MomentumOptions.com Pre-Market Update for 3/5/2021
Bears Extend Winning Streak to 3-Straight Sessions
The stock market showed continued weakness on Thursday following another choppy open after Fed Chairman Powell said the central bank would be patient in keeping interest rates near zero, even if inflationary pressures started to rise. This led to another spike in Treasury yields as the 10-year jumped above the 1.5% level following Powell’s update.
The losses erased year-to-date gains for the Nasdaq and temporarily for S&P 500 on its session low. More importantly, the Nasdaq entered intraday correction territory after falling more than 10% off from its mid-February all-time high of 14,175.
The Russell 2000 tagged an afternoon low of 2,110 before finishing of 2,146 (-2.8%) and just above its 50-day moving average. Prior and upper support from late January at 2,125-2,100 was breached but held. A move below the latter would indicate ongoing weakness towards 2,075-2,050. Below is a chart of the IWM.
The Nasdaq ended at 12,723 (-2.1%) after trading to an intraday low of 12,553. Upper support from early January at 12,600-12,500 was breached but held. A close below the latter would suggest a further slide towards 12,400-12,300.
The S&P 500 settled at 3,768 (-1.3%) and back below its 50-day moving average with the second half low reaching 3,723. Fresh and upper support at 3,725-3,700 was tripped but held. A fall below the latter would signal ongoing weakness towards 3,675-3,650.
The Dow bottomed at 30,547 before closing at 30,924 (-1.1%) and just under its 50-day moving average. Prior and upper support from late January at 30,750-30,500 was breached but held. A move below the latter would indicate a further fade towards 30,250-30,000.
Shares of United Natural Foods (UNFI) rose 5% while trading to a fresh all-time high of $32.88 after extending its distribution pact with Amazon’s (AMZN) Whole Foods Market. The term of the deal between the two companies now runs until September 2027.
The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) extended its winning streak to three-straight sessions after zooming to an intraday high of 31.90. Prior and lower resistance from late January at 30-32 was cleared but held. A close above the latter would indicate ongoing strength towards 34-36.
Rising support is at 26-28 and the 200-day moving average.
The Spider Small-Cap 600 ETF (NYSE: SLY) was down for the second time in three sessions with the intraday low reaching $89.07. New and upper support at $89.50-$89 was breached but held. A close below the latter would suggest additional weakness towards $87.50-$87 and the 50-day moving average.
Lowered resistance is at $92.50-$93.
RSI (relative strength indicator) is in a downtrend with key support at 50 holding. A move below this level would suggest additional weakness towards 45-40 and the lows from late October. Resistance is at 55-60.
The Technology Select Sector Spider Fund (NYSE: XLK) fell for the third-straight session after plunging to a low of $124.96. Prior and upper support at $125-$124.50 was tripped but held. A move below the latter would signal ongoing weakness towards $123-$122.50 and levels from mid-December.
Resistance is at $127.50-$128 followed by $130-$130.50.
RSI remains in a downtrend with key support at 35 holding. A close below this level would signal a retest 30 and the March 2020 bottom. Resistance is at 40-45.
The AAII Sentiment Survey revealed bullish sentiment, expectations that stock prices will rise over the next six months, closed at 40.3%. Optimism was above its historical average of 38% for the fourth-straight week.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, was at 34.4% and above its historical average of 31.5% for the eight-straight week.
Bearish sentiment, expectations that stock prices will fall over the next six months, was seen at 25.3%. Pessimism was below its historical average of 30.5% for the fourth-straight week.
I mentioned there was a good chance support levels from January would come into play and Thursday’s action could lead to further risk towards December support areas for the major indexes. However, a blowout jobs report ahead of this morning’s open could stem some of the selling pressure but something I’m not banking on.
If bullish traders continue to liquidate positions ahead of the weekend, then Monday could bring additional lower lows. In this scenario, volatility could trade up towards the 37.50-40 area and where we we could see a temporary bottom in the market. The late January peak reached 37.51. The late October intraday tops tapped 41.16 and 41.09 in back-to-back sessions while holding the 40 level into the closing bell.
At this point, I would rather sit on the sidelines as far as New Trades to see how volatility plays out into early next week than buying slightly expensive put options. If the aforementioned levels hold on the VIX, it could create some nice call setups with April and May expiration dates. We just need to be a tad patient and see how the current environment unfolds during today’s action and into Monday’s close.
In the meantime, I have updated our current trades so let’s go check the tape.
Momentum Options Play List
Closed Momentum Options Trades for 2021: 9-2 (82%). 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 Daily updates and Text Alerts.
Western Union (WU, $23.47, down $0.41)
WU April 25 calls (WU210416C00025000, $0.30, down $0.15)
Entry Price: $0.45 (3/3/2021)
Exit Target: $0.90
Stop Target: None
Action: Shares tested a low of $23.24 with upper support at $23.25-$23 getting breached but holding. Resistance is at $23.75-$24.
General Electric (GE, $13.57, up $0.13)
GE April 13 calls (GE210416C00013000, $1.15, up $0.15)
Entry Price: $0.75 (3/1/2021)
Exit Target: $1.50, raise to $2 (Limit Order on half)
Stop Target: 80 cents, raise to $1 (Stop Limit)
Action: Raise the Stop Limit from 80 cents to $1 to further protect profits. Raise the Exit Target from $1.50 to $2 with a Limit Order on half. Yesterday’s peak on the calls reached $1.54.
Thursday’s 3-year high reached $14.13 with fresh and lower resistance at $14-$14.20 getting breached but holding. A move above the latter would signal a continued breakout towards $14.30-$14.50. Support is at $13.30-$13.10.