MomentumOptions.com Pre-Market Update for 4/21/2021

Bears Get Second-Straight Win

8:00am (EST)

The stock market showed weakness for the second-straight session amid a resurgence in worries over the coronavirus that have caused nervousness about the global recovery outlook. Profit taking could continue over the near-term despite better-than-expected earnings as sentiment gauges remain extremely bullish, which could be a contrarian warning.

The Russell 2000 tested a first half low of 2,171 before closing at 2,188 (-2%). Current and upper support at 2,175-2,150 was breached but held. A drop below the latter would signal additional weakness towards 2,125-2,100. Below is a chart of the IWM.

The Nasdaq settled at 13,786 (-0.9%) following the intraday fade to 13,698. Prior and upper support at 13,750-13,500 was tripped but held. A move below the latter and the 50-day moving average would indicate ongoing weakness towards 13,400-13,250.

The Dow ended at 33,821 (-0.8%) with the low reaching 33,687. Near-term and upper support at 33,750-33,500 was breached but held. A close below the latter and the 50-day moving average would suggest a retest towards 33,250-33,000.

The S&P 500 traded down to 4,118 before finishing at 4,134 (-0.7%). Current and upper support at 4,125-4,100 was clipped but held. A fall below the latter would likely lead to additional weakness towards 4,075-4,050.

Market Movers

Shares of Clean Energy (CLNE) sank 21% following an analyst downgrade to Underperform from Market Perform without a price target. The company recently announced plans to supply fuel to a modest number of Amazon (AMZN) trucks.

Volatility Index

The iPath S&P Vix Short-Term Futures (NYSE: VIX) was up for the second-straight sessions with the intraday peak hitting 19.70. Prior and lower resistance from late March at 19.50-20 was breached but held. A move above 21 and the 50-day moving average would signal additional upside towards 24-24.50.

Fresh support is at 18-17.50.

Market Analysis

The Wilshire 5000 Composite Index (NYSE: WLSH) was down for the second-straight session with the intraday low tapping 43,000. Fresh and upper supper at 43,250-43,000 failed to hold. A move below the latter would indicate ongoing weakness towards 42,750-42,500.

Resistance is at 43,500-44,000.

RSI (relative strength index) is in an downtrend with key support at 60 failing to hold. Continued closes below this level would suggest weakness towards 55-50. Resistance is at 65-70 with the latter holding since early January.

Sector

The Real Estate Select Sector SPDR Fund (NYSE: XLRE) extended its winning streak to four-straight sessions with the late day and fresh 52-week peak hitting $42.12. Unchartered territory and lower resistance at $42-$42.50 was cleared but held by a penny. A close above the latter would suggest additional momentum towards $43.50-$44.

New support is at $41.50-$41.

RSI remains in a uptrend with lower resistance at 70-75 getting breached and holding. Continued closes above the latter would indicate upside towards 80 and the overbought peak from February 2020. Support is at 70-65.

Market Outlook

I said coming into April that it was historically a bullish month for the market. I also mentioned there might be some mid-month weakness given the normal tax deadline. While this year’s tax deadline was pushed out into mid-May, the steady rise over the past few weeks led to some extremely overbought market conditions.

The Russell 2000 failed to hold its 50-day moving average to start the week, and it appears the Nasdaq could be next on continued weakness. The S&P 500 and Dow are roughly 4% away from testing their 50-day moving averages. It wouldn’t be shocking to see them come into play and there is likely a good chance they hold. If so, it would be healthy for the overall market and possibly entice traders to “buy the dip”.

The key this week will be if volatility and the VIX can hold the 20-21 area and the 50-day moving average. This technical indicator had been in a defined downtrend throughout the month but is showing signs of leveling out. If these levels are cleared, then some panic selling could come into play.

The good news is the portfolio is light with only two open trades and the May options have a month before expiration. We were able to close another winning trade for the year to get the Track Record to 16-4 and represents an 80% win rate. However, having positions that are down can be stressful but this can be lessened by looking at the bigger picture.

While it is tempting to look at bearish setups, I don’t believe that time is now until the technical outlook worsens. At some point this year, there will be a nasty correction and a chance to make money with put options. However, let’s see how the rest of the week, and month, plays out before giving up on the bulls and riding with the bears.

Momentum Options Play List

Closed Momentum Options Trades for 2021: 16-4 (80%). 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.

Archer Daniels Midland Company (ADM, $58.71, down $0.58)

ADM May 60 calls (ADM210521C00060000, $1.05, down $0.15)

Entry Price: $1.15 (4/16/2021)
Exit Target: $2.30
Return: -9%
Stop Target: None

Action: Shares tested a low of $58.28 with prior and upper support at $58.50-$58 getting breached but holding. I would like to see the latter hold on continued weakness. Lowered resistance is at $59-$59.50.

iShares MSCI Emerging Markets ETF (EEM, $53.71, down $0.44)

EEM May 55 calls (EEM210521C00055000, $0.60, down $0.15)

Entry Price: $1.00 (4/5/2021)
Exit Target: $2.00
Return: -40%
Stop Target: None

Action: Tuesday’s low tapped $53.56 with prior and upper support at $53.50-$53 getting challenged but holding. A close below the latter would be a slightly bearish development. Resistance is at $54-$54.50 and the 50-day moving average.