MomentumOptions.com Pre-Market Update for 11/16/2023
Bulls Eyeing 52-Week Highs
8:00am (EST)
Commentary
The stock market showed continued momentum on Wednesday as inflation data continued to cool with October wholesale prices posting it largest monthly decline in over two years. News that Congress avoided yet another possible government shutdown by agreeing to a new funding bill also helped sentiment.
The Nasdaq made a push to 14,194 while ending at 14,103 (+0.1%). Prior and lower resistance from mid-July at 14,100-14,250 was cleared and held. A move above the latter would imply further upside to 14,340-14,500 with the mid-July 52-week peak at 14,446. New support is at 14,000-13,850.
The S&P 500 closed at 4,502 (+0.2%) after testing a high of 4,521. Late August and key resistance at 4,500 was reclaimed. Continued closes above this level would suggest momentum towards 4,550-4,600 with the summertime 52-week at 4,607. Support is at 4,450-4,400.
The Dow topped out at 35,051 before settling at 34,991 (+0.5%). Key resistance at 35,000 was cleared but held. Continued closes above this level would suggest a retest to 35,250-35,500 with the August 1st 52-week peak at 35,679. Shaky support is at 34,750-34,500.
Volatility Index
The Volatility Index (VIX) remained in a nine-session and tight trading range between 14-15.50 with the low at 13.97. Key support at 14 was breached but held. Continued closes below this level would indicate weakness towards 13.50-13. Resistance is at 15-15.50 followed by 16.50-17 and the 50-day/ 200-day moving averages.
Thursday’s earnings announcements:
Before the open: Alibaba (BABA), Macy’s (M), Walmart (WMT), Williams-Sonoma (WSM)
After the close: Applied Materials (AMAT), Beazer Homes USA (BZH), Gap (GPS), Ross Stores (ROST)
Economic news:
Initial Jobless Claims – 8:30am
Import and Export Prices – 8:30am
Industrial Production – 9:15am
Home Builder Confidence Index – 10:00am
Market Thoughts
We talked about September resistance levels coming into play to start the week and Tuesday’s unexpected rally came on better-than-expected inflation news. Specifically, the Consumer Price Index (CPI) was unchanged from the prior month in October as a decline in oil prices dragged down headline inflation. Meanwhile, core inflation rose at the slowest annual pace since September 2021.
The news pushed the overall market higher by 2% with the Russell 2000 zooming 5% on Tuesday for its best session in over a year. The performance came right on cue as we highlighted the divergence in the small-caps versus the major indexes. Wednesday’s follow thru to 1,830 and close above key resistance at 1,800 was a bullish development for the Russell 2000.
As for the other major indexes, continued closes above 35,000 for the Dow; 4,500 for the S&P; and 14,200 on the Nasdaq would be ongoing bullish developments. To the downside, a near-term top would be reached if key support levels fail to hold. They are at: Dow 34,000; S&P 4,400; and Nasdaq 13,800.
The RSI (relative strength index) levels for the major indexes closed at 68 for the Nasdaq and the S&P and 69 for the Dow on Wednesday. We mentioned a sustained rally off of the late October lows could push RSI towards 70 across the board and here we are within spitting distance of our forecast.
RSI levels did clear 70 in June and July for the S&P and the Nasdaq and in July for the Dow. Readings above 70 typically indicates overbought conditions but this is a reminder they can stay elevated. What will be interesting to see is if this same price action plays out this month and again in December.
The other bearish setup we discussed coming into this week was the possibility of the 50-day moving average falling below the 200-day moving average on the Dow. We said this technical setup was known as a death-cross and it came into play on Tuesday’s rally.
Although a death-cross typically leads to lower lows down the road, this technical pattern can correct itself on continued momentum. After closing seven points below the 200-day MA on Tuesday, the 50-day MA closed back above this level on Wednesday.
Tuesday’s “island” breakout caught Wall Street and the main street media off-guard but has put them in a buying mood. We have done well trading bullish positions off of the October lows and we are expecting another consolidation period into the back half of the month.
The beauty of the recent rally is that it continues to give us great clues for higher highs with new, and well defined, support targets. In any event, we can continue to be patient while allowing the market to come to us as our technical outlook throughout the year has been incredibly accurate.
Our next video will be coming out this weekend along with another Watch List for exciting setups. After Friday’s close, the charts will give us another great clue on where the near-term action is headed. In the meantime, let’s go check on our current positions.
Momentum Options Play List
Closed Momentum Options Trades for 2023: 28-9 (76%). 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.
AT&T (T, $15.76, up $0.13)
T January 16 calls (T240119C00016000, $0.42, up $0.08)
Entry Price: $0.40 (11/15/2023)
Exit Target: $0.80
Return: 5%
Stop Target: None
Action: Lower resistance at $15.75-$16 was recovered with the high at $15.80. A close above the latter and the 200-day moving average would be a very bullish development. Support is at $15.50-$15.25.
These options have over two months before expiration and we have a Price Target of $17 for T by mid-January. If reached, these options will be at least $1 in-the-money for a 150% return.
Petróleo Brasileiro (PBR, $15.78, down $0.05)
PBR December 16 calls (PBR231215C00016000, $0.25, down $0.05)
Entry Price: $0.40 (11/2/2023)
Exit Target: $0.80
Return: -38%
Stop Target: None
Action: Shares tested a low of $15.68 with upper support at $15.75-$15.50 getting tripped but holding. Key resistance from late October is at $16.
