MomentumOptions.com Pre-Market Update for 5/19/2021

Bears Return as Volatility Pops Above 20

8:00am (EST)

The stock market showed weakness for the second-straight session despite blowout earnings from a number of key retailers. Technology and the small-caps gave up earlier gains into the closing bell as a spike in volatility weighed on sentiment.

The S&P 500 tagged a late day low of 4,125 while closing at 4,127 (-0.9%). Near-term and upper support at 4,150-4,125 failed to hold. A drop below the latter would indicate additional weakness towards 4,100-4,075 and the 50-day moving average.

The Dow bottomed at 34,044 before finishing at 34,060 (-0.8%). Near-term and upper support at 34,250-34,000 was tripped and failed to hold. A close below the latter would signal downside risk towards 33,750-33,500 and the 50-day moving average.

The Russell 2000 ended on the session low of 2,210 (-0.7%). Fresh and upper support at 2,200-2,175 was challenged but held. A move below the latter would suggest ongoing weakness towards 2,150-2,125. Below is a chart of the IWM.

The Nasdaq tapped a low of 13,299 before settling at 13,303 (-0.6%). Current and upper support 13,250-13,100 easily held. A fade below the 13,000 level would be a bearish development and reopen a backtest towards 12,850-12,650.

Market Movers

Shares of Core-Mark (CORE) rose 7% after agreeing to be acquired by Performance Food Group (PFGC) in a stock and cash transaction worth $2.5 billion. Under the deal, Core-Mark shareholders will receive $23.875 a share in cash and 0.44 shares of PFGC for each Core-Mark share.

Volatility Index

The Volatility Index (VIX) showed strength for the second-straight session after trading to a high of 21.45. Near-term and lower resistance at 21.50-22 was challenged but held. A close above the latter would suggest another run towards 23.50-24 and the 200-day moving average.

Support remains at 19.50-19 and the 50-day moving average.

Market Analysis

The iShares Russell Growth 1000 ETF (NYSE: IWF) fell for the second-straight session with the low hitting $248.70. Current and upper support at $249-$248.50 was breached and failed to hold. A drop below the latter would indicate further weakness towards $247.50-$247.

Resistance is at $250.50-$251 and the 50-day moving average.

RSI is back in a downtrend with upper support at 45-40 failing to hold. A close below the latter would suggest additional weakness towards 35-30 and levels from earlier this month. Resistance is at 50.

Sector

The Dow Jones Transportation Average (NYSE: TRAN) extended its losing streak to two-straight sessions after testing a low of 15,640 ahead of the closing bell. Prior and upper support at 15,750-15,600 was breached and failed to hold. A close below the latter would likely lead towards a further fade towards 15,500-15,350.

Key resistance is at 16,000 with the recent all-time peak at 16,170.

RSI is in a downtrend with upper support at 55-50 holding. A close below the latter would signal weakness towards 45-40 and levels from late January. Resistance is at 60-65.

Market Outlook

The small-caps made a run at the 50-day moving average but failed to clear and hold this level. Tech made a higher high but both indexes are currently stuck in a three session trading range as are the Dow and S&P 500. As earnings have started to wind down, the market could trade in a sideways pattern for the rest of the month and possibly into June.

Economic news will become more of a factor moving forward, and on that front, most of it has been slightly disappointing. Hopefully, that will change as the economy continues to reopen.

Volatility needs to hold the 22 level today or we could see continued weakness. However, the technical outlook remains somewhat bullish with the 50-day moving averages for the Dow and the S&P 500 remaining in solid uptrends. The Nasdaq’s is also showing signs of curling higher. While the action for our current trades remain sluggish, the June calls still have 30 days before expiration. This was the main reason for avoiding the near-term regular May options as they expire on Friday.

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, $24.86, down $0.03)

WU June 26 calls (WU210618C00026000, $0.30, down $0.05)

Entry Price: $0.65 (5/10/2021)
Exit Target: $1.30
Return: -54%
Stop Target: None

Action: Shares traded up to $25.09 before closing slightly in the red. Current and lower resistance at $25-$25.25 was cleared but held for the third-straight session. A close above the latter and the 50-day moving average would be a more bullish signal for continued strength. Support remains at $24.75-$24.50.

Intel (INTC, $54.84, down $0.49)

INTC June 60 calls (INTC210618C00060000, $0.30, down $0.05)

Entry Price: $0.65 (5/10/2021)
Exit Target: $1.30
Return: -54%
Stop Target: None

Action: Yesterday’s low tapped $54.80 with upper support at $55-$54.50 failing to hold. Resistance remains at $55.50-$56.

Utilities Select Sector SPDR Fund (XLU, $65.36, down $0.01)

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

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

Action: Shares tested a low of $65.06 with current and upper support at $65.25-$64.75 getting breached but holding. Resistance is at $65.50-$66.