MomentumOptions.com Pre-Market Update for 8/3/2023
Default Rating Downgrade Hammers Wall Street
8:00am (EST)
Commentary
The stock market had one of its worst days in months after Fitch Ratings cut the countrys’ long-term foreign currency issuer default rating to AA+ from AAA. Fitch cited the downgrade on expected fiscal deterioration over the next three years, an erosion of governance following the repeated debt-limit standoffs, and a growing general debt burden.
The Nasdaq closed at 13,973 (-2.2%) after tapping a low of 13,914. Upper support at 14,000-13,850 failed to hold. A drop below the latter and the bottom of the current trading range would indicate further weakness towards 13,750-13,600 and the 50-day moving average. Resistance is at 14,100-14,250.
The S&P 500 traded down to 4,505 before settling at 4,513 (-1.4%). Fresh and upper support at 4,550-4,500 failed to hold. A close below the latter and would suggest weakness to 4,450-4,400 and the 50-day moving average. Key resistance is at 4,600 with last Thursday’s 52-week high at 4,607.
The Dow ended at 35,282 (-1%) with the low hitting 35,226. Near-term and upper support at 35,250-35,000 was tripped but held. A fade below the latter would imply a further slide towards 34,750-34,500. Resistance is at 35,500-35,750 with Tuesday’s 52-week peak at 35,679.
Volatility Index
The Volatility Index (VIX) rallied up to 16.48 before going out at 16.09. Prior and lower resistance at 16-16.50 was cleared and held. A close above the latter, and more specifically the July 6th high at 17.08, would be a bearish development for the market. New support is at 15-14.50 and the 50-day moving average.
Thursday’s earnings announcements:
Before the open: Anheuser-Busch InBev (BUD), ConocoPhillips (COP), Fiverr (FVRR), Kellogg (K), Moderna (MRNA), Wayfair (W)
After the close: Apple (AAPL), DraftKings (DKNG), Dropbox (DBX), GoPro (GPRO), Petroleo Brasileiro (PBR), Rocket Companies (RKT), Yelp (YELP)
Economic news:
Initial Jobless Claims – 8:30am
Factory Orders – 10:00am
ISM Manufacturing Index – 10:00am
Market Thoughts
Coming into the week, we talked about the Russell 2000 and how a breakout above the 2,000 level would be an ongoing bullish development for the overall market. More specifically, we highlighted the double-top from February 2nd and 3rd at 2,007 and 2,005, respectively.
Monday’s close at 2,003 and the session high on the small-caps squarely put these targets in focus. However, Tuesday’s close back below the 2,000 level and yesterday’s tumble to 1,957 was not a bullish outlook over the near-term.
Although some market pundits, and top banking CEO’s, are downplaying Wednesday’s default downgrade, it could signal a near-term market top if there is continued weakness today. For new subscribers, we had this to say on July 2nd:
“The key support levels we said to watch for last month were at: Nasdaq 13,500; S&P 4,350; and Dow 33,750. These remain areas to watch going forward. As far as possible market tops during earnings season this month and next: Dow 35,250-35,500; S&P 4,550-4,600; and Nasdaq 14,350-14,500.”
This statement now has the aforementioned areas in focus and support levels just below the 50-day moving averages. If the VIX clears 20, there is a good chance these numbers are in play.
As far as the upside action, the Nasdaq topped out at 14,446 in mid-July; and we mentioned the S&P and Dow at 4,607 and 35,679, respectively. Folks, you can’t call it much better than that.
Although we highlighted January resistance levels and higher highs, the July 2nd resistance targets might stick if the major indexes can’t rebound by Friday’s closing bell.
Apple (AAPL) will announce numbers after today’s close and analysts are looking for a profit of $1.19 a share on revenue of $81.64 billion. The July 19th 52-week and all-time is north of $198. A beat-and raise quarter will likely get shares above $200 while a miss or lowered guidance could push shares towards $186 and the 50-day moving average.
It is extremely hard to call market tops and bottoms, but we have gotten great clues all year long in helping with our forecasts. We often mention we could care less what the market is doing but we do like to trade with the trend, bullish or bearish.
We also have to be aware a trading range could develop in the market if there is strength over the next few days and the VIX closes back below 15. Although there was a possibility for new trades this week, we stayed on the sidelines following yesterday’s curveball.
Sometimes, support and resistance levels can get stretched and that is where the major indexes find themselves following the worst session in months. Instead of forcing the action, we can wait for continuing clues to see how the rest of the month might unfold.
Momentum Options Play List
Closed Momentum Options Trades for 2023: 17-8 (68%). 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.
Petróleo Brasileiro (PBR, $14.05, down $0.14)
PBR September 15 calls (PBR230915C00015000, $0.30, down $0.05)
Entry Price: $0.35 (7/24/2023)
Exit Target: $0.70
Return: -13%
Stop Target: None
Action: Shares soared 5% to start the week, putting the July intraday peak at $14.71 in focus. However, the possible push towards $15 failed to materialize following back-to-back pullbacks with yesterday’s low at $13.80.
Prior and upper support at $13.75-$13.50 was challenged and held. Lowered resistance is at $14-$14.25. We would like to see RSI hold above 50 into the weekend.
Iovance Biotherapeutics (IOVA, $7.18, down $0.01)
IOVA December 12.50 calls (IOVA231215C00012500, $0.40, down $0.05)
Entry Price: $0.80 (7/10/2023)
Exit Target: $1.60
Return: -50%
Stop Target: None
Action: Wednesday’s low kissed $6.95 with upper support at $7-$6.75 getting breached but holding. Resistance is at $7.25-$7.50 and the 200-day moving average.
For new subscribers, please read the writeup from 7/13 or 7/20 on why we are bullish on the stock.