MomentumOptions.com Pre-Market Update for 6/2/2021

Market Mixed to Start June’s Action

8:00am (EST)

The stock market started off with strong gains on Tuesday but faded throughout the session for mixed results. Economic news was also mixed as manufacturing activity picked up in May on pent-up demand, but shortages of raw materials and labor grew backlogs.

Meanwhile, construction spending rose up 0.2% in April versus forecasts for a rise of 0.6%. Oil prices also weighed on sentiment as crude remains on track to clear $70 per barrel with the summer driving season getting underway.

The Russell 2000 closed at 2,294 (+1.1%) with the late day high reaching 2,298. Key resistance at 2,300 was challenged but held. A close above this level would signal momentum towards 2,325-2,350 with the March record peak at 2,360. Below is a chart of the IWM.

The Dow tapped an opening high of 34,849 before finishing at 34,575 (+0.1%). Lower resistance at 34,750-35,000 was cleared but held. A close above the latter and the all-time high at 35,091 would indicate further upside towards 35,250-35,500.

The Nasdaq settled at 13,736 (-0.1%) with the afternoon low kissing 13,678. Current and upper support at 13,700-13,650 was tripped but held. A move below the latter and the 50-day moving average would suggest a retest 13,500-13,350.

The S&P 500 ended at 4,202 (-0.1%) after trading down to 4,197. Near-term and upper support at 4,200-4,175 was tripped but held. A drop below the latter would signal weakness 4,150-4,125 and the 50-day moving average.

Market Movers

Shares of Cloudera (CLDR) soared 24% after announcing it will be acquired by affiliates of CD&R and KKR (KKR) in an all cash deal worth roughly $5.3 billion.

Volatility Index

The Volatility Index (VIX) was up for the second-straight session with the intraday high hitting 18.53. Current and lower resistance at 18.50-19 was breached but held. A close above the latter and the 50-day moving average would be a slightly bearish development with upside risk towards 20-20.50.

Support is at 17-16.50 followed by at 15.50-15.

Market Analysis

The Invesco QQQ Trust (Nasdaq: QQQ) was down for the second time in three sessions with the low reaching $331.43. Upper support at $331.50-$331 was breached but held. A close below the latter level would indicate additional weakness towards $330-$329.50 and the 50-day moving average.

Resistance is at $335.50-$336.

RSI (relative strength indicator) has flatlined with key support at 50 holding. A close below this level would suggest additional weakness towards 45-40 and levels from mid-May. Resistance is at 55-60.

Sector

The Financial Select Sector Spider Fund (NYSE: XLF) extended its winning streak to four-straight sessions after trading to an all-time peak of $38.48. Unchartered territory and lower resistance at $38.25-$38.75 was cleared but held. A close above the latter would indicate continued momentum towards $39.50-$40.

Rising support is at $38-$37.50 followed by $36.50-$36 and the 50-day moving average.

RSI remains in an uptrend with lower resistance at 65-70 getting cleared and holding. A close above the latter would suggest upside towards 75-80 and the late February and May highs. Support is at 60.

Market Outlook

I mentioned yesterday, the mid-month Fed minutes could be crucial in determining possible market direction this month but there is also another news event worth mentioning. At the end of the month, the Federal Reserve’s temporary limits on dividend payments and share buybacks could end for most banks, following the completion of annual stress tests.

The central bank has repeatedly extended the restrictions on dividends the banks can payout but allowed stock buybacks to resume in the first quarter of this year. If the restrictions are removed, the Financial sector could show continued strength and why I focused on the sector in today’s update. This would be and is a bullish development for the overall market.

Tuesday’s action was also a good signal record highs remain in play although volatility rose. Given this action, it remains clear choppiness will continue with key support levels also signaling when a possible pullback is coming.

On that note, we got some super sweet pin action in MRO yesterday that helps offset some of the losses in our current trades. If the trade plays out like planned, we could be looking at profits near 300%. The track record for 2021 is still showing a 74% win rate with four triple-digit winners (five including the current MRO position). I’ve also booked profits of 89%, 67%, 62% and numerous other double-digit winners with only 6 losing trades and 17 winners.

Historically, my clip is at a 67% win rate on over 1,700 trades. If we can double, triple, or even 4-fold our investment in certain trades, it easily offsets some of the trades that didn’t work out.

I have a couple of new trades I like and in sectors that are holding up well given the current market environment. If I take action, I will send out a New Trade Alert.

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, $13.76, up $1.65)

MRO July 12 calls (MRO210716C00012000, $2.05, up $1.15)

Entry Price: $0.85 (5/24/2021)
Exit Target: $2.50 (closed 1/3 at $1.80 on 6/1/2021)
Return: 131%
Stop Target: $1.15, raise to $1.50 (Stop Limit)

Action: The three-year weekly chart below shows key resistance at the $14 level with yesterday’s 52-week peak reaching $13.84. A close above this level should get a possible run towards $16 in play. Fresh support is at $13.50-$13.25.

The options traded to a high of $2.12 with the low at $1.20 and why I had an initial Stop Limit at $1.15. We are going to raise that to $1.50 this morning to further protect profits.

The reason I took one/third profits is because we have only been in the trade for a week but the options still have 44 days before expiration. The MRO June 12 calls zoomed 230% and we likely would have closed half if we were in those call options.

With the July calls, we have plenty of time to see if shares can make a run to the mid to high teens. At $16, these options would be worth at least $4 “in-the-money” if this level is achieved by mid-July. This would be a return of 371% from the entry price and a total return of 284% since we closed a third of the position yesterday.

There was no specific news on the 13% pop in the stock but with oil approaching $70, this could be one of the driving factors for the breakout. If shares slip from here, we will be protected with our new Stop Limit at $1.50.

Western Union (WU, $24.58, up $0.11)

WU June 26 calls (WU210618C00026000, $0.10, unchanged)

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

Action: Tuesday’s high tagged $24.92 with lower resistance at $24.75-$25 getting cleared but holding. Support is at $24.50-$24.25.

Intel (INTC, $56.89, down $0.23)

INTC June 60 calls (INTC210618C00060000, $0.25, down $0.05)

Entry Price: $0.65 (5/10/2021)
Exit Target: $1.30
Return: -62%
Stop Target: None

Action: Upper support at $57-$56.50 failed to hold on yesterday’s fade to $56.94. Resistance remains at $57.75-$58.

Utilities Select Sector SPDR Fund (XLU, $64.76, down $0.40)

XLU June 69 calls (XLU210618C00069000, $0.05, down $0.10)

Entry Price: $0.65 (5/3/2021)
Exit Target: $1.30
Return: -92%
Stop Target: None

Action: Shares traded to a low of $64.61 with upper support at $65-$64.50 failing to hold. Resistance is at $65.50-$67.