development before the higher close. Prior and upper support from late October at $42.50-$42 was challenged and held.

I still believe shares could test the October 11th 52-week low at $41.45 as a death cross has formed with the 50-day falling below the 200-day moving average. If shares resume their downtrend this week, we could add another put option that stretches out into April.