MomentumOptions.com Pre-Market Update for 5/11/2021

Tech Retreats as Inflation, Geopolitical Concerns Weigh on Sentiment

8:00am (EST)

The stock market was lower on Monday as Wall Street weighed the risk of higher inflation along with rising oil and gas prices following a cyberattack and the shutdown of a major pipeline that transports fuel in the United States.

Additionally, late day selling pressure caused further weakness and wiped out the Dow’s gains following reports of geopolitical tensions in the middle East. Warnings shots by the U.S. Coast Guard were fired on vessels from Iran and in the Strait of Hormuz following close encounters.

The Dow was down for the first time in six sessions despite testing another all-time high of 35,091 while settling at 34,742 (-0.1%). Unchartered territory and key resistance at 35,000 was breached but held. Continued closes above this level would indicate additional momentum towards 35,250-35,500.

The S&P 500 ended on its session low of 4,188 (-1%). Current and upper support 4,200-4,175 was breached and failed to hold. A close below the latter would suggest a further fade towards 4,150-4,125.

The Nasdaq finished at 13,401 (-2.6%) and on the session low, as well. Prior and upper support at 13,500-13,350 failed to hold on the close back below the 50-day moving average. A move below the latter would signal additional weakness towards 13,250-13,100.

The Russell 2000 also closed on its session low of 2,212 (-2.6%). Upper support at 2,225-2,200 and the 50-day moving average were tripped and levels that failed to hold. A drop below the latter keeps downside risk towards 2,175-2,150 in play. Below is a chart of the IWM.

Market Movers

Shares of Trade Desk (TTD) sank 26% despite blowout numbers that topped Wall Street’s expectations. The company reported a first-quarter profit of $1.41 a share on revenue of nearly $220 million, versus forecasts of 77 cents and $217 million, respectively. Trade Desk also announced a 10-for-one stock split.

Volatility Index

The Volatility Index (VIX) was up for the first time in four sessions with the late day high hitting 19.75. Current and lower resistance at 19.50-20 and the 50-day moving average were breached and levels that failed to hold. A close above the latter would indicate further upside towards 21.50-22.

Support is at 18-17.50 followed by 16.50-16.

Market Analysis

The Wilshire 5000 Composite Index (NYSE: WLSH) had its two-session winning streak snapped following the pullback to 43,515 and close on the session low. Near-term and upper support at 43,750-43,500 was breached and failed to hold. A drop below the latter would suggest ongoing weakness towards 43,250-43,000.

Resistance is at 44,000-44,250 with last Friday’s all-time peak at 44,386.

RSI (relative strength index) has rolled over with upper support at 55-50 failing to hold. A close below the latter would suggest weakness towards 45-40 and levels from early March. Key resistance is at 60.

Sector

The Industrials Select Sector SPDR Fund (NYSE: XLI) extended its winning streak to six-straight sessions after tapping a fresh all-time high of $106.81. Unchartered territory and lower resistance at $106.50-$107 was breached but held. A close above the latter would signal additional momentum towards $108-$108.50.

Rising support is at $105-$104.50 followed by $103.50-$103.

RSI remains in an uptrend with key resistance at 75 holding. A close above this level would signal strength towards 80 and the overbought peak from January. Key support is at 70.

Market Outlook

I was hoping the Nasdaq would hold the 13,500 level into yesterday’s closing bell but the close on the session low and back below the 50-day moving average was a slight concern. If there is continued weakness in Tech today, it will be important for the Nasdaq to hold the 13,200 area to avoid a continued selloff into the rest of the week.

On that note, the VIX will need to hold 20 into the closing bell with this level getting breached twice last week. Last Tuesday’s peak touched 21.85 with a close above 22 likely leading to additional selling pressure for the overall market.

All of our bullish trades are with the June options and they have another 38 days before expiration. I still believe the Nasdaq and the Russell 2000 can bounce back and possibly test another round of all-time highs but this isn’t a given. Picking market tops and bottoms is always a very hard task but there are clues to help us in determining when a major trend is changing.

I don’t think we are at the point of a market top but that would change if the VIX clears 25 and the Nasdaq falls below the 13,000 level.

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.

Western Union (WU, $25.80, up $0.69)

WU June 26 calls (WU210618C00026000, $0.70, up $0.30)

Entry Price: $0.65 (5/10/2021)
Exit Target: $1.30
Return: 8%
Stop Target: None

Action: Yesterday’s high reached $25.98 with lower resistance at $25.75-$26 getting recovered. A close above the latter would suggest another run towards $26.25-$26.50 with the recent 52-week peak at $26.61. Support is at $25.50-$25.

Intel (INTC, $55.97, down $1.70)

INTC June 60 calls (INTC210618C00060000, $0.60, down $0.42)

Entry Price: $0.65 (5/10/2021)
Exit Target: $1.30
Return: -8%
Stop Target: None

Action: Shares tested a low of $55.88 with key support at $56 getting breached and failing to hold. A close below last week’s low of $55.81 could lead to further weakness towards $55.50-$55. Resistance is at $56.50-$57.

Shares were downgraded yesterday by a brokerage firm to Underweight from Neutral with a $45 price target. The company recently topped Wall Street forecasts by 24 cents a share but lowered its current quarterly outlook. However, Intel raised its 2021 guidance for a profit of $4.60 a share versus consensus of $4.58.

While there is near-term risk to this trade if shares fall below the $55.75 level, other analysts remain bullish on the stock given the investments Intel is making in its chip manufacturing plants. RSI has been hovering near the 30 level and typically signals the stock is oversold. However, this doesn’t mean a test into the mid to upper 20’s won’t come into play.

Shares are down nearly 20% from their 52-week peak of $68.49 and could see a rebound if value players come back into the name. If shares can recover $59.50-$60 over the near-term, there is a chance for a gap higher towards the $62 area and the 50-day moving average.

If the $62 level is reached by mid-June, these options would be $2 in-the-money for a return of over 200% from current levels.

Utilities Select Sector SPDR Fund (XLU, $66.04, up $0.

XLU June 69 calls (XLU210618C00069000, $0.55, up $0.20)

Entry Price: $0.65 (5/3/2021)
Exit Target: $1.30
Return: -15%
Stop Target: None

Action: Shares extended their winning streak to three-straight sessions with the intraday peak tapping $67.38 and the options trading to a high of 58 cents.

Prior and lower resistance at $67-$67.50 was cleared but held. A close above the latter should lead to a run towards $68 with the current all-time high at $68.05. Support is at $66.50-$66.