MomentumOptions.com Pre-Market Update for 5/24/2021

Tech Snaps Four-Week Losing Streak

8:00am (EST)

The stock market was mixed on Friday while ending a volatile week. The broader market was down slightly along with Tech despite showing gains on the open while pushing key resistance levels. The losses held the S&P 500 in the red for the second-straight week while the Nasdaq snapped its four-week losing streak despite the pullback.

The blue-chips and small-caps showed strength for the session but still posted weekly losses. Meanwhile, volatility fell for the second-straight day but remained slightly elevated after failing to clear and hold key support levels.

The Dow ended at 34,207 (+0.4%) after testing a morning high of 34,415. Near-term and and lower resistance at 34,250-34,500 was cleared but held. A close above the latter would suggest a retest towards 34,750-35,000 with the all-time high from earlier this month at 35,091.

The Russell 2000 traded to an opening peak of 2,236 while settling at 2,215 (+0.3%). Current and lower resistance at 2,225-2,250 was tripped but held. A move above the latter and the 50-day moving average would signal additional upside towards 2,275-2,300. Below is a chart of the IWM.

The Nasdaq ended at 13,470 (-0.5%) despite tapping an opening high of 13,616. Prior and lower resistance at 13,600-13,750 and the 50-day moving average were breached but levels that held. A pop above the latter would signal momentum towards 13,850-14,000.

The S&P 500 made a first half push to 4,188 before finishing at 4,155 (-0.1%). Lower resistance at 4,175-4,200 was cleared but held. A close above the latter would be a more bullish development with upside strength towards 4,225-4,250 and the all-time high at 4,238.

Market Movers

Shares of Ford (F) rallied 7% after the company’s CEO tweeted they have received more than 44,500 reservations for the new electric F-150 Lightning pickup trick in less than 48 hours.

Volume was super heavy in the option chains with the weekly Ford March 13.50 calls that expire on May 28th trading over 37,000 contracts and shares making a run towards the 52-week high of $13.62. The calls opened at 8 cents and closed at 32 cents on Friday for a 300% return.

The regular Ford June March 14 calls that expire on June 18th opened at 20 cents and closed at 40 cents for a one-day double-up. Volume was over 70,000 contracts with the high reaching 46 cents. These options could double from current levels if shares make a run at $15 by mid-June.

Ford is a name I have traded frequently over the last few years and I was hoping shares would stay around $12.50 heading into this week. I apologize for missing this one on Friday. The stock is approaching slightly overbought levels but RSI could run towards 80 and the January high on a breakout above the $13.50 level.

Volatility Index

The Volatility Index (VIX) was down for the second-straight session with the intraday low reaching 19.53. Key support at 20 was breached but held for the second-straight session. I mentioned on Friday a close below 19-18.50 and the 50-day moving average would be a more bullish signal heading into this week and hopefully we can get there today.

Lower resistance is at 21-21.50. A close above 22 would signal a retest towards 23.50-24 and the 200-day moving average.

Market Analysis

The S&P 400 Mid Cap Index (NYSE: MID) was up for the second-straight session with the high reaching 2,712. Prior and lower resistance at 2,700-2,725 was cleared but held. A close above the latter would suggest strength towards 2,750-2,775 with the recent all-time peak at 2,780.

Key support is at 2,675 and the 50-day moving average with backup at 2,650-2,625.

RSI (relative strength index) is in an uptrend with lower resistance at 50-55 holding. A close above the latter would signal ongoing strength towards 60-65. Support is at 45-40.

Sector

The SPDR S&P Homebuilders ETF (NYSE: XHB) tagged a morning peak of $74.04 before closing back below the 50-day moving average. Lower resistance at $74-$74.50 was tripped but held.

The fade to $72.44 afterwards breached but held upper support at $72.50-$72. A close below the latter would suggest additional weakness towards $71.50-$71.

RSI is showing signs of rolling over with key support at 40 holding. A close below this level would indicate weakness towards 35-30 and oversold levels from April 2020. Resistance is at 45-50.

Market Outlook

Friday’s action was mostly bullish but the Nasdaq’s failure to hold the 50-day moving average was a disappointment. The action in the VIX is also giving a neutral reading as we head into this week. I wanted to see these indicators go our way before adding new bullish positions.

With that said, there are two to three trades I really like but have also been hesitant to add new positions as I wanted to see a rebound in some of our current trades last week. It is rare that I have three positions that are down at the same time as it has been a few years and it isn’t often I have back-to-back positions in the red.

This can sometimes signal a trend change but overall, the major indexes have been in a more volatile and choppy range for the past two weeks. This can hurt option positions as time decay becomes more of an issue. Our current positions still have over three weeks before expiration but I really want to see the overall market return to test new highs this week.

With that said, I will be targeting the regular July options to give us even more time to get through the current choppiness but we still need to be careful. Typically, there is a “summer rally” that occurs and I’m hoping the volatility subsides this week. Trading ranges are frustrating but the longer they last, the bigger the breakout (or breakdown) can be so keep this in mind as well.

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, $24.57, up $0.09)

WU June 26 calls (WU210618C00026000, $0.20, unchanged)

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

Action: Friday’s high hit $24.80 with lower resistance at $24.75-$25 getting cleared but failing to hold. Support remains at $24.50-$24.25.

Intel (INTC, $56.08, up $0.13)

INTC June 60 calls (INTC210618C00060000, $0.40, unchanged)

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

Action: Shares traded up to $56.71 with the options peaking at 50 cents. Prior and lower resistance at $56.50-$57 was breached but held. I would like to see a close above $58 this week. Slightly rising support is at $56-$55.50.

Utilities Select Sector SPDR Fund (XLU, $66.16, up $0.34)

XLU June 69 calls (XLU210618C00069000, $0.30, up $0.05)

Entry Price: $0.65 (5/3/2021)
Exit Target: $1.30
Return: -54%
Stop Target: None

Action: Friday’s high tapped $66.22 with prior and lower resistance at $66-$66.50 getting cleared and holding. A close above $67 would be a more bullish development. Fresh support is at $66-$65.50.