MomentumOptions.com Pre-Market Update for 4/17/2023
Wall Street Fades as 1Q Earnings Season Starts
8:00am (EST)
The stock market pulled back on Friday following better-than-expected earnings but lower revenue numbers from the Financial sector. JPMorgan (JPM) and PNC Financial (PNC) missed on revenue while Wells Fargo (WFC) and Citigroup (C) topped forecasts on the start of the first quarter earnings season.
Consumer expectations for price increases over the next year also weighed on sentiment as the one-year inflation gauge surprised, surging to 4.6% from 3.6%. Meanwhile, volatility remained subdued after falling for the third-straight session and closing below another layer of key support.
The Nasdaq finished at 12,123 (-0.4%) despite trading up to 12,205. Key resistance at 12,200 was topped but held. Continued closes above this level would suggest a breakout towards 12,350-12,500. Support is at 12,000-11,850.
The S&P 500 settled at 4,137 (-0.2%) after stalling at 4,163. Lower resistance at 4,150-4,200 was breached but held. The fade to 4,113 afterwards held key support at 4,100. A drop below this level would signal weakness to 4,050-4,000 and the 50-day moving average.
The Dow tested a low of 33,730 before going out at 33,886 (-0.4%). Current and upper support at 33,750-33,500 was tripped but held. A close below the latter would imply a further slide towards 33,250-33,000 and the 50-day moving average. Resistance is at 34,000-34,250.
Volatility Index
The Volatility Index (VIX) fell for the third-straight day with the fresh monthly low and close at 17.07. Prior and upper support at 17.50-17 was recovered. A close below the latter and the February 2nd low at 17.06 would be a very bullish development for the market with weakness towards 16.50-16. Lowered resistance is at 18-18.50.
Monday’s earnings announcements:
Before the open: Charles Schwab (SCHW), Guaranty Bancshares (GNTY), M&T Bank (MTB), State Street (STT)
After the close: CrossFirst Bankshares (CFB), Equity LifeStyle Properties (ELS), J.B. Hunt Transport Services (JBHT), Pinnacle Financial Partners (PNFP), ServisFirst Bancshares (SFBS)
Economic News
New York Empire State Manufacturing Survey – 8:30am
Home Builder Confidence Index – 10:00am
Market Thoughts
The Dow was up for the fourth-straight week after jumping 1.2%; the S&P added 0.8%; and the Nasdaq gained 0.3%. As far as sector action, Financials showed the most strength after rising 2.8% for the week while Real Estate paced the laggards with a drop of 1.4%.
Volatility finally broke down out of a 10-session trading range after closing back below the 18.50 level last Thursday and now represents key resistance. There is backup help at 20-20.50 and the 50-day moving average with a close above the latter levels suggesting a near-term market peak.
We talked about fresh 52-week lows on the VIX possibly coming into play at some point during earnings season and here we are as planned. If there is a breakout across the board for the major indexes towards higher highs, the VIX could test January 2022 levels at 16.50-16. Best cast scenario for the bulls is a collapse towards the 15 area after Tech earnings later this month.
The Nasdaq and the S&P also showed signs of breaking out of their current nine and 10-session trading ranges on Friday’s higher highs. The Dow has been showing an earlier possibility of breaking out since last Tuesday.
On a fundamental basis, the market is getting expensive, currently trading at 18 times earnings, and would coincide with a peak during the height of earnings season later this month. This would validate a drop towards 16.50-15 for the VIX, depending on momentum.
The Dow peaked at 34,712 on December 13th while the S&P topped out at 4,195 on February 2nd. The Nasdaq traded to a high of 12,269 on February 2nd, as well. A stall at these areas would form longer-term double-tops and is typically bearish technical setups.
We have a few more weeks before the talking heads will be asking “do we sell in May and go away” and that could very well be the case if the aforementioned scenarios play out accordingly. The month of May has been known for historical pullbacks and we often say history likes to rhyme and repeat itself.
Key support levels remain at: Dow 32,500; S&P 4,000; and Nasdaq 11,800. Continued closes back below this levels would have us seeking bearish setups. In the meantime, we remain cautiously bullish for a run towards the prior February and December peaks.
As far as specific stock or option plays, one that is on our Watch List is United States Natural Gas Fund (UNG, $6.69, up $0.28). The chart shows shares hit an all-time low of $6.27 but could be showing signs of bottoming from a 52-week peak of $34.50.
There could be a directional play trade using the UNG June 8 calls (UNG230616C00008000, $0.42, up $0.05) or the 2024 UNG January 10 calls (UNG240119C00010000, $1.10, up $0.03) if shares can recover $7 over the near-term. A covered call trade at current levels would also offset some of the risk if shares continue to make new lows. If we take action, we will send out a Trade Alert.
Momentum Options Play List
Closed Momentum Options Trades for 2023: 10-4 (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 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.
Palantir Technologies (PLTR, $8.81, up $0.23)
PLTR May 9 calls (PLTR230519C00009000, $0.65, up $0.13)
Entry Price: $0.55 (4/14/2023)
Exit Target: $1.10
Return: 18%
Stop Target: None
Action: Shares tested a high of $8.91 with key resistance at $8.75 getting cleared and holding. Continued closes above this level would suggest a run towards $9-$9.25. Rising support is at $8.50-$8.25 and the 50-day moving average.
Volume was heavy with over 4,000 contracts exchanging hands on Friday with the peak reaching 70 cents. There was also action in the May 10 and May 11 call strikes that totaled more than 3,000 contracts. This is suggesting traders are expecting a possible breakout towards the February 16th high at $10.31.
If shares trade to $10.10, technically, by May 19th, the call options will double from the recommended entry price as they would be $1.10 in-the-money. If shares reverse course from current levels, and fall back below $8.25-$8, we will likely exit the trade.
A golden cross has formed with the 50-day moving average clearing the 200-day moving average earlier this month. This typically indicates higher highs over the near-term. The company is scheduled to announce earnings the second week of May.