MomentumOptions.com Pre-Market Update for 5/6/2021

Bulls Bounce Back

8:00am (EST)

The stock market was mixed on Wednesday after Treasury Secretary Janet Yellen attempted to walk back her comments where she said interest rates may need to rise to keep the economy from overheating. Yellen clarified that she was not making a forecast or advocating for a rate hike from the Fed.

The blue-chips rebounded to set a fresh record high while Tech and the small-caps showed continued weakness despite opening gains. Meanwhile, volatility held after holding a key level of support but remains slightly elevated.

The Dow traded to an afternoon all-time peak of 34,331 while ending at 34,230 (+0.3%). Lower resistance at 34,250-34,500 was cleared but held. A move above the latter would indicate additional momentum towards 34,750-35,000.

The S&P 500 closed at 4,167 (+0.1%) with the intraday high hitting 4,187. Near-term and lower resistance at 4,175-4,200 was breached but held. A close above the latter keeps additional upside towards 4,225-4,250 in play with the current all-time top at 4,218.

The Nasdaq finished in the red at 13,582 (-0.4%) despite testing an opening high of 13,753. Fresh and lower resistance at 13,750-13,900 was cleared but held. A recovery of the 14,000 level would be a more bullish signal for a retest towards 14,100-14,250 with the record peak at 14,211.

The Russell 2000 tagged a second half low of 2,232 while settling at 2,241 (-0.3%). Prior and upper support at 2,225-2,200 was challenged but held along with the 50-day moving average. A close below the latter would indicate additional weakness towards 2,175-2,150. Below is a chart of the IWM.

Market Movers

Shares of Honest Company (HNST) surged nearly 44% in its first day of trading after pricing 25.81 million shares at $16, inside the $14.00-$17.00 range. The company was founded by actress Jessica Alba in 2012 and identifies itself as a mission-driven, digitally-native brand focused on leading the clean lifestyle movement.

Volatility Index

The Volatility Index (VIX) retreated with the intraday low tapping 17.89. Current and upper support at 18-17.50 was breached but held. A drop below the latter would be a more bullish development with additional weakness towards 16.50-16.

Resistance is at 19.50-20 and the 50-day moving average followed by 21.50-22.

Market Analysis

The Spiders Dow Jones Industrial Average ETF (NYSE: DIA) was up for the third-straight session with all-time record high hitting $343.30. Fresh and lower resistance at $343-$343.50 was tripped but held. A close above the latter would signal ongoing strength towards the $344.50-$345 area.

Support is at $342-$341.50 followed by $340.50-$340.

RSI is in an uptrend with lower resistance at 65-70 holding. A move above the latter would indicate additional strength towards 75 and the April high. Key support is at 60.

Sector

The Communication Services Select Sector SPDR (NYSE: XLC) extended its losing streak to four-straight session despite testing an intraday peak of $77.45. Near-term and lower resistance at $77-$77.50 was tripped but held. A move above the latter would suggest a retest towards $78.50-$79 with last week’s all-time top at $79.22.

Support is at $76.50-$76 followed by $75-$74.50 and the 50-day moving average.

RSI is in a downtrend with key support at 50 holding. A close below this level would indicate additional weakness towards 45-40 and levels from late March and early January. Resistance is at 55-60.

Market Outlook

The bulls continue to stay strong despite some of the weakness in Tech and the small-caps. The Transports are also setting record highs and the VIX remains below the 20 level. Friday will be crucial than today as the jobs report will likely set the tone for the action into next week.

As far as possible New Trades, Western Union (WU) is close to a possible entry point with shares holding their 50-day moving average following earnings. The company missed estimates by a penny while revenue matched forecasts and reaffirmation for 2021 guidance. We nearly had a triple-digit winner last time we used call options to play WU.

Tencent Music Entertainment Group (TME) fell for the seventh-straight session and is trying to form a double bottom from its March low and longer-term support from December. Shares are down 50% from the 52-week peak north of $32 and remain at oversold levels. We may need to be patient for another day or two but if I take action, I will send out a Trade Alert.

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, $65.34, down $1.12)

XLU June 69 calls (XLU210618C00069000, $0.25, down $0.25)

Entry Price: $0.65 (5/3/2021)
Exit Target: $1.30
Return: -62%
Stop Target: None

Action: Shares sagged to an intraday low of $64.97 with prior and upper support at $65-$64.50 getting breached but holding. Lowered resistance is at $66-$66.50.

While disappointed this trade has gotten off to a shaky start, these options still have 43 days before expiration. There is risk towards $64 on continued weakness and on a close below $65 but the 50-day moving average remains in a solid uptrend.