MomentumOptions.com Pre-Market Update for 5/4/2023
Bears Get Hat Trick
8:00am (EST)
Commentary
The stock market extended its losing streak to three-straight days following Wednesday’s pullback as Wall Street digested the latest Fed update. To no surprise, the Federal Reserve approved its 10th interest rate increase over the past year and change but hinted that the current tightening cycle could be near an end.
This major indexes were holding up well ahead of the decision before selling pressure resumed into the closing bell. Volatility made a higher low, typically a bearish signal for the market, but held key resistance for the second-straight session.
The S&P 500 traded to a low of 4,088 before going out at 4,090 (-0.7%). Key support at 4,100 failed to hold. Continued closes below this level would imply a retest towards 4,050-4,000 and the 50-day moving average. Resistance is at 4,150-4,200.
The Dow closed at 33,414 (-0.8%) with the afternoon low at 33,396. Current and upper support at 33,500-33,250 failed to hold. A drop below the latter would signal weakness towards 33,000-32,750 and the 50-day moving average. Resistance is at 33,750-34,000.
The Nasdaq tested a low of 12,022 while settling at 12,025 (-0.5%). Key support at 12,000 held. A close below this level would suggest another fade to 11,950-11,800 and the 50-day moving average. Resistance is at 12,100-12,250.
Volatility Index
The Volatility Index (VIX) extended its winning streak to three-straight sessions with the intraday high reaching 18.83. Lower resistance at 18.50-19 was cleared but held. A move above the latter would suggest another retest to 19.50-20 and the 50-day moving average. Support is at 17.25-17.
Thursday’s earnings announcements:
Before the open: Anheuser-Busch InBev (BUD), ConocoPhillips (COP), Kellogg (K), Madison Square Garden (MSGS), Papa John’s (PZZA), Shake Shack (SHAK), Wayfair (W)
After the close: Apple (AAPL), Block (SQ), Coinbase Global (COIN), DraftKings (DKNG), GoDaddy (GDDY), Monster Beverage (MNST), Yelp (YELP)
Economic news:
Initial Jobless Claims – 8:30am
Trade Deficit – 8:30am
Market Thoughts
The bulls failed to clear and hold key resistance levels despite higher highs on Monday as the lower closes on the major indexes were an omen of things to come. The Dow stalled at 34,250; the S&P failed 4,200; and the Nasdaq fell shy of clearing key resistance from February at 12,250.
As far as volatility, the VIX tested an intraday low of 15.53 on Monday and just above our downside target of 15.50-15. The close above 16 led to Tuesday morning’s surge to 19.81 and close back above the 17.50 level. These were also bearish clues heading into Wednesday’s Fed update. A close above 20 ahead of the weekend would be a bearish development for the overall market.
The Fed’s latest hike pushed the fed funds rate to a target range of 5%-5.25%, the highest since August 2007. Chairman Powell said a decision on a pause wasn’t made but noted the change in the statement language around future policy firming was meaningful.
Another issue on the horizon is the debt ceiling debate with the clock quickly winding down. The recent downgrade of U.S. debt was followed by a warning the government could run out of money by June 1st. We won’t speculate on if a deal will get done in time but odds are both sides will come to an agreement like they always have. If not, the market could be in serious trouble.
The debt ceiling crisis from 2011 caused a 19% drop in the market and something that would not be out of the ordinary if the U.S. defaulted on its debt.
Shares of Apple (APPL) have cleared $170 all week but have failed to hold this level ahead of earnings due out after today’s close. Needless to say, the market, especially Tech, will likely follow how shares react to the news. A breakout above $170 to 52-week and all-time highs north of $175 would be bullish. A drop below $162.50 would likely weigh on the major indexes.
As far as our current trades, we took advantage of the weakness in the Financial sector to enter a bearish position in BAC that has gotten off to a great start. We could have another New Trade today so stay locked-and-loaded.
Momentum Options Play List
Closed Momentum Options Trades for 2023: 13-4 (77%). 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.
Bank of America (BAC, $27.86, down $0.30)
BAC June 27 puts (BAC230616P00027000, $0.92, up $0.15)
Entry Price: $0.55 (5/2/2023)
Exit Target: $1.10
Return: 67%
Stop Target: 60 cents, raise to 65 cents (Stop Limit)
Action: Raise the Stop Limit from 60 cents to 65 cents.
Wednesday’s low tapped $27.81 with upper support at $30-$27.75 failing to hold. Lowered resistance is at $28.25-$28.50.