MomentumOptions.com Pre-Market Update for 5/13/2021

Market Falls for the Third-Straight Session

8:00am (EST)

The stock market extended its losing streak to three-straight sessions on Wednesday following hotter-than-expected economic news. Specifically, the Consumer Price Index rose 0.8% with the core jumping 0.9%. This represented the biggest rise in the headline since 2009, and the biggest increase in the core since 1981.

The news had a major impact on the indexes as the market is now on track for its worst week since last October. Volatility also surged to a multi-month peak after roaring past a key level of resistance.

The Russell 2000 finished at 2,135 (-3.3%) with the late day low hitting 2,132. Late March and upper support at 2,150-2,125 failed to hold. A drop below the latter would suggest additional weakness towards 2,100-2,075. Below is a chart of the IWM.

The Nasdaq closed at 13,031 (-2.7%) after trading to a low of 13,002. Prior and upper support from late March at 13,150-13,000 was breached and failed to hold. A move below the latter would indicate additional downside pressure towards 12,850-12,700.

The S&P 500 settled at 4,063 (-2.1%) with the intraday low tapping 4,056. Early April and upper support at 4,075-4,050 failed to hold. A close below the latter and the 50-day moving average would signal a further fade towards 4,025-4,000.

The Dow finished at 33,587 (-2%) after tagging an afternoon low of 33,555. Prior and upper support at 33,750-33,500 was tripped and failed to hold. A move below the latter and the 50-day moving average would likely lead to a retest towards 33,250-33,000.

Market Movers

Shares of Array Technologies (ARRY) sank 46% after missing earnings by a penny. The company reported a first-quarter profit 19 cents a share on revenue $246 million versus forecasts for a profit of 20 cents and $240 million, respectively.

Three analysts downgraded the stock following the news while two others upgraded shares. The stock has become extremely oversold with RSI now in the mid-teens and the 52-week peak at $54.78. The ARRY May 20 puts skyrocketed 2,650% after closing at $5.50, up from 20 cents on Tuesday’s close.

At some point, there could be a bullish trade in the name so I have it on my Watch List.

Volatility Index

The Volatility Index (VIX) extended its winning streak to three-straight sessions with the intraday peak hitting 28.38. Prior and lower resistance from early March at 28-28.50 was breached but held. A pop above the latter would signal additional strength towards the 30-32 area.

New support is at 27-26.50 followed by 24-23.50 and the 200-day moving average.

Market Analysis

The S&P 400 Mid Cap Index (NYSE: MID) was down for the third-straight session with the low reaching 2,627. Prior and upper support from early April at 2,650-2,625 and the 50-day moving average failed to hold. A close below the latter would suggest a retest towards 2,600-2,575.

Lowered resistance is at 2,675-2,700.

RSI (relative strength index) is in a downtrend with key support at 40 failing to hold. Continued closes below this level keeps risk towards 35-30 in play and levels from last September. Resistance is at 45-50.

Sector

The Real Estate Select Sector SPDR Fund (NYSE: XLRE) fell for the second-straight session with the low hitting $41.02. Upper support at $41.50-$41 failed to hold. A close below the latter would indicate additional weakness towards $40.50-$40 and the 50-day moving average.

Fresh resistance is at $42-$42.50.

RSI is in a downtrend with upper support at 50-45 failing to hold. A move below the latter would suggest a further fade towards 40-35 and oversold levels from early March. Resistance is at 55-60.

Market Outlook

The Colonial Pipeline reopened operations Wednesday evening following a ransomware cyber attack that crippled gas supplies up and down the east coast. This was welcomed news and gave futures a lift, indicating a possible higher open this morning. However, nothing is official until the market starts trading and the technical damage has been severe.

One concern is that its pipeline will not be fully functional immediately and could cause continued panic buying over gas shortages for the near-term. If there is continued weakness today, key levels to watch for will be Nasdaq 12,800; S&P 4,000; Dow 33,000; and 2,075 for the Russell 2000.

If these levels fail to hold into the weekend, there could be a deeper concern for the overall market with the possibility of a 10%, or more, correction. This wouldn’t be good news for our current trades. However, the June options still have over a month before expiration and it is important not to let fear and panic overtake our emotions. With that said, I still have to keep in mind that our current trades might not bounce back if a true trend reversal is in place.

It is not too often that I have back-to-back losing trades. When I do, it does mean I possibly got the near-term trend wrong. As you will see, I’ve only had one recommended put option trade this year with the track record at 17-6. This represents a 74% win rate. However, I hate losing trades, possibly more than winning trades, but there is still plenty of time for these trades to recover.

Momentum Options Play List

Closed Momentum Options Trades for 2021: 17-6 (74%). 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, $24.56, down $0.94)

WU June 26 calls (WU210618C00026000, $0.35, down $0.25)

Entry Price: $0.65 (5/10/2021)
Exit Target: $1.30
Return: -46%
Stop Target: None

Action: Shares closed on the session low of $24.56 with prior and upper support is at $24.75-$24.50 failing to hold. Lowered resistance is at $25-$25.25 and the 50-day moving average.

Intel (INTC, $53.62, down $1.42)

INTC June 60 calls (INTC210618C00060000, $0.35, down $0.10)

Entry Price: $0.65 (5/10/2021)
Exit Target: $1.30
Return: -46%
Stop Target: None

Action: Shares tapped a low of $53.42 with prior and upper support from late January at $53.50-$53 getting breached but holding. A close below the latter and the 200-day moving average could force an early exit for the trade. However, I want to give us a little wiggle room as shares remain at extremely oversold levels. Lowered resistance is at $54-$54.50.

Utilities Select Sector SPDR Fund (XLU, $64.35, down $1.54)

XLU June 69 calls (XLU210618C00069000, $0.20, down $0.15)

Entry Price: $0.65 (5/3/2021)
Exit Target: $1.30
Return: -69%
Stop Target: None

Action: Shares bottomed at $64.32 ahead of the closing bell with fresh and upper support at $64.50-$64 failing to hold. New resistance is at $65-$65.50.

I would like to see shares hold the 50-day moving average with a close back above $65 this week.