MomentumOptions.com Pre-Market Update for 8/5/2024
Nasdaq Enters Correction Territory
8:00am (EST)
Video
https://go.screenpal.com/watch/cZjheAV9cz0
Commentary
The bears were aggressive again on Friday with the major indexes making another round of lower lows while failing to hold key support levels. A disappointing jobs report weighed on sentiment as non-farm payroll of 114,000 came in below an expected print of 175,000. Meanwhile, the unemployment rate unexpectedly rose to 4.3%.
The Nasdaq closed at 16,776 (-2.4%) following the intraday plunge to 16,582. Late May and upper support at 16,750-16,500 was cracked but held. A drop below the latter would indicate weakness to 16,350-16,200. New resistance is at 16,850-17,000.
The S&P 500 tagged a low of 5,302 while ending at 5,346 (-1.8%). Early June and upper support at 5,350-5,300 failed to hold. A move below the latter would suggest a further slide towards 5,250-5,200. Resistance is at 5,400-5,450 and the 50-day moving average.
The Dow settled at 39,737 (-1.5%) with the low kissing 39,358. Fresh and upper support at 39,500-39,250 and the 50-day moving average were breached but held. A dip below the latter would imply downside action to 39,000-38,750. Lowered resistance is at 40,000-40,250.
Volatility Index
The Volatility Index (VIX) reached a peak of 29.66 with March 2023 and key resistance at 30 getting challenged and holding. Continued closes above this level would signal upside to 32-34. New support is at 20. More on the VIX below.
Monday’s earnings announcements:
Market Thoughts
From July 8th:
“July is historically the best month of the third quarter for the market, especially Tech, as the start of the second half of the year brings an inflow of retirement funds. However, volatility tends to pick up after the July 4th holiday and August is known to be bearish with some epic selloffs.
With the Nasdaq and S&P remaining in solid uptrend channels, it was no surprise to see continued record highs again on Friday. We have talked about the Nasdaq making a run towards 18,350-18,500 this summer. As for the S&P, we have talked about upside to 5,550-5,600 by August and possibly 6,000 to close out 2024.”
The Nasdaq hit a record high of 18,671 on July 11th while the S&P 500 traded to a lifetime high of 5,669 on July 16th.
From July 18th:
“The worldwide computer “glitch” on Friday caused an anomaly in the VIX as the index plunged to a low of 10.62 shortly after the open. While we did say fresh 52-week lows below 11.50 could come during the 2Q earnings season, we didn’t expect an intraday spike towards 10 and surge above 17 afterwards. It also market the 2nd-straight close above 15 on the VIX.
With that said, we have talked about a possible market “curveball” coming given the geopolitical tensions and the gains the indexes have from the October lows. The glitch was a surprise but expect volatility to pick up from here and into August.
The April 19th peak hit 21.36 on the VIX and could be tested on continued closes above 17.50. A move above 22 would be the beginning of market panic possibly setting in.”
Friday’s close on the VIX easily cleared 22 and we were somewhat surprised to see the surge to 30. The action pushed the RSI (relative strength index) level on the VIX past 70 and overbought conditions. This occurred twice in July with a fade afterwards on both occasions.
The technical setup on the VIX also shows the 50-day moving average on track to clear the 200-day moving average to form a golden cross. This typically leads to higher highs. However, this setup failed to materialize in May and last November as the 50-day moving average reversed course.
As far as the RSI levels for the major indexes, the Nasdaq and the S&P are at 35 and 38 and appear to be headed towards 30. The Dow’s RSI is at 45 and will likely test 40, or lower, if there is continued weakness on Monday’s open.
The Nasdaq has officially entered correction territory as it closed 10% off its record peak. The talking heads will be highlighting this throughout Monday. Of course, we highlighted the 9% pullback on July 25th before a rebound to the 50-day moving average throughout last week. We think there is risk down to 16,200 for the Nasdaq which would represent a 13% pounding.
As for the S&P, we warned continued closes below 5,400 would likely lead to a selloff towards 5,200, quickly. This would be an 8% decline. Friday’s low hit 5,302 and represented a 6% drop from the lifetime high at 5,669. A 10% correction would occur if the index falls towards the 5,125 area.
As for the Dow, a close below 39,250 and the 50-day moving average could open up risk down to 38,000 and the 200-day moving average. If reached, it would represent an 8% pullback for the blue-chips.
The technical damage in the Russell was the most severe as the index sank 3.5% to close at 2,109 and just above its 50-day moving average. More importantly, the close below 2,135 was a bearish development if this level isn’t recovered this week.
A move below 2,075 in the small-caps could lead to a further fade to 2,000-1,975 and the 200-day moving average. The index just hit a 52-week high of 2,299 last Wednesday with Friday’s close already representing an 8% drubbing. A 10% correction would occur at 2,075 with a 13%-14% selloff if 2,000-1,975 is tagged.
For the VIX, there is risk up to 34 and key resistance from October 2022. A close above 34.50 would likely induce panic selling on Wall Street. The bulls needs to get continued closes below 20 to start the week, and ideally, closes below 17.50.
While there could be a short-term relief rally, overseas selling in Japan’s Nikkei pushed their index down 5% as we were heading to press. This could carry over into Wall Street to delay buying until our lower price targets come into play.
Momentum Options Play List
Closed Momentum Options Trades for 2024: 45-9 (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.
Teva Pharmaceuticals (TEVA, $16.99, up $0.54)
TEVA September 18 calls (TEVA240920C00018000, $0.60, down $0.20)
Entry Price: $0.50 (7/30/2024)
Exit Target: $1.25
Return: 10%
Stop Target: 55 cents (Stop Limit)
Action: The Stop Limit at 55 cents tripped on Friday with the puts kissing a low of 51 cents on the stock’s intraday tumble to $16.72.
Ford (F, $10.04, down $0.66)
F August 13 puts (F240816P00013000, $3.10, up $0.65)
Entry Price: $0.25 (7/22/2024)
Exit Target: $2.75, raise to $3.75 (closed half at $2.75 on 8/2)
Return: 1,070%
Stop Target: $2.00, raise to $2.75 (Stop Limit)
Action: The Limit Order to close half the trade at $2.75 tripped on Friday.
Raise the Exit Target from $2.75 to $3.75 with a Limit Order on the remaining half. Raise the Stop Limit from $2.00 to $2.75.
Our near-term target of $10.50-$10 for Ford was triggered on Friday and why we closed half automatically. This would give the puts and intrinsic value of $2.50-$3.00 if we hold into expiration..
If the Stop Limit at $2.75 is tripped, the return would be 1,000%.
The strangle option trade with the F August 15 calls is now up 589%. You can also set the Stop Limit at $2.75 for the puts with the calls expiring worthless.
Snap (SNAP, $9.35, down $3.45)
SNAP August 14 puts (SNAP240816P00014000, $4.50, up $2.35)
Entry Price: $0.70 (7/17/2024)
Exit Target: $2.10, raise to $5 (closed half at $2 on 7/30)
Return: 364%
Stop Target: $1.40, raise to $4 (Stop Limit)
Action: Raise the Exit Target from $2.10 to $5 with a Limit Order on remaining half. Raise the Stop Limit at $1.40 to $4.
The company missed revenue forecasts by $15 million with shares tanking 16% in after-hours to $10.75. Friday’s low kissed $9.30 with the puts peaking at $4.57.
RSI is indicating ridiculously oversold levels at 15 but the 52-week low for the stock is at $8.28. At $8, shares would make a great covered call candidate and a longer-term directional call play, as well. If shares rebound from here, we will likely get stopped out on a pop back above $9.75-$10.
