MomentumOptions.com Pre-Market Update for 8/2/2021
Bears Win the Week but Bulls Take the Month
The stock market pulled back on Friday following another round of earnings that mostly disappointed Wall Street’s expectations. The losses gave the bears the weekly win but the major indexes closed mostly higher in July, excluding the small-caps.
The Nasdaq fell to an opening low of 14,615 before closing at 14,672 (-0.7%). Current and upper support at 14,650-14,500 was breached but held. A close below the latter would signal risk towards 14,350-14,200 and the 50-day moving average.
The Russell 2000 settled at 2,219 (-0.6%) with the late day low reaching 2,219. Upper support at 2,225-2,200 was tripped but held. A move below the latter would suggest a retest towards 2,175-2,150. Below is a chart of the IWM.
The S&P 500 tested a low of 4,389 before finishing at 4,395 (-0.5%). Near-term and upper support at 4,400-4,375 failed to hold. A drop below the latter would signal additional weakness towards 4,350-4,325.
The Dow ended at 34,935 (-0.4%) with the low kissing 34,871. Current and upper support at 35,000-34,750 was breached and failed to hold. A close below the latter would likely lead to a fade towards 34,500-34,250 and the 50-day moving average.
Shares of Pinterest (PINS) sank 18% after announcing earnings. The company reported a profit of 10 cents a share on revenue of $613 million versus forecasts for a profit of 13 cents on revenue of $562 million.
The Volatility Index (VIX) snapped a two-session slide after trading to a high of 19.72. Lower resistance at 19.50-20 was breached but held. A move above the latter would indicate strength towards 21.50-22 and the 200-day moving average.
Support is at 18-17.50 and the 50-day moving average.
The Wilshire 5000 Composite Index (NYSE: WLSH) has been rangebound for five-straight sessions with Friday’s low hitting 45,651. Upper support at 45,750-45,500 failed to hold. A move below the latter would indicate additional weakness towards 45,250-45,000.
Resistance is at 46,000-46,250 with last Thursday’s record high at 46,164.
RSI (relative strength index) is in a downtrend with upper support at 55-50 holding. A close below the latter would likely lead to another trip toward 45-40 and the lows from July. Key resistance is at 60.
The Dow Jones Transportation Average (NYSE: TRAN) tested a low of 14,353 with key support at 14,250 getting challenged but holding. A close blow the latter would indicate downside risk towards the 14,000 level with July’s low at 14,080.
Resistance is at 14,500-14,750.
RSI is showing signs of rolling over with key support at 40 holding. A close below this level would signal weakness towards 35-30 with the latter representing the June bottom. Key resistance is at 50 and a level that has been holding since early June.
For the month of July, the S&P 500 added 2.3%; the Dow rose 1.3%; the Nasdaq was up 1.2%; and the Russell 2000 fell 3.6%. As for August, it can tend to be more bearish than bullish for the major indexes. With volatility slightly elevated, we will have to keep an eye on if the 20 level can hold.
On that note, volatility has only closed above 20, twice, over the past 48 sessions. The VIX closed at 20.70 on June 18th and 22.50 on July 19th and was back below the 20 level the following sessions. The index has also failed to close below 15 since February 2020. Although this level has been breached over the past few months four times, the last time was on July 2nd.
Usually when the market is making fresh all-time highs, volatility will dip to the low teens and even in the single-digits. With the second-quarter earnings season coming in with fantastic numbers, the fact 15 has held remains a slight concern. Continued closes above 20 would likely be a sure signal for a market pullback.
Of course, with us being in bullish positions, I’m hoping the market can continue to set new highs for the next week or so and into this month’s Fed meeting. There are a few positions we will know the outcome of this week with earnings due out, and from there, the portfolio will be light and in great position to add new trades.
We will be using September and possibly October options to play the next major trend which I’m leaning towards being bearish. However, it is possible the market continues to slowly drift higher with the 50-day and 200-day moving averages remaining in strong uptrends.
Momentum Options Play List
Closed Momentum Options Trades for 2021: 19-14 (58%). 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.
Cisco Systems (CSCO, $55.37, up $0.30)
CSCO August 57 calls (CSCO210820C00057000, $0.70, up $0.08)
Entry Price: $0.65 (7/29/2021)
Exit Target: $1.30
Stop Target: None
Action: Shares were up for the second-straight session with lower resistance at $55.25-$55.75 getting recovered. A close above the latter and Monday’s 52-week peak at $55.65 would be a bullish signal for a breakout towards $57-$57.50. Support is at $55-$54.50.
International Game Tech (IGT, $18.75, down $0.51)
IGT August 22 calls (IGT210820C00022000, $0.25, down $0.10)
Entry Price: $0.70 (7/21/2021)
Exit Target: $1.40
Stop Target: None
Action: Friday’s low reached $18.65 with prior and upper support at $18.75-$18.50 getting breached but holding. Lowered resistance is at $19-$19.25.
Earnings are due out before Tuesday’s opening bell. The company is expecting to post a profit of 21 cents a share on revenue of $923 million. The high estimate is at 42 cents with the low at 7 cents. This could mean a huge beat or miss and will likely result in a major move in the stock.
With shares oversold and RSI below 30, shares are due for a bounce. However, earnings are always tricky to trade and shares could become even more oversold on an earnings miss. The company beat by $1.09 in the prior quarter so let’s hope for a repeat with a rosy outlook.
GoDaddy (GDDY, $83.85, down $0.42)
GDDY August 97.50 calls (GDDY210820C00097500, $0.15, down $0.05)
Entry Price: $1.20 (7/7/2021)
Exit Target: $2.40
Stop Target: None
Action: Upper support at $84-$83.50 failed to hold with Friday’s low tagging $83.77. Resistance is at $84.50-$85 and the 50-day moving average.
Earnings are due out after Wednesday’s close.
Canoo (GOEV, $8.13, up $0.01)
GOEV August 10 calls (GOEV210820C00010000, $0.15, unchanged)
Entry Price: $1.10 (6/30/2021)
Exit Target: $2.20
Stop Target: None
Action: Shares remain in a six-session trading range with Friday’s peak reaching $8.31. Lower resistance at $8.25-$8.50 was cleared but failed to hold. Key support is at $8 with a close below this level likely forcing us to exit the position.
Ford Motor (F, $13.95, down $0.44)
F August 18 calls (F210820C00018000, $0.03, down $0.02)
Entry Price: $0.55 (6/9/2021)
Exit Target: $1.10
Stop Target: None
Action: Close the trade this morning to save the remaining premium.
Although the chart remains bullish on Ford, there are too may resistance levels for this trade to overcome to be profitable with the options expiring in under three weeks. We can look to get back into Ford when shares clear and hold the $15 level.