MomentumOptions.com Pre-Market Update for 5/21/2021

Dow Recovers 34,000

8:00am (EST)

The stock market snapped a three-session slide on Thursday as better-than-expected economic news helped sentiment. Specifically, initial jobless claims fell 34,000 to 444,000 versus forecasts for a print of 460,000 while the leading index rose 1.6% to 113.3 in April, a new all-time high.

The gains were much needed relief following the prior three sessions of heavy selling pressure and backtest to previous support levels. Volatility settled lower but remained just above the 20 level after failing to recover its 200-day moving average.

The Nasdaq led the way higher after finishing at 13,535 (+1.8%) with the high hitting 13,563. Fresh and lower resistance at 13,450-13,600 was cleared and held. A move above the latter and the 50-day moving average would suggest additional strength towards 13,700-13,850.

The S&P 500 settled at 4,159 (+1.1%) after making an intraday run to 4,172. Current and lower resistance at 4,150-4,175 was reclaimed. A pop above the latter would signal a retest towards 4,200-4,225 with the all-time high from earlier this month at 4,238.

The Dow traded up to 34,233 before closing at 34,084 (+0.6%). Prior and lower resistance at 34,000-34,250 was breached and held. A move above the latter would indicate additional upside towards 34,500-34,750.

The Russell 2000 tested a late day peak of 2,210 before ending at 2,207 (+0.6%). Lower resistance at 2,200-2,225 was cleared and held. A close above the latter and the 50-day moving average would likely lead to continued run towards 2,250-2,275. Below is a chart of the IWM.

Market Movers

Shares of Virgin Galactic (SPCE) jumped 15% after the company announced its next rocket-powered test flight of SpaceShipTwo Unity will be this Saturday, pending weather and technical checks.

Volatility Index

The Volatility Index (VIX) fell for the first time in four sessions after tapping an intraday low of 20.19. Key support at 20 was challenged but held. A close below 19-18.50 and the 50-day moving average would be a more bullish signal going into next week’s action.

Resistance is at 21.50-22 followed by 23.50-24 and the 200-day moving average.

Market Analysis

The Invesco QQQ Trust (Nasdaq: QQQ) snapped a two-session slide after touching a high of $329.71. New and lower resistance at $329.50-$330 was breached but held. A close above the latter level would indicate additional strength towards $332-$332.50.

Fresh support is at $328-$327.50 and the 50-day moving average.

RSI (relative strength indicator) is back in an uptrend after clearing and holding key resistance at 50. Continued closes above this level would signal additional strength towards 55-60 and late April highs. Support is at 45-40.

Sector

The Health Care Select Sector SPDR Fund (NYSE: XLV) rebounded with the intraday high testing $124.87. Near-term and lower resistance at $124.50-$125 was breached but held. A close below the latter and the recent all-time high at $125.19 would suggest a breakout towards $127-$127.50.

Fresh is at $123.50-$123.

RSI has turned higher with lower resistance at 65-70 holding. A close above the latter would indicate additional upside towards 75-80 and the April highs. Support is at 60-55.

Market Outlook

The Dow’s close back above the 34,000 level was exactly what we wanted to see yesterday along with the S&P 500’s recovery of 4,150. This doesn’t mean the bulls are ready to regain momentum but the baby steps were nice developments. For today’s action a close above 34,250 and 4,200 for both indexes would be more bullish setups.

Additionally, it would be nice to see the Nasdaq and the Russell 2000 regain their 50-day moving averages. Although the former fell shy by 13 points on the intraday peak, the aforementioned chart on the QQQ’s cleared and held this level.

The action in the VIX was encouraging but the index needs to fall back below the 19 level to give us more confidence a sustained rally can occur. The Nasdaq is on track to snap a four-week losing streak if 13,430 holds on a pullback. If not, it would be the index’s first five week losing streak in nine years.

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.

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Western Union (WU, $24.48, down $0.31)

WU June 26 calls (WU210618C00026000, $0.20, down $0.05)

Entry Price: $0.65 (5/10/2021)
Exit Target: $1.30
Return: -69%
Stop Target: None

Action: Shares traded down to $24.39 with upper support at $24.50-$24.25 failing to hold. Lowered resistance is at $24.75-$25 with a close back above the latter signaling a possible near-term bottom.

RSI is showing shares are slightly oversold on the close below 40 and a level last seen in early November. However, there is risk towards 35-30 on continued weakness.

Intel (INTC, $55.95, up $0.59)

INTC June 60 calls (INTC210618C00060000, $0.40, up $0.05)

Entry Price: $0.65 (5/10/2021)
Exit Target: $1.30
Return: -38%
Stop Target: None

Action: Thursday’s peak reached $56.24 with lower resistance at $56-$56.50 getting breached but holding. More crucial resistance is at $58 and a level we need to see cleared and held next week. Slightly rising support is at $55.50-$55.

Utilities Select Sector SPDR Fund (XLU, $65.82, up $0.57)

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: Yesterday’s high tapped $66.22 with prior and lower resistance at $66-$66.50 getting cleared and holding. New support is at $65.50-$65.