MomentumOptions.com Pre-Market Update for 7/20/2021

Volatility Returns on Market Pullback

8:00am (EST)

Wall Street had a nasty session on Monday as rising concerns over the resurgence of coronavirus infections among the unvaccinated weighed on sentiment. The major indexes suffered their worst declines since May and ahead of a heavy week of quarterly earnings.

Volatility spiked 22% after closing above a key level of resistance with all of the major sectors closing lower. Energy and Financials were hit the hardest with losses of 3.5% and 2.8%, respectively.

The Dow ended at 33,962 (-2.1%) and back below its 50-day moving average with the midday low kissing 33,741. Fresh and upper support at 34,000-33,750 was tripped and failed to hold. A close below the latter would indicate further weakness towards 33,500-33,250 with the mid-June low at 33,271.

The S&P 500 tested a low of 4,233 before finishing at 4,258 (-1.6%). Prior and upper support at 4,250-4,225 was breached but held. A close below the latter and the 50-day moving average would suggest additional weakness towards 4,200-4,175 with the June low at 4,164.

The Russell 2000 settled at 2,130 (-1.5%) with the intraday low reaching 2,107. Prior and upper support from late March at 2,125-2,100 was breached but held. A close below the latter would suggest ongoing weakness towards 2,075-2,050 and the 200-day moving average. Below is a chart of the IWM.

The Nasdaq tumbled to a low of 14,178 before closing at 14,274 (-1.1%). New and upper support at 14,250-14,100 was triggered but held. A move below the latter would signal ongoing weakness towards 14,000-13,850 and the 50-day moving average.

Market Movers

Shares of Cytokinetics (CYTK) skyrocketed 40% after the company announced its phase 2 experimental treatment improved blood flow for patients with a genetic heart disease. The drug, called CK-274, studied patients with hypertrophic cardiomyopathy, or HCM, and a disease where the heart muscle becomes abnormally thick, making it hard to pump blood.

After 10 weeks, nearly 93% of patients who received the high dose achieved significant improvements in blood flow. In the low-dose group, over 78% of patients achieved the same result.

Volatility Index

The Volatility Index (VIX) extended its winning streak to three-straight sessions after zooming a high of 25.09 while closing back above its 200-day moving average. Prior and lower resistance from mid-May at 25-25.50 was breached but held. A move above the latter would suggest additional strength towards 27-27.50 with the May peak at 28.93.

New support is at 22-21.50 followed by 20-19.50.

Market Analysis

The SPDR S&P 500 ETF (NYSE: SPY) was down for the third-straight session with the intraday low reaching $421.97. Fresh and upper support at $422-$421.50 was tripped but held. A close below the latter and the 50-day moving average would indicate additional weakness towards $420.50-$420.

Lowered resistance is at $426.50-$427.

RSI (relative strength index) is in a downtrend with key support at 40 holding. A close below this level would signal further weakness towards 35-30 and levels from March 2020. Resistance is at 45-50.

Sector

The Utilities Select Spider Fund (NYSE: XLU) had its three-session winning streak snapped following the pullback to $64.48. Current and upper support at $64.50-$64 and the 50-day moving average were breached but levels that held. A move above the latter would suggest additional weakness towards $63-$62.50 and the 200-day moving average.

Resistance is at $65.50-$66.

RSI is back in a downtrend with key support at 50 holding. A close below this level would suggest additional weakness towards 45-40 and levels from the back half of June. Resistance is at 55-60.

Market Outlook

I mentioned yesterday morning my research from the weekend was showing a possible pullback and Monday’s gap down confirmed my feelings. I thought the start of a selloff would be more orderly and not such a significant gap lower. Today’s action will likely confirm how deep the selling pressure will be, or if a rebound is in the cards.

The action in the VIX was a bearish signal but it will be important for the bears to hold the 20 level for back-to-back sessions. The good news is there are plenty of setups in certain stocks to buy put options that could easily be triple-digit winners over the near-term.

We started nibbling yesterday on bearish setups and we still have to manage our open call positions. Most of them held up well despite the selloff but I also mentioned that some of the trades might not recover. My track record for the year is at 63% with Friday’s winner, and historically, I’m at a 67% win rate over the past 13 years.

With some of the call premiums at a nickel and a dime, we may as well hold them open for another week or two to see how the current action plays out. In the meantime, if there is continued weakness in the market, we will look to offset some of the losses with new put option trades.

Momentum Options Play List

Closed Momentum Options Trades for 2021: 19-11 (63%). 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, $27.79, down $0.55)

T August 27 puts (T210820P00027000, $0.42, up $0.17)

Entry Price: $0.42 (7/19/2021)
Exit Target: $0.85
Return: 0%
Stop Target: None

Action: Shares tested a low of $27.50 with fresh and upper support at $27.75-$27.50 getting breached but holding. Resistance is at $28-$28.25 and the 200-day moving average.

I’d like to see continued weakness today with a shot at the February low near the $27 area coming into play this week. The 50-day moving average is on track to close below the 200-day moving average and would form a death cross on continued weakness. This is typically a bearish setup for lower lows.

GoDaddy (GDDY, $83.30, down $1.71)

GDDY August 97.50 calls (GDDY210820C00097500, $0.25, down $0.10)

Entry Price: $1.20 (7/7/2021)
Exit Target: $2.40
Return: -79%
Stop Target: None

Action: Monday’s low kissed $83.19 with near-term and upper support at $83.50-$83 failing to hold on the close back below the 50-day moving average. Resistance is at $84-$84.50.

Himax Technologies (HIMX, $13.90, down $0.11)

HIMX August 20 calls (HIMX210820C00020000, $0.10, unchanged)

Entry Price: $1.00 (6/30/2021)
Exit Target: $2.00
Return: -90%
Stop Target: None

Action: Shares traded down to $13.40 with prior and upper support at $13.50-$13.25 getting breached but holding. Lowered resistance is at $14-$14.25.

Canoo (GOEV, $8.33, down $0.16)

GOEV August 10 calls (GOEV210820C00010000, $0.30, down $0.10)

Entry Price: $1.10 (6/30/2021)
Exit Target: $2.20
Return: -73%
Stop Target: None

Action: Monday’s low tapped $7.94 with upper support at $8-$7.75 getting breached but holding. Resistance is at $8.50-$8.75 and the 50-day moving average.

Marathon Oil (MRO, $11.75, down $0.

MRO August 15 calls (MRO210820C00015000, $0.08, down $0.03)

Entry Price: $0.70 (6/25/2021)
Exit Target: $1.40
Return: -89%
Stop Target: None

Action: Shares sank to a low of $10.92 with prior and upper support from mid-May at $11-$10.75 getting breached but holding. Lowered resistance is at $11.25-$11.50.

RSI is near 30 and indicating extremely oversold conditions. With earnings out August 4th, I want to keep the trade open for a couple more weeks.

Ford Motor (F, $13.28, down $0.33)

F August 18 calls (F210820C00018000, $0.05, down $0.02)

Entry Price: $0.55 (6/9/2021)
Exit Target: $1.10
Return: -91%
Stop Target: None

Action: Fresh and upper support at $13-$12.75 was breached but held on the tumble to $12.79. New resistance is at $13.50-$13.75.