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MomentumOptions.com Pre-Market Update for 10/26/2023

Fresh Monthly Lows in Play

8:00am (EST)

Commentary

The stock market fell on Wednesday with the bears pushing fresh monthly lows despite solid Tech earnings. Microsoft (MSFT) blew away forecasts after earning $2.99 a share versus expectations for a print of $2.66. Meanwhile, Alphabet (GOOG) also topped estimates after reporting a ten-cent beat with profits of $1.55 a share.

Both companies also cleared revenue forecasts, but MSFT shares gained 3% while GOOG sank nearly 10% after earnings also revealed a miss on operating margins. The overall weakness in Tech pushed volatility back above a key level of resistance with the possibility of continued selling pressure for the major indexes.

The Nasdaq went out at 12,821 (-2.4%) after trading down to 12,804. Key support at 12,850 failed to hold. Continued closes below this level and the 200-day moving average would signal weakness towards 12,650-12,500. Lowered resistance is at 13,000-13,150.

The S&P 500 tagged a low of 4,181 while settling at 4,186 (-1.4%). Key support at 4,200 failed to hold. Continued closes below this level would imply a further slide towards 4,150-4,100. Resistance is at 4,225-4,275 and the 200-day moving average.

The Dow closed at 33,035 (-0.3%) with the late day low hitting 32,989. Key support at 33,000 was tripped but held. A close below this level would suggest downside risk to 32,750-32,500. Resistance is at 33,250-33,500

Volatility Index

The Volatility Index (VIX) snapped a two-session slide after trading to a high of 21.24. Lower resistance at 21-21.50 was cleared but held. A close above the latter will likely lead to a quick retest towards 22.50-23. Support is at 19-19.50.

Thursday’s earnings announcements:

Before the open: Altria Group (MO), Boston Scientific (BSX), Hershey (HSY), Honeywell International (HON), Merck (MRK), Royal Caribbean Cruises (RCL), Tractor Supply (TSCO), United Parcel Service (UPS)

After the close: Amazon (AMZN), Ford (F), Juniper Networks (JNPR), Texas Roadhouse (TXRH), Vale (VALE)

Economic news:

Initial Jobless Claims – 8:30am
Durable Goods Orders – 8:30am
Pending Home Sales Index – 10:00am

Market Thoughts

Once again, the bears pushed, and cracked, key support levels we listed last Thursday morning: Nasdaq 13,000; S&P 4,225; and Dow 33,000. The blue-chips did manage to hold 33,000 (again) but a death-cross remains in play with the 50-day moving average remaining on track to close below the 200-day moving average.

We talked about how this technical setup typically confirms lower lows over the near-term. A death-cross remains in play for the S&P and the Nasdaq. On the flip side, a golden cross remains in focus for the VIX with the 50-day moving average on track to close above the 200-day moving average. This would likely confirm higher highs for the VIX which would be bearish for the market.

We fresh monthly lows being triggered on the Nasdaq and the S&P, the Dow will likely follow suit if there is no rebound today. The S&P joined the Dow in closing back below its 200-day moving average and the Nasdaq is just a stone’s throw from falling below this level.

The bears will need to hold May support levels over the near-term, if not, March lows and our price targets from September 11th could come into play. We will talk about them next week if the market continues lower.

RSI (relative strength index) levels are once again in the mid-30’s and are close to being at oversold conditions. A backtest to 30 by Friday afternoon is a pretty good bet. As a reminder, the Nasdaq and the S&P held 30 in late September and early October but the Dow’s RSI dipped into the high 20’s. These levels also held on the March lows.

As far as the VIX, Monday’s peak cleared 23 and an area to watch into the weekend. There is stretch up to 24 with a close above this level likely leading to some panic selling.

Momentum Options Play List

Closed Momentum Options Trades for 2023: 24-9 (73%). 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 we list one. We will send out a “Profit Alert” or “New Trade” if we 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.

Foot Locker (FL, $20.19, down $0.12)

FL November 20 puts (FL231117P00020000, $1.20, unchanged)

Entry Price: $0.85 (10/23/2023)
Exit Target: $1.70
Return: 41%
Stop Target: 90 cents (Stop Limit)

Action: Set a Stop Limit at 90 cents to start protecting profits and to avoid a loss.

Key support at $20 was challenged and held with yesterday’s low at $20.08. A close below this level likely confirms at retest towards $19.25-$19 and the 50-day moving average. Resistance is at $20.50-$20.75.

We feel as though FL could trade down to $18 over the near-term. If so, these puts will be at least $2 in-the-money. We have the Stop Limit in place in case shares rebound to test $22.

Ford Motor (F, $11.54, up $0.15)

F November 12 puts (F231103P00012000, $0.75, down $0.05)

Entry Price: $0.50 (10/3/2023)
Exit Target: $1.00
Return: 50%
Stop Target: 60 cents (Stop Limit)

Action: Set a Stop Limit at 60 cents to protect profits and to avoid a loss. If the calls open below 60 cents, try to close the trade at 50 cents or better. Either way, we will send out a Trade Alert.

The company will announce earnings after Thursday’s close so there is event risk based on the numbers and management’s outlook for the current quarter along with full-year guidance.

We could close half the trade this afternoon to offset some of that risk. We like having the Stop Limit in place for today as there were rumors yesterday (and why the stock rebounded intraday) that the current auto-strike could be nearing an end. After the close, this was confirmed with shares pushing $11.75 in after-hours action.