Lackluster Action Continues
8:00am (EST)
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https://us06web.zoom.us/rec/share/5kg1yZn5dEkHN6fh0YmFWRZAPn-rNmpjS0rXgZ9ms8rdAXXkLIK5FBGn22kqLHTg.1jWxRi8AttmIEhl8?startTime=1684117953000
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Commentary
The stock market fell on Friday following disappointing economic news with the results giving the bears the overall weekly win. Specifically, the University of Michigan’s consumer sentiment index for May fell to a six-month low of 57.7 versus forecasts for a print of 63.
The action kept the current trading ranges intact for the major indexes although Tech is showing signs of a possible breakout. Volatility has also been range bound over the past six weeks and could remain that way until there is clarity on the debt ceiling conundrum.
The Nasdaq finished at 12,284 (-0.4%) despite the intraday peak reaching 12,364. Fresh and lower resistance at 12,350-12,500 was cleared but held. A pop above the latter would imply upside towards 12,600-12,750 and levels from late August. Support is at 12,050-11,900 and the 50-day moving average.
The S&P 500 traded to a high of 4,143 before closing in the red at 4,124 (-0.2%). Lower resistance at 4,150-4,200 was challenged and held. A close above the latter and the February peak at 4,195 would be a more bullish development with upside action to 4,250-4,300 and levels from mid-August. Support is at 4,100-4,050 and the 50-day moving average.
The Dow kissed an intraday low of 33,110 while settling at 33,300 (-0.03%). Upper support at 33,250-33,000 was breached but held. A drop below the latter and the 50-day moving average would imply a further slide towards 32,750-32,500 and the 200-day moving average. Resistance is at 33,500-33,750.
Volatility Index
The Volatility Index (VIX) closed higher for the first time in three days with the high reaching 17.92. Lower resistance at 17.50-18 was topped but held. A close above the latter would suggest a retest towards 19.50-20 and the 50-day moving average. Support is at 16.50-16.
Monday’s earnings announcements:
Before the open: Bitfarms (BITF), Costamare (CMRE), Fulcrum Therapeutics (FULC), Lifeway Foods (LWAY), Modiv (MDV), Rockwell Medical Technologies (RMTI), Tower Semiconductor (TSEM), Workhorse Group (WKHS)
After the close: Absolute Software (ABST), Exagen (XGN), Fluent (FLNT), Nu Holdings (NU), P10 (PX), Rumble (RUM), Stryve Foods (SNAX)
Economic News
New York Empire State Manufacturing Survey – 8:30am
Market Thoughts
For the week, the Dow was down 1.1%; the S&P slipped 0.3%; and the Nasdaq rose 0.4%. As far as sector action, Communications Services showed the most strength after jumping 3.6% for the week while Energy paced the laggards with a drop of 2.1%.
The Nasdaq made a higher closing high on Thursday after breaking out of a 29-session trading range. The August 25th and 26th double-top peak is at 12,641 and 12,655, respectively, and why a close above 12,350 is important this week. A close below 12,250 this week would reengage the prior 29-session trading range.
The S&P has remained in a 31-session and 3% trading range between 4,050-4,175 since late March. We highlighted more important resistance is at 4,200 with the August 16th peak at 4,325. A close below 4,050 and the 50-day moving average would be a slightly bearish development but there is stretch down to the 4,000 area.
The Dow fell for the fifth-straight day on Friday and has basically traded in a 1,000-point between 33,000-34,000 for 30 sessions. We mentioned last Thursday the upside stretch to 34,257 on May 1st and downside action to 32,937 afterwards that occurred in four sessions. A move above or below theses levels could be the start of the next major trend.
The VIX remains a key focus for us and has provided tremendous trading clues all year long. The talking heads typically ignore the action but there has been some mention of the low levels last week. However, since they don’t do chart work, they haven’t realized the VIX has also been in a trading range of 16-20 since late March. There is stretch down to 15.50-15 and up to 22-22.50 if the aforementioned levels are tripped.
The RSI (relative strength index) levels for the major indexes are somewhat neutral but are showing signs of rolling over. A weak Monday will likely confirm a retest towards the bottom of the current trading ranges.
The debt ceiling meeting that was suppose to occur on Friday was postponed into this week and will remain a headwind for the market until there is a resolution. While we aren’t thrilled with the prospect of another two weeks of a possible trading range, but there has been some volatility that has produced some solid wins.
There will still be some noteworthy earnings into month end that could provide possible setups ahead of, or after the news. However, none of them will be market impacting and unlikely something that will favor the bulls or bears. Market sentiment will likely mirror how close Congress comes to playing with fire before an agreement is reached by June 1st.
We don’t care which way the market is headed as we trade the trend, bullish or bearish. And in trading ranges, we trade lightly while waiting for a breakout or breakdown. Trading ranges are great for covered calls but can have an impact on directional option trades as they are time sensitive.
The portfolio for 2023 is now at 14-4 and we have managed to limit our overall exposure by trading lightly until a clear trend develops. We are still averaging a trade a week so we don’t need to force the action as we can focus on our Watch List. In the meantime, let’s go check the tape.
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.
Bank of America (BAC, $27.09, down $0.30)
BAC June 26 puts (BAC230616P00026000, $0.67, up $0.07)
Entry Price: $0.60 (5/10/2023)
Exit Target: $1.20
Return: 12%
Stop Target: None
Action: Friday’s low hit $26.88 with the puts peaking at 76 cents. Upper support at $27-$26.75 was tripped but held. Resistance is at $27.25-$27.50.
The March 24th low is at $26.32 and a move down to this level would be a very bearish development. Backup support on a close below $26 is at $25.25-$25 and levels from November 2020. If shares make a strong move below $27 this week, we could add additional put options.