MomentumOptions.com Pre-Market Update for 10/30/2023
March and May Support Level in Focus
8:00am (EST)
Commentary
The stock market was mixed but mostly lower on Friday with the Nasdaq showing some strength while the Dow and S&P set another round of monthly lows. The breakdown below key support levels has pushed the major indexes to oversold conditions with an important week coming up and March/ May lows back in the mix.
The Nasdaq closed at 12,643 (+0.4%) with the high hitting 12,772. Fresh and lower resistance at 12,650-12,800 was cleared but failed to hold. A close back above the latter and the 200-day moving average would suggest a retest to 12,950-13,100. Late May support is at 12,550-12,400.
The S&P 500 traded down to 4,103 before ending at 4,117 (-0.5%). Key support throughout May at 4,100 was approached and held. Another move below this level reopens downside risk to 4,050-4,000. Lowered resistance is at 4,150-4,200.
The Dow finished at 32,417 (-1.1%) after bottoming at 32,327. Late March and upper support at 32,500-32,250 failed to hold. A drop below the latter would imply weakness to 32,000-31,750. Lowered resistance is at 32,750-33,000.
Volatility Index
The Volatility Index (VIX) remained elevated after trading to a high of 22.07. Lower resistance at 22-22.50 was stretched but held. A close above 23 would signal upside to 24-24.50. Support is at 20-19.50.
Monday’s earnings announcements:
Before the open: Air Canada (ACDVF), JinkoSolar (JKS), McDonalds (MCD), SoFi (SOFI), Western Digital (WDC)
After the close: Arista Networks (ANET), Denny’s (DENN), Pinterest (PINS), Public Storage (PSA), Rambus (RMBS), Transocean (RIG), Wolfspeed (WOLF)
Economic News
None Scheduled
Market Thoughts
Coming into last week, we said to watch key support levels at: Nasdaq 13,000; S&P 4,225; and Dow 33,000. The bears pushed these battlegrounds on Monday and Wednesday and planted flags on Thursday’s technical drubbing.
We talked about continued closes below these levels being a bearish development that could cause some panic selling. Before we get into the damage about the possible impact, these levels are also fresh resistance this week and going forward.
We said to watch for the Nasdaq to join the Dow and S&P in closing below its 200-day moving average last Thursday and the 12,650 level on stretch. The index fell seven points shy of recovering this level following Thursday and Friday’s dips below 12,600 intraday.
Friday’s action pushed the RSI (relative strength index) levels to 30 with the Nasdaq bouncing off this level on Thursday. We pointed this area out in Thursday morning’s update, as well, as we said a backtest to 30 by Friday afternoon was a pretty good bet.
We also highlighted, the Nasdaq and the S&P held 30 in late September and early October but the Dow’s RSI dipped into the high 20’s. These levels also held on the March lows with Friday’s close on the Dow at 28.
While the bulls could rise off the mat this week, other headwinds will be facing them with the Federal Reserve meeting midweek. Wall Street isn’t expecting a rate hike as some policymakers have signaled little need to take further action with long-term Treasury yields surging.
The October jobs report will come out on Friday along with Apple’s (AAPL) earnings after Thursday’s closing bell. Needless to say, Friday’s action could decide the week as trading could be flat heading into these events.
The action in the VIX should once again give us great clues on how the market unfolds throughout the week. Last Monday’s peak on the VIX kissed 23.08 and we highlighted there is possible stretch up to 24 before we would could see a bout of panic selling.
The bulls will need to get the VIX back below 20 early in the week with a target of 17.50 after Apple’s numbers and into Friday’s closing bell to avoid a continued market selloff.
We should have a new trade this week but we could be cautious given the major events in play during the back half of the week. We had a great week last week, and for the year, we are doing phenomenal. There is no need to push anything as we can can simply wait until the dust settles and let the action come to us.
Momentum Options Play List
Closed Momentum Options Trades for 2023: 26-9 (74%). 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.
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Foot Locker (FL, $19.60, down $0.78)
FL November 20 puts (FL231117P00020000, $1.45, up $0.30)
Entry Price: $0.85 (10/23/2023)
Exit Target: $1.70
Return: 71%
Stop Target: 90 cents, raise to $1.20 (Stop Limit)
Action: Raise the Stop Limit at 90 cents to $1.20 to further protect profits.
Bingo! We got our drop below key support at $20 with Friday’s low at $19.55. We mentioned a close below this level likely confirms a retest towards $19.25-$19 and the 50-day moving average. Lowered resistance is at $20-$20.25.