MomentumOptions.com Pre-Market Update for 2/27/2023
Inflation Worries Return
8:00am (EST)
The stock market tested fresh monthly lows on Friday while suffering its worst weekly losses of 2023 following another update on inflation. To start, the PCE (personal consumption expenditures) price index spooked Wall Street before the opening bell after rising 0.6%, up from 0.2% in December.
Consumer spending also came in stronger-than-expected after rising 1.8% versus forecasts for a 1.3% pop. Volatility was slightly subdued after only closing mildly higher and failing to make a monthly high.
The Nasdaq closed at 11,507 (-1.7%) after trading to a morning low of 11,334. Prior and upper support at 11,400-11,250 and the 200-day moving average failed to hold. A drop below the latter and the 50-day moving average likely gets 11,150-11,000 in focus. New resistance is at 11,450-11,600 with continued closes above the latter suggesting a near-term bottom.
The S&P 500 bottomed out at 3,943 while settling at 3,970 (-1.1%) and back below its 50-day moving average. Backup and key support 3,950 and 200-day moving average was breached but held. A close below these levels would signal a further fade to 3,900-3,850. The January 3rd low is at 3,794 with a close below 3,839 pushing the index back into negative territory for the year. Lowered resistance is at 4,000-4,050 with continued closes above the latter being slightly bullish.
The Dow ended at 32,816 (-1%) with the intraday low hitting 32,643. Late December and upper support at 32,750-32,500 was breached but held. A move below the latter and the December 22nd low at 32,573 would imply ongoing weakness to 32,250-32,000 and the 200-day moving average. Near-term resistance is at 33,000-33,250 with a close above 33,500 and the 50-day moving average being a more bullish development.
Volatility Index
The Volatility Index (VIX) snapped a two-session slide after tagging a high of 22.90. Lower resistance at 22.50-23 was breached but held. A close above 24 would signal a possible run towards 24.50-25 and the 200-day moving average. The VIX has been holding its 200-day MA since early November and the last time it was tested was on December 13th with the intraday peak kissing 25.84.
The close below 22 was a slight surprise given last week and Friday’s pin action. Current support is at 21.50-21 with continued closes back below 20 being a more bullish development for the stock market. It wouldn’t be too surprising to see a new battleground form between 20-24 and the 50-day and 200-day moving averages if there is a bounce this week and Wall Street stays indecisive.
Monday’s earnings announcements:
Before the open: Berkshire Hathaway (BRK.B), fuboTV (FUBO), LendingTree (TREE), Viatris (VTRS)
After the close: Darling Ingredients (DAR), Emergent BioSolutions (EBS), James River Group (JRVR), Occidental Petroleum (OXY), QuickLogic (QUIK), Titan International (TWI), Workday (WDAY), Zoom Video Communications (ZM)
Economic News
Durable Goods Orders – 8:30am
Pending Home Sales – 10:00am
Market Thoughts
I often mention the bulls like to take the stairs higher while the bears prefer to take the elevator lower. The breakdown out of the yearlong uptrend channels produced a nasty 3% pullback for the overall market last week and totally caught the talking heads off guard.
The Nasdaq tumbled 3.3%; the Dow sank 3%; and the S&P dropped 2.7%. The losses pushed the Dow back into negative territory for the year and extended its losing streak to four-straight weeks.
Last week’s pullback could have been worse given Tuesday’s 2%-3% selloff but the bulls did a good job in trying to stabilize prior support levels from January. It was enough to keep the suit-and-ties bullish but the bears did push lower lows on Wednesday and Thursday, and again on Friday.
The RSI (relative strength index) levels are at neutral levels and below 50 for the S&P and the Nasdaq and 40 for the Dow. They are back in downtrends and aren’t anywhere near oversold levels.
There are only two trading days left for the month and we warned February is always a tricky month to trade. We were fortunate enough to take advantage of some exceptional chart work to get into some fantastic trades and why it pays to do the homework.
Historically, March is typically a bullish month for the market but it can be prone to volatile price swings. With earnings season starting to wind down, the impact that an earnings miss or beat by a well-known company will have more weight on a sector than the overall market. This means economic news and the Fed will play a larger role next month and into April before the next round of earnings.
The next Fed meeting is in late March and the debate on how much and for how long will interest rates rise will once again take center stage. The broken record can be a distraction for some but the charts are giving us some really good clues on calling near-term tops and bottoms.
You will often hear the talking heads say it is impossible to time the market which only means they aren’t doing the homework. Following a very bullish January, there have been a number of well-known analysts that have said there won’t be a test to 52-weeks lows this year.
If the S&P and the Nasdaq (and the Russell 2000) give up their 2023 gains, it is likely the October 52-week lows do come back into play. We don’t care which way the market trades as we are both bullish and bearish and only focus on the trend.
On that note, we have added another triple-digit winner to the club but we still need to close the other half of the PFE position to make it official. Let’s get ready to rock as we have a number of detailed instructions we need to do before the open along with making adjustments to our DKNG trade which is up 88%.
Momentum Options Play List
Closed Momentum Options Trades for 2023: 4-2 (67%). 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.
AT&T (T, $19.24, down $0.11)
T March 19 puts (T230317P00019000, $0.30, up $0.04)
Entry Price: $0.30 (2/24/2023)
Exit Target: $0.60
Return: 0%
Stop Target: None
Action: Shares are once again in a min-trading range with a close below $19 and the 50-day moving average being a bearish setup. Friday’s low touched $18.98.
The previous trading range lasted roughly a month from early November and into December before a breakdown. With these options expiring in less than three weeks, we would like to see a close below $19 to start the week. Continued closes above $19.50 will likely force us out of the position.
A retest towards the 200-day moving average, or $18.30 would get these options to at least 70 cents in-the-money and would represent a 100+% from current levels.
DraftKings (DKNG, $18.19, down $0.85)
DKNG March 17.50 puts (DKNG230317P00017500, $0.75, up $0.25)
Entry Price: $0.40 (2/21/2023)
Exit Target: $0.80, raise to $1.20
Return: 88%
Stop Target: 60 cents (Stop Limit)
Action: Raise the Exit Target from 80 cents to $1.20. Set an initial Stop Limit at 60 cents to start protecting profits.
This has been a beautiful three-day collapse after getting into this trade last week and when shares held key resistance. The August 16th high tagged $21.45 before a downtrend line formed and lead to a December 28th low of $10.69. Last Tuesday’s peak reached $21.62 before a lower close under $20 for the session. This was a great first clue shares had made a possible near-term double top.
Additionally, RSI was flashing oversold levels after pushing 80 during the session and volume had spiked to extremely high levels. This created the perfect opportunity to get into these put options at a great price as we consider options under 50 cents “cheap”. It only represents $50 a contract and we got into these at 40 cents.
We mentioned a close below $19.25 could possibly accelerate the downside action and this occurred on Thursday. Shares traded down to $17.97 on Friday with new and upper support at $18-$17.75 getting breached but holding. Lowered resistance is at $18.50-$18.75.
The only negative on the chart is the golden cross that is the process of forming with the 50-day moving average on track to clear the 200-day. A move below $18 again today will likely keep the selling pressure on but the Stop Limit ensures a 50% profit if shares hold and rebound from here.
Pfizer (PFE, $41.75, down $0.55)
PFE March 42.50 puts (PFE230317P00042500, $1.20, up $0.30
Entry Price: $0.47 (2/14/2023)
Exit Target: $1.00, raise to $2.00 (closed half at 80 cents on 2/16/23)
Return: 113%
Stop Target: 70 cents, raise to $1.10 (Stop Limit)
Action. Raise the Exit Target from $1.00 to $2.00. Raise the Stop Limit at 70 cents to $1.10 on the other half of the position.
Friday’s low tagged $41.51 with the puts peaking at 85 cents. Fresh and upper support from mid-October at $41.75-$41.50 was tripped but held. Lowered resistance is at $42-$42.25.
RSI is below 30 and typically indicates oversold conditions. There could be a test towards $41-$40.75 before some relief comes in and where traders start to bet on a possible double bottom. This area represents the 52-week lows that were tagged last October.