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MomentumOptions.com Pre-Market Update for 5/25/2023

Dow Pushes 200-Day Moving Average

8:00am (EST)

Commentary

The stock market showed ongoing weakness on Wednesday as Congress continued to struggle in reaching a deal on the country’s debt ceiling. The Fed’s latest meeting minutes also weighed on sentiment as it signaled more uncertainty as to whether the central bank should hike interest rates again in June.

The S&P 500 finished at 4,115 (-0.7%) after kissing an intraday low of 4,103. Key support at 4,100 was challenged and held. A move below this level and the 50-day moving average would suggest weakness towards 4,050-4,000. Resistance is at 4,150-4,200.

The Nasdaq tested a low of 12,415 before settling at 12,484 (-0.6%). New and upper support at 12,500-12,350 failed to hold. A fade below the latter would imply a retest to 12,250-12,100 and the 50-day moving average. Resistance is at 12,600-12,750.

The Dow ended at 32,799 (-0.8%) with the afternoon low tagging 32,752. Early March and upper support at 33,000-32,750 failed to hold. A close below the latter and the 200-day moving average would signal weakness towards 32,500-32,250. Fresh resistance is at 33,250-33,500 and the 50-day moving average.

Volatility Index

The Volatility Index (VIX) extended its winning streak to four-straight sessions with the peak reaching 20.81. Key resistance at 20 was cleared and held. Continued closes above this level would indicate upside towards 21-21.50. Rising support is at 19-18.50 and the 50-day moving average.

Thursday’s earnings announcements:

Before the open: American Woodmark (AMWD), Best Buy (BBY), Dollar Tree Stores (DLTR), Genesco (GCO), Medtronic (MDT), Ralph Lauren (RL), TD Bank Group (TD)

After the close: Autodesk (ADSK), Costco Wholesale (COST), Deckers Brands (DECK), Gap (GPS), Marvell Technology (MRVL), ULTA Beauty (ULTA), Workday (WDAY)

Economic news:

Initial Jobless Claims – 8:30am
GDP – 8:30am
Pending Home Sales Index – 10:00am

Market Thoughts

This week’s action has led to a possible near-term top on Monday and Tuesday with the last two day’s of action being a bearish development, especially on the Dow. The blue-chips fell out of a 37-session trading range on Wednesday after extending its losing streak to four-straight days.

After breaking out of a 34-session trading range last week, the S&P 500 made a run past 4,200 but was unable to hold this level last Thursday, Friday and again on Monday. The April 26th and May 4th intraday lows are at 4,049 and 4,048 and why it will be crucial for the index to hold 4,050 the rest of this week.

The Nasdaq managed to clear prior and key resistance from last August at 12,750 on Monday’s run to 12,756. The index remains above its prior trading range with a close back below 12,200 reengaging downside risk towards 11,800.

Coming into the week, we highlighted the Russell 2000’s inability to clear and key resistance at 1,800. Monday and Tuesday’s peak reached 1,8x and 1,8x, respectively. This was another good clue there might be a return to weakness this week.

The VIX has been in a 40-session trading range since late March. We have been talking about continued closes below 16 or back above 20 likely indicating the next major trend for the overall market so there will need to be some follow thru today by the bears.

The bulls had a one-day close below 16 earlier this month but failed to capitalize. We wouldn’t be surprised if the action gets stretched to 21.50 with a close back below 20 coming this week, or next.

As far as RSI (relative strength index) levels for the major indexes, they are all in a downtrend and are confirming the possibility of lower lows. However, the Nasdaq closed Wednesday at 57, the S&P is at 47 and the Dow is at 38. The Dow peaked at 50, the S&P at 60, and the Nasdaq at 70 on the run to new highs earlier in the week.

A reading of 70 indicates overbought conditions while a print of 30 or below, suggests oversold levels. It is never easy calling market tops and bottoms but technical indicators can help in this process and why we love to do the daily homework.

As far as the portfolio, we are still having an incredible year despite the whipsaw action and trading ranges. We are currently on a five trade winning streak with the portfolio at 14-4. We have two current trades that are down just 37 cents in premium with June and July expiration dates and are a call and put option. We are in a perfect position to add new trades, or stand pat with our current ones, as we can continue to wait for the action to come to us.

Momentum Options Play List

Closed Momentum Options Trades for 2023: 14-4 (78%). 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.

Verizon (VZ, $35.87, down $0.37)

VZ July 38 calls (VZ230721C00038000, $0.30, down $0.08)

Entry Price: $0.40 (5/19/2023)
Exit Target: $0.80
Return: -25%
Stop Target: None

Action: The calls traded up to 55 cents on Tuesday but shares remain in a seven-session trading range. Wednesday’s low reached $35.85 with upper support at $36-$35.75 failing to hold. Resistance is at $36.25-$36.50.

Bank of America (BAC, $28.10, down $0.48)

BAC June 26 puts (BAC230616P00026000, $0.33, up $0.12)

Entry Price: $0.60 (5/10/2023)
Exit Target: $1.20
Return: -45%
Stop Target: None

Action: Shares tested a low of $28 with upper support at $28-$27.75 getting kissed and holding. Resistance is at $28.25-$28.50 and the 50-day moving average.

We would like to see a close below $28 today with a further fade towards $27 ahead of the upcoming three-day weekend.