MomentumOptions.com Pre-Market Update for 10/5/2023
Dow Snaps Three-Session Slide
8:00am (EST)
Video
Technical review of the major indexes. Trade setups: BAC (oversold), F update, CSCO (gap lower), MSFT credit spread.
https://us06web.zoom.us/rec/share/mKjzKuoyHD8-Gm-NB8xU6VUUy1mrnXHH06QPzU4vrR4bqfX1M-FDNNYH4eJ50gk.J61CjGecb_zryb3X
Passcode: zhw.D95V
Commentary
The stock market rebounded on Wednesday despite weaker-than-expected economic news. Specifically, ADP said the economy added 89,000 private payrolls last month, well below expectations for a print of 160,000.
The gains pushed Tech back into positive territory for the week while the broader market and the blue-chips remained in negative territory. Volatility eased after coming within spitting distance of its May peak.
The Nasdaq closed at 13,236 (+1.4%) with the intraday peak hitting 13,258. Lower resistance at 13,200-13,350 was reclaimed. A move above the latter would indicate strength to 13,500-13,650 and the 50-day moving average. Shaky support is at 13,150-13,000.
The S&P 500 kissed a high of 4,268 before ending at 4,263 (+0.8%). Fresh and lower resistance at 4,250-4,300 was cleared and held. A pop above 4,350 would be a more bullish signal of a possible near-term bottom with additional upside towards 4,400-4,450 and the 50-day moving average. Key support is at 4,200 and the 200-day moving average.
The Dow went out at 33,129 (+0.4%) after trading up to 33,156. New and lower resistance at 33,250-33,500 was challenged and easily held. A close above the latter would indicate a retest to 33,750-34,000. Support is at 33,000-32,750.
Volatility Index
The Volatility Index (VIX) fell for the first time in four sessions despite the intraday pop to 20.88. Prior and lower resistance early May at 20.50-21 was cleared but held. Continued closes above 20 would be a bearish development with further risk towards 22-24. Support is at 18-17.50 and the 200-day moving average.
Thursday’s earnings announcements:
Before the open: Conagra Brands (CAG), Constellation Brands (STZ), Lamb Weston Holdings (LW)
After the close: Aehr Test Systems (AEHR), CalAmp (CAMP), Levi Strauss & Co. (LEVI)
Economic news:
Initial Jobless Claims – 8:30am
Trade Deficit – 8:30am
Market Thoughts
The bulls started the week and the month on a positive note but Tuesday’s action cracked key support levels from early June. This bearish action sets up a further pullback towards the May lows despite yesterday’s bounce.
The early June support levels are at: Nasdaq 13,000; S&P 4,250; and Dow 33,250. These levels were either cracked or came into play on Tuesday but held and regained on Wednesday. Continued closes below the first two and 33,000 on the Dow would be a good possibility the March lows will be pursued by the bears.
For new subscribers, we wanted to highlight our comments from September 11th as the major indexes failed to recover prior key support levels that are now additional layers of resistance going forward:
“As far as key support / resistance levels to watch going forward: Dow 34,000-35,000; Nasdaq 13,200-14,200; and S&P 4,350-4,550. These are nice round numbers to remember and ALSO highlight a trading we mentioned could be developing into earnings season.
Continued closes below or above the aforementioned levels will likely lead to a double-digit pullback of at least 10% by late October, or a retest to fresh 52-week highs, over the next month or two.”
The back of a napkin math for a 10% selloff from the aforementioned support areas Nasdaq 11,880; S&P 3,915; and Dow 30,600. The March lows for the major indexes are at: Nasdaq 10,982; S&P 3,808; and Dow 31,429.
Now, if we take the first set of figures of a 10% October / November pullback and factor in the plunge from the 52-week highs, the numbers would have the Nasdaq down 24%; the S&P dropping 17%; and the Dow sinking 14%.
With earnings season just over a week away, the volatility will be there for huge market swings. Obviously, a very bullish earnings season could change the technical outlook but there are a bevy of resistance levels the bulls will need to recover.
This would likely create a buying opportunity if there is continued weakness this month but we don’t want to get too far ahead of price action. For now, the short-term outlook remains bearish and one we said to be prepared for coming into the week.
We will talk more about price action on Monday but let’s see how the rest of the week unfolds before getting super aggressive. Our trades continue to perform well despite the current market environment and we are having a tremendous year despite the volatility. On that note, let’s go check the tape.
Momentum Options Play List
Closed Momentum Options Trades for 2023: 22-9 (71%). 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 we list one. We will send out a “Profit Alert” or “New Trade” if we 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.
Ford Motor (F, $11.99, down $0.08)
F November 12 puts (F231103P00012000, $0.58, up $0.04)
Entry Price: $0.50 (10/3/2023)
Exit Target: $1.00
Return: 16%
Stop Target: None
Action: Shares tagged a low of $11.88 with fresh and upper support at $12-$11.75 failing to hold. Resistance is at $12.25-$12.50.
We wanted to get into this position following Tuesday’s drop below $12.25 and out of the 16-session trading range. We also like the fact the 50-day moving average remains on track to fall below the 200-day moving average. This technical setup is often referred to as a death cross and is typically a bearish signal for lower lows.
The company will announce earnings near the end of the month and why we went with the November weekly options. We are expecting a test towards $11.25-$11 and the May lows if $11.75 fails to hold. At $11, these options would be $1 in-the-money” for a nice double from the entry price.
Petróleo Brasileiro (PBR, $13.86, down $0.44)
PBR October 16 calls (PBR231020C00016000, $0.04, down $0.02)
Entry Price: $0.35 (9/14/2023)
Exit Target: $0.70
Return: -89%
Stop Target: None
Action: Prior and upper support at $14-$13.75 and the 50-day moving average failed to hold following Wednesday’s fade to $13.72. Lowered resistance is at $14.25-$14.50 and the 50-day moving average.