MomentumOptions.com Pre-Market Update for 2/22/2021
Bulls Rebound but Bears Get Weekly Win
The stock market rebounded on Friday to snap a three-session slide with the blue-chips setting another record intraday high. Better-than-expected housing numbers helped support the rally along with the ongoing chatter for another stimulus package that could be rolled out as early as next month.
The Russell 2000 reached a midday peak of 2,275 before closing at 2,266 (+2.2%). Near-term and lower resistance at 2,250-2,275 was recovered. A move above the latter would suggest a retest towards 2,300-2,325 with the current all-time high at 2,318. Below is a chart of the IWM.
The Nasdaq tapped a morning high of 13,985 while finishing at 13,874 (+0.1%). Current and lower resistance at 13,900-14,000 was cleared and held. A close above the latter would signal momentum towards 14,100-14,200 with the record high at 14,175.
The Dow added a point to settle at 31,494 (0.00%) after trading to a record peak of 31,647. Lower resistance at 31,500-31,750 was breached but held for the second-straight session. A close above the latter would indicate additional momentum towards the 32,000 level.
The S&P 500 tested an opening high of 3,930 before ending lower at 3,906 (-0.2%). Lower resistance at 3,925-3,950 was breached but held. A close above the latter and the current lifetime high would indicate additional upside towards 3,975-4,000.
For the week, the Nasdaq dropped 1.6%; the Russell 2000 fell 1.5%; the S&P 500 was lower by 0.7%; and the Dow was edged up 0.1%.
The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) fell for the first time in four sessions after trading to a low of 20.84. Current and upper support at 21-20.50 was breached but held. A close below the latter would signal a retest towards 20-19.50.
Resistance is at 23-23.50 and the 50-day moving average.
The S&P 400 Mid Cap Index (NYSE: MID) snapped a three-session slide after testing an intraday high of 2,541. Near-term and lower resistance at 2,525-2,550 was cleared and held. A move above the latter and the recent all-time high of 2,563 would indicate additional strength towards 2,575-2,600.
Support is at 2,500-2,475 followed by 2,450-2,425.
RSI (relative strength index) is back in an uptrend with lower resistance at 65-70 holding. A move above the latter would signal additional strength towards 75 and the early January high. Support is at 60.
The Energy Select Sector SPDR Fund (NYSE: XLE) was up for the fourth time in five sessions after tagging a high of $46.36. Current and lower resistance at $46-$46.50 was cleared and held. A close above the latter would suggest additional strength towards $47-$47.50.
Support is at $45.50-$45.
RSI is back in an uptrend with lower resistance at 65-70 getting breached and holding. A close above the latter would signal strength towards 75 and the January high. Support is at 60-55.
We got some nice pin action on Friday so let’s go check the tape.
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Aflac (AFL, $48.08, up $0.79)
AFL April 50 calls (AFL210416C00050000, $1.20, up $0.35)
Entry Price: $1.05 (2/19/2021)
Exit Target: $2.10
Stop Target: None
Action: Shares surged to an intraday high of $48.52 with lower resistance from last January at $48-$48.50 getting cleared and holding. Fresh support is at $47.50-$47.
Shares of Aflac underperformed the overall stock market in 2020 and remain about 8% off its 52-week peak just south of the $52 level. Insurance stocks can make a great addition to your stock portfolio as the business has the potential to produce excellent long-term returns. It is also a business that works in strong economies as well as during recessions, and anytime in between.
Some of the pressure from the COVID-19 virus may have worried traders on Aflac’s near-term prospects as insurance companies are in the business of pricing risk. However, the company has topped earnings expectations over the past four quarters by two cents, 25 cents, 21 cents and 11 cents.
This shows Aflac has managed the pandemic well despite the disruption from the coronavirus. Additionally, even of its policies were underpriced versus current reality, then Aflac has the opportunity to raise its rates on renewals and new policies to reflect that reality.
The chart shows key resistance at $47 has been holding since mid-January and a level that has been tested and recently cleared. Continued closes above this level could easily propel shares towards the $50-$52 area and prior levels from January 2020.
Aflac also offers investors a well-supported income stream that currently sports a dividend yield just below 3%. The 33-cent quarterly dividend and $1.32 annually consumes only about 25%-30% of the company’s trailing earnings.
Aflac also has nearly a four-decade history of increasing its dividends. While the past couple of increases have been small, the payout has still been rising over time. This long-term commitment to dividend growth also suggests that if the company can continue to raise its dividends over time, it will.
Backing up that modest payout ratio is a balance sheet with over $4 billion in cash and equivalents and over $140 billion in bonds on it. Overall, Aflac has nearly $30 billion in net equity on its balance sheet.
If shares can make a run towards $52.10 by mid-April, these calls will double from our entry price.
Fox Corporation (FOXA, $33.78, up $1.60)
FOXA March 34 calls (FOXA210319C00034000, $1.30, up $0.50)
Entry Price: $1.05 (2/12/2021)
Exit Target: $2.10
Stop Target: None
Action: Friday’s high tapped $33.99 with fresh and lower resistance from late January at $34-$34.25 getting cleared but holding. A move above $35 could lead towards another run at $40-$41 with the options zooming towards the $5-$6 area. New support is at $33.50-$33.25.
Pfizer (PFE, $34.44, down $0.12)
PFE March 36 calls (PFE210319C00036000, $0.30, down $0.10)
Entry Price: $0.55 (2/10/2021)
Exit Target: $1.10
Stop Target: None
Action: Friday’s low tapped $34.40 with upper support at $34.50-$34.25 failing to hold. Although shares remain oversold with RSI in the low 30’s, a close below $34 would be a very bearish development. Resistance remains at $34.75-$35 and the 200-day moving average.