MomentumOptions.com Pre-Market Update for 7/25/2024
Bears Getting Aggressive
8:00am (EST)
Commentary
The stock market had its worst day of the year on Wednesday following disappointing earnings updates from Alphabet and Tesla. The selloff was largely driven by Tech stocks with the bears cracking key support levels we highlighted coming into the week.
The Nasdaq ended at 17,342 (-3.6%) following the afternoon plunge to 17,313. New and upper support at 17,350-17,200 failed to hold. A fade below the latter would indicate a further slide to 17,150-17,000. Lowered resistance is at 17,500-17,650 and the 50-day moving average.
The S&P 500 traded down to 5,419 while finishing at 5,427 (-2.3%). Key support at 5,400 was challenged and held. Continued closes below this level and the 50-day moving average would signal ongoing weakness towards 5,350-5,300. Lowered resistance is at 5,500-5,550.
The Dow went out at 39,853 (-1.3%) with the late day low tapping 39,807. Fresh and upper support at 40,000-39,750 failed to hold. A drop below the latter would imply downside risk to 39,500-39,250 and the 50-day moving average. Resistance is at 40,250-40,500.
Volatility Index
The Volatility Index (VIX) zoomed to a high of 18.46 with mid-April and lower resistance at 18-18.50 getting cleared and holding. A pop above the latter would suggest upside to 19.50-20. Support is at 15.50-15.
Thursday’s earnings announcements:
Before the open: American Airlines (AAL), Honeywell International (HON), Imax (IMAX), Keurig Dr Pepper (KDP), Tractor Supply (TSCO)
After the close: Boston Beer (SAM), Juniper Networks (JNPR), Lending Tree (TREE), Sketchers (SKX), Texas Roadhouse (TXRH)
Economic news:
Initial Jobless Claims – 8:30am
Market Thoughts
The slight rebound on Monday to start the week was followed by Tuesday’s opening run to higher highs for the major indexes. However, the bulls inability to hold these gains and lower closes across the board was a bad omen for Wednesday’s action.
Our headline to open the week stated volatility was signaling a possible near-term market top as the worldwide computer “glitch” last Friday and 2nd-straight close above 15 on the VIX were bearish developments.
The bulls did get the VIX back below 15 on Monday and held this level on Tuesday with a lower close. Tuesday’s lower low touched 13.90 and tripped the 200-day moving average but the inability to hold these levels was also a bearish signal.
We highlighted the April 19th peak hit 21.36 on the VIX and said it could be tested on continued closes above 17.50. The VIX closed a smidge above 18 on Wednesday.
As a reminder, we also said a move above 22 would be the possible beginning of panic selling that could come by month end or the first week of August.
Coming into the week, the charts showed key support at 17,500 for the Nasdaq and 5,400 for the S&P. We pointed out that these levels were right near the 50-day moving averages that failed to hold on Wednesday.
The Nasdaq’s technical damage was worse than the S&P’s as the close below 17,500 opens the trap door for a further fade to 17,000. We talked about 5,200 coming into play for the S&P if 5,400 fails to hold.
The close below 40k on the Dow was slightly bearish as a headline but there is wiggle room down to 39,250 before a prior trading range comes into play. A move back above 40,500 would reverse the negative sentiment.
As for the Russell, key resistance at 2,250 held on Tuesday and Wednesday before the close below the 2,200 level. The bears need to get continued closes back below 2,135 before we can say a near-term top has formed in the small-caps.
We often say calling market tops and bottoms is one of the hardest things to do. The talking heads and slick fund managers will tell you it is impossible but we have shown over the years that homework can and does pay off. This is why we do countless hours of technical analysis every day the and even on the weekends.
With that said, we are in great shape to play a continued market pullback, or even a major market selloff, with the portfolio light. Remember, we don’t care which way the market is heading as we can profit in both bull and bear markets.
Momentum Options Play List
Closed Momentum Options Trades for 2024: 43-9 (83%). 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.
Rocket Companies (RKT, $14.67, down $0.48)
RKT August 16 calls (RKT240816C00016000, $0.50, down $0.15)
Entry Price: $0.65 (7/18/2024)
Exit Target: $1.30
Return: -23%
Stop Target: None
Action: Upper support at $14.75-$14.50 failed to hold following the dip to $14.60. Resistance is at $15-$15.25.
