MomentumOptions.com Pre-Market Update for 11/7/2022
Bulls Cut Weekly Losses
8:00am (EST)
The stock market rebounded on Friday to snap an overall four session slide despite another strong jobs report which showed the economy added 261,000 jobs last month. Forecasts were for a print of 195,000, and highlights the difficult task the Fed still faces in taming inflation.
Much of the bullishness came on rumors of easing Covid restrictions in China. The gains weren’t enough to offset the weekly losses for the major indexes but it did push volatility to a multi-month low.
The S&P 500 made a run to 3,796 before closing at 3,770 (+1.4%). Key resistance at 3,800 and the 50-day moving average were challenged but held. Continued closes above these levels would indicate a retest to 3,850-3,900.
The Nasdaq settled 10,475 (+1.3%) after tagging an intraday high of 10,553. Key resistance at 10,500 was cleared but held. Continued closes above this level would signal additional gains towards 10,600-10,750 and the 20-day moving average.
The Dow ended at 32,403 (+1.3%) with the high hitting 32,611. Current and lower resistance at 32,500-32,750 was topped but held. A close above the latter and the 200-day moving average would suggest strength towards 33,000-33,250.
The Russell 2000 surged to a morning peak of 1,809 before finishing at 1,799 (+1.1%). Key resistance at 1,800 was cleared but held. Continued closes back above this level would imply a return trip to 1,825-1,850 and the 200-day moving average. Below is a chart of the IWM.
Volatility Index
The Volatility Index (VIX) fell for the second-straight day after plunging to an opening low of 24. Prior and upper support from early September at 24.50-24 was breached but held. A drop below the latter would suggest weakness towards 23-22.50.
Lowered resistance is at 25.50-26.
Market Analysis
The SPDR S&P 500 ETF (SPY) snapped a four-session slide with the high at $378.87. Fresh and lower resistance at $378.50-$379 was tripped but held. A pop above the latter and the 50-day moving average would indicate additional strength to $380.50-$381.
Resistance is at $373-$372.50 and the 20-day moving average.
RSI (relative strength index) is back in an uptrend with key resistance at 50 holding. A close above this level would signal further upside action towards 55-60 and levels from late last month. Support is at 45-40.
Sector
The Materials Select Sector (XLB) was up for the second-straight day with the peak kissing $75.98. Early September and lower resistance at $75.50-$76 was cleared but held. A close above the latter would imply a breakout towards $77-$77.50.
Near-term support is at $74.50-$74.
RSI remains in an uptrend with key support at 60 holding. Continued closes above this level would be a bullish development for upside to 65-70 and levels from mid-August. Support is at 55-50.
Market Outlook
The biggest takeaway from Friday’s action was new resistance levels held for the major indexes: Dow 32,500; S&P 3,800, Nasdaq 10,500; and Russell 1,800. Granted, the bears didn’t hold them by much but levels the bulls likely need to recover to start the week.
The other slight concern for the bulls is the oversold RSI reading on the VIX that is just above 30 and the late March low. This area typically indicates a rebound as it has not been breached in over five years.
A higher, or rising, VIX typically indicates a market pullback. However, there is the possibility the VIX could continue to languish for another week or so while working its way towards 22.50-22.
The other catalyst this week that could help or hinder the market could be Tuesday night’s election results. Options hedges from last week on the S&P 500 are implying a move of nearly 3% in either direction on Wednesday after the election.
A 3% drop to the downside will get fresh 52-week lows back in the mix and likely lead to a much more serious pullback in the coming weeks. A 3% pop would have prior resistance levels in play.
Historically, past midterm elections have been bullish for Wall Street as the S&P 500 has posted a positive return in the 12 months following all 19 midterm elections since World War II.
As far as our current trades, we finally caught a break after cashing out for a double-digit win on Friday. This pushed the Track Record for the year back towards 60% but still below my historical win rate of nearly 70%. I’m hoping we can take advantage of another run towards prior resistance levels, or a return to fresh yearly lows.
Momentum Options Play List
Closed Momentum Options Trades for 2022: 25-18 (58%). 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 Daily updates and Text Alerts.
Verizon Communications (VZ, $37.24, up $0.09)
VZ December 40 calls (VZ221216C00040000, $0.35, unchanged)
Entry Price: $0.55 (11/2/2022)
Exit Target: $1.10
Return: -36%
Stop Target: None
Action: Prior and upper support at $37-$36.75 and the 20-day moving average held on the backtest to $36.80. Lowered resistance is at $37.50-$37.75.
Rocket Companies (RKT, $6.31, down $0.20)
RKT December 8 calls (RKT221216C00008000, $0.15, down $0.05)
Entry Price: $0.95 (9/9/2022)
Exit Target: $1.90
Return: -84%
Stop Target: None
Action: Shares tagged a low of $6.19 after a slight disappointment in earnings. Upper support at $6.25-$6 was breached but held with the low touching $6.19. Resistance is at $6.50-$6.75 and the 20-day moving average.
The company missed on earnings but topped on revenue after Thursday’s close. As long as $6 holds, we can stay in the trade. A close below this level will force us out for an early exit to save the remaining premium.
Diana Shipping (DSX, $4.30, up $0.07)
DSX December 6 calls (DSX221216C00006000, $0.10, unchanged)
Entry Price: $0.40 (8/18/2022)
Exit Target: $1.00
Return: -75%
Stop Target: None
Action: Friday’s peak reached $4.37 with lower resistance at $4.30-$4.40 getting recovered. A close above the latter and the 50-day moving average setup a possible trip towards $4.60 and the 200-day moving average. Support is at $4.20-$4.10 and the 20-day moving average.