MomentumOptions.com Pre-Market Update for 6/21/2021

Dovish Comments Continue to Weigh on Wall Street

8:00am (EST)

The stock market remained weak on Friday following comments from St. Louis Federal Reserve President, James Bullard, who said he believes the potential for an interest rate increase could come as soon as next year. The options market added to the volatility with quadruple witching day occurring, with increased trading volume into the closing bell.

It was the largest options expiration in history with overall volume on the major exchanges pushing 15 billion shares. As a result, the volatility index spiked to its highest level in over a month while closing just above a key level of resistance.

The Russell 2000 was the weakest link after extending its losing streak to five-straight sessions with the intraday low hitting 2,229 and the close at 2,237 (-2.2%). Prior and upper support at 2,225-2,200 was breached but held on the close back below the 50-day moving average. A move below the latter would indicate ongoing weakness towards 2,175-2,150. Below is a chart of the IWM.

The Dow was also down for the fifth-straight session, as well, after bottoming at 33,271 while finishing at 33,290 (-1.6%). Longer-term and upper support from early April at 33,500-33,250 failed to hold. A drop below the latter would suggest a further slide towards 33,000-32,750.

The S&P 500 kissed a late day low of 4,164 before settling at 4,166 (-1.3%) and back below its 50-day moving average. Prior and upper support at 4,175-4,150 was breached and failed to hold. A close below the latter would be a bearish development for a retest towards 4,125-4,100.

The Nasdaq traded to a low of 14,009 before ending at 14,030 (-0.9%). Key support at 14,000 was challenged but held. A close below this level would signal additional risk towards 13,900-13,750 and the 50-day moving average.

Market Movers

Shares of Atai Life Sciences (ATAI) opened at $21 in its initial public offering debut while closing at $19.45 after pricing 15 million at $15 per share. The company aims to transform the treatment of mental health disorders by using psychedelic drugs that are being developed for clinical use. They include illegal substances such as LSD, psilocybin – the active ingredient in magic mushrooms – and MDMA, also known as ecstasy or Molly.

Clinical data shows that psychedelics drugs could be effective in treating conditions that include migraines, depression, severe post-traumatic stress disorder, and the ending of life anxiety.

Volatility Index

The Volatility Index (VIX) was up for the fourth time in five sessions after surging 16% while testing a high of 21.04. Prior and lower resistance from mid-May at 21-21.50 was breached but held on the close back above the 50-day moving average.

Fresh support is at 20-19.50 followed by 18.50-18.

Market Analysis

The Wilshire 5000 Composite Index (NYSE: WLSH) extended its losing streak to four-straight sessions with the afternoon low hitting 43,746. Prior and upper support at 43,750-43,500 was breached but held. A close below the latter and the 50-day moving average would indicate additional weakness towards 43,250-43,000 and levels from late May.

Lowered resistance is at 44,000-44,250.

RSI (relative strength index) remains in a downtrend with upper support at 45-40 holding. A close below the latter would suggest weakness towards 35-30 and levels from March 2020. Resistance is at 50.

Sector

The Energy Select Sector SPDR Fund (NYSE: XLE) fell for the third-straight sessions with the intraday low tagging $52.35. New and upper support at $52.50-$52 failed to hold. A close below the latter and the 50-day moving average would signal ongoing weakness towards $50.50-$50.

Resistance is at $53-$53.50.

RSI is in a downtrend with key support at 40 holding. A close below this level would indicate additional weakness towards 35-30 and prior lows from October 2020. Resistance is at 45-50.

Market Outlook

The bears got the weekly win and did some technical damage that could carry over into this week. The S&P 500 and the Russell 2000 joined the Dow in closing below their 50-day moving averages on Friday with the Nasdaq a little more than 1% away from joining the group.

The week after June options expiration is typically bearish so I’m expecting continued weakness that could last into month end. I have been talking about the VIX holding a trading range between 15-20 for 17-straight sessions and a close above the latter would be a bearish development. That streak ended on Friday and should be confirmation of lower lows for the major indexes.

The market turbulence was heightened last week following comments from the Fed and inflation. There will be more Fed speak with Chairman Powell appearing before Congress on Tuesday and other officials chiming in throughout the week. This could create additionally volatility.

I did open a put option position on Friday with AT&T and missed a triple-digit winner with Intel by not getting us into a position on Thursday, especially after shares failed the $58 level. The INTC July 55 puts (INTC210716P00055000, $1.25, up $0.60) closed at 65 cents in the previous session and surged to an intraday high of $1.52. While I didn’t want to chase these puts on the open, there are other Tech stocks I’m watching.

If I take action on another new trade, I will certainly send out a Trade Alert. I still like our bullish trades because I’m expecting the market could rebound in early July and when 2Q earnings season starts. While it could happen sooner, I think the bears will remain in control over the near-term.

Momentum Options Play List

Closed Momentum Options Trades for 2021: 18-9 (67%). 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.

AT&T (T, $28.65, down $0.09)

T July 28 puts (T210716P00028000, $0.50, up $0.10)

Entry Price: $0.55 (6/18/2021)
Exit Target: $1.10
Return: -9%
Stop Target: None

Action: Friday’s low kissed $28.41 with prior and upper support at $28.50-$28.25 getting breached but holding along with the 200-day moving average. Resistance is at $28.75-$29.

I’m looking for a retest towards $27.50 and a prior level from late February and last December. I think a close below $28.25 would get this area into play pretty quickly. This would push RSI towards the 30 level where shares could rebound as this usually signals oversold conditions. If shares close back above $29.25, we could exit the trade as it would also indicate a temporary bottom.

Ford Motor (F, $14.52, down $0.25)

F August 18 calls (F210820C00018000, $0.27, down $0.05)

Entry Price: $0.55 (6/9/2021)
Exit Target: $1.10
Return: -51%
Stop Target: None

Action: Shares tested a low of $14.52 with prior and upper support at $14.50-$14.25 getting challenged but holding. Lowered resistance is at $14.75-$15.

These options have 60 days before expiration but a close below $14 could force us to make an early exit. I would like to shares at least recover the $15 level this week.

Tencent Music Entertainment Group (TME, $15.09, down $0.16)

TME July 17 calls (TME210716C00017000, $0.25, down $0.02)

Entry Price: $0.60 (6/9/2021)
Exit Target: $1.20
Return: -58%
Stop Target: None

Action: Friday’s low hit $14.97 with current and upper support at $15-$14.75 getting breached but holding. Lowered resistance is at $15.25-$15.50.