MomentumOptions.com Pre-Market Update for 2/16/2023
Retail Sales Surprise to the Upside
8:00am (EST)
The stock market was mostly higher on Wednesday despite a stronger-than-expected 3% surge in retail sales. It was the largest one-month increase since March 2021 and well above forecasts for a reading of 1.9%.
The news sparked fresh worries the Fed would remain on a hawkish path as far as interest rates but kept the major indexes in a strong uptrend. Volatility continued to ease after closing below key support, and prior resistance, for the second-straight day.
The Russell 2000 went out on the session peak at 1,960 (+1.1%). Prior and lower resistance at 1,950-1,975 was recovered. A close above the latter would imply another run at the 2,000 level with the February 2nd top at 2,007. Below is a chart of the IWM.
The Nasdaq closed at 12,070 (+0.9%) after tapping a high of 12,071. Key resistance at 12,000 was reclaimed. Continued closes above this level would indicate ongoing strength towards 12,100-12,250 with the beginning of the month peak at 12,269.
The S&P 500 tagged an intraday high of 4,148 while settling at 4,147 (+0.3%). Lower resistance at 4,150-4,200 was challenged and held. A move back above the latter and the early February high at 4,195 would be a more bullish development for a run towards 4,250-4,300.
The Dow ended at 34,128 (+0.1%) with the late day high hitting 34,130. Current and lower resistance at 34,250-34,500 easily held. A move above the latter and the January 13th peak at 34,342 would suggest strength to 34,750-35,000 with the December peak at 34,712.
Volatility Index
The Volatility Index (VIX) fell for the fourth-straight session after kissing a low of 18.11. Key support at 18 held. A close below this level would signal additional weakness towards 17.50-17.
Lowered resistance is at 19.50-20.
Market Thoughts
The Dow remains in a 15-session trading range and has been holding its 50-day moving average throughout this three-week period. Continued closes above 34,750 would be a bullish signal for a further run towards 35,000-35,500 and levels from last April.
The S&P is once again looking to challenge 4,200 and faces a more serious hurdle at 4,300. This level held in August, along with the 200-day moving average at the time, with the high at 4,325.
The Nasdaq touched 11,999 on Tuesday and cleared and held 12,000 on Wednesday. This sets up a retest towards 12,250 with the monthly peak at 12,269. Continued closes above these levels will likely imply upside towards 12,600-12,750 with the late August high at 12,655.
The VIX tumbled 7% on Tuesday and back below 20 after testing 22 and holding its 50-day moving average over the prior three trading sessions. Once again, we will need to see continued closes below 18 and not just the one that occurred on February 1st with the VIX settling at 17.87.
The February 2nd low tagged 17.01 with the VIX closing at 18.73 and back above 18. This was the perfect clue there was going to be near-term weakness and why it is imperative the bulls hold 18 this time around.
The RSI (relative strength index) levels for the major indexes are at reasonable levels and are hovering around 60. This means the market isn’t overbought but it is important to note the bullish action pulled back after the S&P and the Nasdaq pushed 70 to start the month. The Dow has struggled clearing 60 since mid-January.
With that said, we could have a New Trade today so stay locked-and-loaded. We got some nice pin action going with our current PFE trade but our GOLD position continues to struggle after the company announced earnings yesterday.
Momentum Options Play List
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Pfizer (PFE, $43.32, down $0.40)
PFE March 42.50 puts (PFE230317P00042500, $0.65, up $0.08)
Entry Price: $0.47 (2/14/2023)
Exit Target: $1.00
Return: 38%
Stop Target: 50 cents (Stop Limit)
Action: Set an initial Stop Limit at 50 cents to start protecting profits and to avoid a loss.
We took advantage of the discount in the put options on Tuesday’s opening strength in the stock as there was heavy volume in these put options. We also like the technical outlook as the 50-day moving average is on track to fall below the 200-day moving average. This would form a death cross and is typically a bearish signal for lower lows.
Shares have been in a 15-session trading range with a close below $43-$42.75 likely leading to some downside action. The October 11th 52-week low kissed $41.45. If shares fall below $41.50, by expiration, these puts will technically be at least $1 in-the-money for a triple-digit win.
Resistance is at $44.50 with the February 2nd intraday peak at $44.46.
Barrick Gold (GOLD, $17.17, down $0.64)
GOLD March 21 calls (GOLD230317C00021000, $0.05, down $0.10)
Entry Price: $0.47 (2/1/2023)
Exit Target: $1.00
Return: -89%
Stop Target: None
Action: Close the trade this morning to save the remaining premium.
Despite a solid earnings and revenue beat, along with the announcement of a $1 billion stock buyback initiative, shares fell over 3%. There are just too many hurdles to overcome for this trade to rebound and become profitable by expiration.