MomentumOptions.com Pre-Market Update for 5/11/2023
Nasdaq Breaks Out of Trading Range
8:00am (EST)
Commentary
The stock market was mixed but mostly higher on Wednesday following slightly better-than-expected inflation news. Specifically, the Consumer Price Index (CPI) rose 0.4% in April, matching forecasts, while the 4.9% annual increase was a shade below expectations of 5%.
The Nasdaq tested an afternoon peak of 12,337 before closing at 12,306 (+1%). Key resistance at 12,250 was cleared and held. Continued closes above this level would suggest strength towards 12,350-12,500. Support is at 12,050-11,900 and the 50-day moving average.
The S&P 500 finished at 4,137 (+0.5%) after tagging a high of 4,154. Lower resistance at 4,150-4,200 was topped but 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 a second half low of 33,239 while settling at 33,531 (-0.1%). Upper support at 33,250-33,000 was breached but held. A close 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 33,750-34,000.
Volatility Index
The Volatility Index (VIX) was down for the third time in four sessions with the low reaching 16.36. Upper support at 16.50-16 was tripped but held. A close below the latter would signal a retest towards 15.50-15. Resistance is at 18-18.50 followed by 19.50-20 and the 50-day moving average.
Thursday’s earnings announcements:
Before the open: Charles River Laboratories International (CRL), Dillard’s (DDS), Fiverr International (FVRR), JD.com (JD), Krispy Kreme (DNUT), Sotherly Hotels (SOHO), Tapestry (TPR), Utz Brands (UTZ), Yeti (YETI)
After the close: Blue Bird (BLBD), Getty Images (GETY), HireQuest (HQI), Leafly Holdings (LFLY), News (NWSA), Petroleo Brasileiro (PBR), StarTek (SRT), Vasta Platform (VSTA)
Economic news:
Initial Jobless Claims – 8:30am
Producer Price Index – 8:30am
Market Thoughts
The Nasdaq is showing signs of breaking out of a 29-session trading range. The S&P has been in a 29-session and 3% trading range between 4,050-4,175 since late March.
The Dow has basically traded in a 1,000-point between 33,000-34,000 for 28 sessions. There was upside stretch to 34,257 on May 1st and last Thursday’s downside dip to 32,937. And since late March, the VIX has also been range bound between 16-20 to confirm the confined action for the major indexes.
All of this has led to an extremely tough trading environment for Wall Street. The volatility in between these ranges has created exciting opportunities for nimble traders, especially the 1,320 point swing in the Dow in four trading sessions. This is the main reason why we like doing the homework as we have been highlighting key support and resistance levels over (and over) this time frame.
With the first quarter earnings season continuing to wind down, the U.S. debt ceiling conundrum will now take center stage until month end. This could prolong the trading ranges in the major indexes if weakness returns and the Nasdaq falls back below 12,250.
An agreement may, or may not, be reached before June 1st, which is the earliest date the Treasury Department says the U.S. could default. Any agreement sooner, rather than later, might help ease market worries and provide a catalyst for higher highs.
The problem, however, is that both parties have suggested that little progress is being made with President Biden and Congressional leaders scheduled to meet again on Friday. This will likely be a nothing burger update as well.
We closed out another winning trade last week with the Track Record rising to 14-4 for a 78% win rate. We banked a 73% with BAC puts and we went back to the well with another bearish position yesterday. The portfolio remains light so we could have another New Trade today. If we take action, we will send out a Text Alert and email.
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, $27.42, down $0.24)
BAC June 26 puts (BAC230616P00026000, $0.63, up $0.07)
Entry Price: $0.60 (5/10/2023)
Exit Target: $1.20
Return: 5%
Stop Target: None
Action: Our most recent BAC trade made 73%. We were disappointed we didn’t clear triple-digits last week after the position was up 173%, but we knew Apple’s earnings would be a tide that lifted all boats. Hopefully, this trade can perform just as well. These options have 36 days before expiration and our near-term downside target for BAC by mid-June is $25-$24.50.
Shares tested a low of $27.02 after we recommended the position with the puts peaking at 76 cents yesterday. Upper support at $27.50-$27.25 failed to hold. Resistance is at $27.75-$28.
The March 24th low is at $26.32 and a move 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.