MomentumOptions.com Pre-Market Update for 2/23/2023
Market Mixed on Fed Minutes
8:00am (EST)
The stock market was mixed on Wednesday as the latest Fed minutes weighed on sentiment. There weren’t any surprises in the update as almost all Fed officials agreed to slow the pace of increases in interest rates to a quarter of a percentage point.
Real Estate and Energy were the weakest sectors after falling 1% and 0.8%, respectively. Meanwhile, volatility eased after holding key resistance for the second-straight session.
The Russell 2000 tested an intraday peak of 1,904 before settling at 1,894 (+0.3%). Fresh and lower resistance at 1,900-1,925 was cleared but held. A close above the latter would be a more bullish signal for strength towards 1,950-1,975. Below is a chart of the IWM.
The Nasdaq ended at 11,507 (+0.1%) with the intraday high kissing 11,582. New and lower resistance at 11,600-11,750 was challenged and held. A pop above the latter would suggest a retest to 11,850-12,000.
The S&P 500 tapped a morning low of 3,976 while closing at 3,991 (-0.2%). Upper support at 3,975-3,950 was challenged and held. A drop below the latter and the 50-day and 200-day moving averages would imply ongoing weakness towards 3,925-3,900.
The Dow finished at 33,045 (-0.3%) after trading down to 32,948. Key support at 33,000 was breached but held. A move below the latter would signal further weakness to 32,750-32,500.
Volatility Index
The Volatility Index (VIX) reversed course despite testing a morning high of 23.63. Lower resistance at 23.50-24 was breached but held. A close above the latter would imply upside towards 24.50-25 and the 200-day moving average.
New support is at 22-21.50.
Market Thoughts
Last Friday’s breakdown out of the current uptrend channels was a great clue the market could experience some near-term weakness. Following a three-day weekend, Tuesday’s 2%-3% selloff across the board for the major indexes may have surprised Wall Street, but not us.
Tuesday’s losses and close back below key support levels wiped out the February gains for the overall market. The rest of the week will let us know if Wednesday’s action was just a simple test to new resistance and hold of current support or if Tuesday’s selloff was the start of a deeper pullback.
The Dow fell out of its 17-session trading range and closed below its 50-day moving average for the 2nd-straight day. The prior trading range lasted 10 sessions and hovered around the 33,000 area to close out December and to start January before a slight breakout to the upside. Continued closes below 33,000 keeps downside risk towards 32,750-32,500 and the 200-day moving average in play with the December 22nd low at 32,573. Resistance is at 33,250-33,500.
The S&P closed below 4,000 for the second-straight day and we mentioned if Tuesday was weak, a retest towards the 50-day and 200-day moving averages could come quick. A close below 3,950 keeps downside risk towards 3,900-3,850 in focus. The January 3rd low is at 3,794. Resistance is at 4,050-4,100.
Tuesday’s close below 11,600 on the Nasdaq and Wednesday’s hold was a bearish development and easily opened the door for a retest towards 11,400-11,250 and the 200-day moving average. The index had a phenomenal double-digit January gain but has downside risk towards 11,000-10,800 on a close below the 50-day moving average. Continued closes back above 11,800 would suggest a near-term bottom.
The VIX closed above 20 last Friday and Thursday but had wiggle room up to 22 on Tuesday. That was busted on the close above this level with the high hitting 23.34 and the January 3rd monthly peak at 23.76. A close above 25 and the 200-day moving average likely gets 27-27.50 in focus and levels from late October/ early November. Continued closes back below 20 is needed in order for the bulls to regain any momentum.
Momentum Options Play List
Closed Momentum Options Trades for 2023: 3-2 (60%). 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.
DraftKings (DKNG, $19.53, down $0.43)
DKNG March 17.50 puts (DKNG230317P00017500, $0.45, up $0.05)
Entry Price: $0.40 (2/21/2023)
Exit Target: $0.80
Return: 13%
Stop Target: None
Action: Wednesday’s low touched $19.29 with the puts peaking at 57 cents. New and upper support at $19.50-$19.25 was breached but held. Resistance is at $20-$20.25.
There is a gap down risk to $18-$17.50 on a close below $19.25. The RSI level pushed 80 last Friday and Tuesday after better-than-expected, but not great earnings. This typically indicates extremely overbought conditions.
S&P VIX Short-Term Futures (VXX, $12.22, down $0.36)
VXX March 13 calls (VXX230317C00013000, $0.70, down $0.15)
Entry Price: $0.60 (2/17/2023)
Exit Target: $1.20
Return: 17%
Stop Target: 62 cents (Stop Limit)
Action: Set an initial Stop Limit at 62 cents to start protecting profits and to avoid a loss.
Shares traded down to $12.14 with new and upper support at $12.25-$12 failing to hold. Resistance is at $12.75-$13 and the 50-day moving average.
Pfizer (PFE, $42.38, down $0.32)
PFE March 42.50 puts (PFE230317P00042500, $0.95, up $0.10)
Entry Price: $0.47 (2/14/2023)
Exit Target: $1.00 (closed half at 80 cents on 2/16/23)
Return: 86%
Stop Target: 50 cents, raise to 70 cents (Stop Limit)
Action. Raise the Stop Limit at 50 cents to 70 cents on the other half of the position.
Yesterday’s bottom hit $42.31 with prior and upper support from late October at $42.50-$42.25 failing to hold. Resistance is at $42.75-$43.