MomentumOptions.com Pre-Market Update for 6/1/2021

Bulls Hold Onto Weekly Gains

8:00am (EST)

The stock market was mostly higher for the third-straight session on Friday as Wall Street brushed off a stronger-than-expected inflation reading. Specifically, the personal consumption expenditures price index rose 0.7% in April, a smidge above forecasts for a 0.6% reading.

The weekly gains helped the Dow and S&P 500 indexes snap two-week losing streaks with both indexes also closing higher for the month of May. Tech and the small-caps also posted weekly gains but were down for the month.

The Dow settled at 34,529 (+0.2%) after tagging an intraday high of 34,631. Key resistance at 34,500 was recovered. Continued closes above this level would suggest a retest towards 34,750-35,000 with the all-time high from early May at 35,091.

The Nasdaq closed at 13,748 (+0.1%) with the high hitting 13,820. Prior and lower resistance from early May at 13,800-13,950 was breached but held. A move above the latter would signal upside towards 14,000-14,150 with the late April lifetime peak at 14,211.

The S&P 500 made a midday run to 4,218 before ending at 4,204 (+0.1%). Key resistance at 4,225 was challenged but held. A pop above this level and the all-time high at 4,238 would be a bullish development with breakout potential towards 4,250-4,275.

The Russell 2000 traded to an opening peak of 2,285 while finishing slightly down at 2,268 (-0.2%). Prior and lower resistance from late April at 2,275-2,300 was cleared but held. A move above the latter would indicate additional upside towards 2,325-2,350 with the March record high at 2,360. Below is a chart of the IWM.

Market Movers

Shares of Big Lots (BIG) fell 5% despite announcing solid numbers. The company reported first-quarter earnings of $2.62 a share versus forecasts for a profit of $1.69. Revenue of $1.63 billion also topped estimates of $1.53 billion following an 11.3% increase in comparable sales.

Volatility Index

The Volatility Index (VIX) closed slightly higher despite tapping an intraday low of 15.90. Prior and upper support from mid-April at 16-15.50 was breached but held. A close below the latter and the 52-week low at 15.38 would be a bullish development with downside risk towards 15-14.50.

Resistance remains 17-17.50 followed by at 18.50-19 and the 50-day moving average.

Market Analysis

The Wilshire 5000 Composite Index (NYSE: WLSH) extended its winning streak to three-straight sessions following the intraday trip to 44,117. Prior and lower resistance from early May at 44,000-44,250 was cleared but held. A move above the latter and the all-time peak at 44,386 would suggest ongoing momemtum towards 44,500-44,750.

Support is at 43,750-43,500.

RSI (relative strength index) has leveled out with key resistance at 60 holding. A close above this level would suggest strength towards 65-70 and the mid-April highs. Support is at 55-50.

Sector

The Materials Select Sector Spider Fund (NYSE: XLB) had its two-session winning streak snapped following the pullback to $86.91. Near-term and upper support at $87-$86.50 was tripped and held. A move below the latter would suggest a further fade towards $85.50-$85.

Resistance is at $87.50-$88.

RSI is showing signs of rolling over after failing key resistance at 60. A close above this level would suggest further upside towards 65-70. Key support is at 55.

Market Outlook

Friday’s session was a bullish signal heading into this week and the start of a fresh month. However, June typically has a reputation for being the dullest of months for the stock market due to the start of the summer doldrums. With that said, this year could be a little different given the U.S. economic recovery continues to strengthen and the indexes are once again near record highs.

The wild card will be the Fed and the June 16th meeting as inflation and jobs remain in focus. This meeting will likely have a more profound impact on the market than usual because of what the Fed said at its April meeting. The meeting minutes from that update raised the chance of the Fed beginning to plan some sort of “tapering” if the economy keeps rolling along.

The Fed has been buying $120 billion in Treasury bonds and mortgage-backed securities each month to provide liquidity and keep rates low during the coronavirus pandemic. A pullback on these purchases or possible hints of a rate hike could rattle the market.

The Fed has warned this would happen if certain employment parameters are met. Any sign that the Fed is ready to taper earlier than expected could cause Treasury yields to rise and potentially put pressure on the stock market. Obviously, every word Fed Chairman Powell says will be closely monitored.

On that note, I’m expecting the major indexes could test new highs by mid-June and from there, we get a continued breakout or a pullback from prior resistance levels.

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.

Marathon Oil (MRO, $12.11, up $0.02)

MRO July 12 calls (MRO210716C00012000, $0.90, unchanged)

Entry Price: $0.85 (5/24/2021)
Exit Target: $1.70
Return: 6%
Stop Target: None

Action: Shares tested an opening high of $12.23 with lower resistance at $12.25-$12.50 getting challenged but holding. A close above the latter would be a really bullish signal for a run towards $13. Support is at $12-$11.75.

Western Union (WU, $24.47, down $0.16)

WU June 26 calls (WU210618C00026000, $0.10, down $0.05)

Entry Price: $0.65 (5/10/2021)
Exit Target: $1.30
Return: -85%
Stop Target: None

Action: Friday’s low tagged $24.41 with upper support is at $24.50-$24.25 failing to hold. Resistance is at $24.75-$25.

If shares can’t clear $25 this week, or fall below $24.25, we will be forced to close the trade to save the remaining premium.

Intel (INTC, $57.12, down $0.61)

INTC June 60 calls (INTC210618C00060000, $0.35, down $0.15)

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

Action: Upper support at $57-$56.50 was breached but held on the backtest to $56.94. Resistance remains at $57.75-$58.

I was really hoping shares would clear and hold $58 on Friday with the position getting us back to even. I think once this level is cleared, shares can make a run at $60 but the June options are expiring in less than three weeks. If shares fall back below $56 this week, we will also have to exit this trade.

Utilities Select Sector SPDR Fund (XLU, $65.16, up $0.35)

XLU June 69 calls (XLU210618C00069000, $0.15, up $0.10)

Entry Price: $0.65 (5/3/2021)
Exit Target: $1.30
Return: -77%
Stop Target: None

Action: Shares traded to a high of $65.40 with lower resistance at $65-$65.50 getting cleared and holding. Support is at $64.50-$64.

This trade has struggled after shares hit a double-top just above $67 shortly after we got in at the start of May. There are a number of resistance levels that need to be cleared with a run towards $70 needed over the next three weeks for the trade just to get back to even. While this is unlikely to happen, a pop above $66 this week could get us a chance to cut our losses at a higher level.