MomentumOptions.com Pre-Market Update for 6/1/2023
Bulls Take a Breather
8:00am (EST)
Commentary
The stock market pulled back on Wednesday as Wall Street digested the latest economic news while awaiting approval for the debt limit deal. The losses capped a mixed May as the broader market and Tech posted gains while the blue-chips struggled.
The Nasdaq traded to a low of 12,889 before ending at 12,935 (-0.6%). Fresh and upper support at 12,900-12,750 was breached but held. A close below the latter would signal weakness to 12,650-12,500. Resistance is at 13,000-13,150 with the 52-week peak from mid-August at 13,181.
The S&P 500 settled at 4,179 (-0.6%) with the intraday bottom hitting 4,166. Upper support at 4,200-4,150 was breached and failed to hold. A drop below the latter would indicate another retest to 4,100-4,050 and the 50-day moving average. Resistance is at 4,225-4,275.
The Dow tested a low of 32,739 while finishing at 32,908 (-0.4%). Current and upper support at 32,750-32,500 and the 200-day moving average were tripped but levels that held. A move below the latter would be a renewed bearish setup with downside risk towards 32,250-32,000. Resistance is at 33,000-33,250 and the 50-day moving average.
Volatility Index
The Volatility Index (VIX) snapped a three-session slide after tapping a morning high of 18.40. Near-term and lower resistance at 18-18.50 was topped but held. A move above the latter would suggest another trip to 19.50-20. Support is 17.50-17.
Thursday’s earnings announcements:
Before the open: Bilibili (BILI), Caleres (CAL), Dollar General (DG), Hormel Foods (HRL), Macy’s (M), Reed’s (REED), SpartanNash (SPTN)
After the close: Broadcom (AVGO), CooperCompanies (COO), Dell Technologies (DELL), Five Below (FIVE), Lululemon Athletica (LULU), MongoDB (MDB), PagerDuty (PD), Tilly’s (TLYS), Zumiez (ZUMZ)
Economic news:
Initial Jobless Claims – 8:30am
ISM Manufacturing Index – 10:00am
Construction Spending – 10:00am
Market Thoughts
For the month, the Nasdaq soared 5.8%; the S&P 500 edged up 0.3%; and the Dow dropped 3.5%. As far as sector action, Technology surged 9.8% in May while Energy sank 8.4%.
If we take away a handful of stocks that have huge market caps and benefitted from the AI craze, like Microsoft and Nvidia, May’s results would look much different.
Coming into the week, we highlighted the RSI (relative strength index) levels for the major indexes and ones that needed to be cleared and hold. The Nasdaq did close above 70 for two-straight days but failed to make a run at 75 and the November 2021 high.
The Dow struggled to clear and hold 50 and a level that has been resistance since early May. RSI for the S&P also failed at 60 and a level that has been holding since early February.
The Russell 2000 traded to a high of 1,784 on Tuesday but once again failed to reclaim key resistance at 1,800. However, the index was only down 1% in May, or yesterday’s losses, after closing less than two points away from breaking even on Tuesday.
These technical indicators were solid clues a near-term topping process could be in play. The headline risk from the debt ceiling will now be in the review mirror as The House passed the debt ceiling bill last night, days before the U.S. was projected to run out of money to pay its bills.
The VIX remains in a 45-session trading range of 16-20 since late March. The low on Tuesday touched 16.98 and another failed attempt by the bulls to get continued closes below 16.
The portfolio is on a five session winning streak and is 14-4 for the year. However, our current trades have struggled. The good news is BAC is the only position that expire in June and is back in a downtrend. The other two trades have July expirations and had cheap premiums so we aren’t stressed over them.
Momentum Options Play List
Closed Momentum Options Trades for 2023: 14-4 (78%). 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.
Petróleo Brasileiro (PBR, $11.54, down $0.19)
PBR July 12 calls (PBR230721C00012000, $0.20, down $0.10)
Entry Price: $0.35 (5/26/2023)
Exit Target: $0.70
Return: -43%
Stop Target: None
Action: Key support at $11.50 and the bottom of the current trading range was tripped but held on the fade to $11.47. Resistance is at $11.75-$12.
A golden cross has officially formed with the 50-day moving average crossing above the 200-day moving average. This is typically a bullish signal for higher highs.
Verizon (VZ, $35.63, up $0.73)
VZ July 38 calls (VZ230721C00038000, $0.20, up $0.07)
Entry Price: $0.40 (5/19/2023)
Exit Target: $0.80
Return: -50%
Stop Target: None
Action: Fresh and lower resistance at $36-$36.25 was challenged and held with the high at $35.97. Shaky support is at $35-$34.75.
VZ bounced back after announcing a 10-year contract worth up to $1.45 million with the United States Postal Service. We would still like to see a close above $36 this week.
Bank of America (BAC, $27.79, down $0.47)
BAC June 26 puts (BAC230616P00026000, $0.20, up $0.05)
Entry Price: $0.60 (5/10/2023)
Exit Target: $1.20
Return: -67%
Stop Target: None
Action: Shares kissed a low of $27.48 with prior and upper support at $27.50-$27.25 getting tripped but holding. Lowered resistance is at $28-$28.25 and the 50-day moving average.