MomentumOptions.com Pre-Market Update for 5/4/2021
Market Rebounds but Tech Lags
The stock market closed mostly higher on Monday and the first official trading for May despite mixed economic news as first-quarter earnings remain broadly supportive. Specifically, news that 87% of the S&P 500 companies that had reported through last Friday have topped analysts’ expectations helped bullish sentiment.
The Dow traded to a midday high of 34,221 while ending at 34,113 (+0.7%). Lower resistance at 34,000-34,250 was recovered. A move above the latter and the mid-April all-time peak at 34,256 would signal ongoing strength towards 34,500-34,750.
The Russell 2000 settled at 2,277 (+0.5%) with the afternoon high tapping 2,288. Prior and lower resistance at 2,275-2,300 was cleared and held. A close above the latter would suggest additional upside towards 2,325-2,350 with the all-time top from mid-March at 2,360. Below is a chart of the IWM.
The S&P 500 closed at 4,192 (+0.3%) after reaching a morning peak of 4,209. Current and lower resistance at 4,200-4,225 was breached but held. A pop above the latter and last Thursday’s all-time high of 4,218 would indicate momentum towards 4,250-4,275.
The Nasdaq tested an intraday low of 13,881 while finishing at 13,895 (-0.5%). Near-term and upper support at 13,900-13,750 failed to hold. A drop below the latter would likely lead to a retest towards 13,650-13,500.
Shares of Ocugen (OCGN) surged nearly 24% after reporting new study results that found its vaccine covaxin may be effective against three different coronavirus variants.
The Volatility Index (VIX) fell for the first time in three sessions with the low hitting 17.80. Prior and upper support at 18-17.50 was breached but held. A close below the latter would signal a retest towards 16.50-16.
Resistance remains at 19-19.50 followed by 20-20.50 and the 50-day moving average.
The S&P 400 Mid Cap Index (NYSE: MID) rebounded after tagging an intraday high of 2,757. Current and lower resistance is at 2,750-2,775 was cleared but held. A close above the latter and last Thursday’s all-time peak at 2,778 would suggest a run towards 2,800-2,825.
Support is at 2,725-2,700 followed by 2,675-2,650.
RSI (relative strength index) is back in a slight uptrend with key resistance at 60 holding. Continued closes above this level would signal strength towards 65-70 with the latter holding since early February. Support is at 55-50.
The Spider S&P Retail ETF (NYSE: XRT) snapped a two-session slide after trading to a morning high of $95.18. Near-term and lower resistance at $95-$95.50 was cleared but held. A close above the latter would suggest additional upside towards $97-$97.50 with the late January all-time peak at $99.24.
Support is at $94-$93.50.
RSI is in a uptrend with lower resistance at 60-65 getting cleared and holding. A close above the latter would suggest strength towards 70-75 and the March highs. Support is at 55-50.
Monday’s action was a slightly bullish signal although volatility didn’t fade as much as I would like. The weakness in the Nasdaq wasn’t a major concern following the pop above the 14,000 level on the open but something to keep an eye on. The small-caps performed well with the Russell 2000 holding its 50-day moving average.
I opened a New Trade yesterday in a sector that typically holds up well in a market pullback but one that is also showing signs of breaking out to new highs over the near-term.
I still have a number of other trades I like but some of them have key earnings over the next week or two which can have a major impact on a trade, good or bad. However, there is usually an opportunity afterwards to either get into these trades, or avoid them, once the news is out.
Momentum Options Play List
Closed Momentum Options Trades for 2021: 17-5 (77%). 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.
Utilities Select Sector SPDR Fund (XLU, $66.71, down $0.01)
XLU June 69 calls (XLU210618C00069000, $0.55, up $0.03)
Entry Price: $0.65 (5/3/2021)
Exit Target: $1.30
Stop Target: None
Action: Shares tested an afternoon high of $67.33 before fading with prior and lower resistance at $67-$67.50 getting cleared but holding. Rising support is at $66.50-$66.
The recent 52-week peak is at $68.05 and the all-time high from January 2020 is just south of $69. I think shares can easily make a run past $70 by mid-June with the options having 45 days before expiration.
If shares are above $70.30, technically, by mid-June, these options will be $1.30 “in-the-money” for a double from the entry price. If shares make a push towards $71, these options could return 200+%.