MomentumOptions.com Pre-Market Update for 8/4/2021

Bulls Rebound on Upbeat Earnings

8:00am (EST)

The stock market shrugged off a choppy open to end higher on Tuesday as strong earnings and better-than-expected economic news helped sentiment.

Eli Lilly (LLY), Bausch Health (BHC) and Under Armour (UAA) reported strong numbers while factory orders rose 1.5% in June versus forecasts for an increase of 1%.

The Dow tested an intraday high of 35,120 before settling at 35,116 (+0.8%). Lower resistance at 35,000-35,150 was recovered. A close above the latter and Monday’s all-time high at 35,192 would suggest a breakout towards 35,250-35,500.

The S&P 500 ended at 4,423 (+0.8%) and the session peak. Near-term and lower resistance at 4,400-4,425 was cleared and held. A move above the latter and the recent record peak at 4,429 would indicate additional strength towards 4,450-4,475.

The Nasdaq closed at 14,761 (+0.6%) after trading to a late day high of 14,762. Current and lower resistance at 14,700-14,850 was recovered. A close above the latter and last Monday’s lifetime high at 14,863 would be a bullish signal for a trip towards 15,000-15,150.

The Russell 2000 went out at 2,223 (+0.4%) and the session high. Lower resistance at 2,225-2,250 was challenged but held. A pop above the latter and the 50-day moving average would signal ongoing strength towards 2,275-2,300. Below is a chart of the IWM.

Market Movers

Shares of Victoria’s Secret & Company (VSCO) surged 26% following the completion of the previously announced separation from Bath & Body Works (BBWI) into a publicly traded company. The new company, named includes Victoria’s Secret Lingerie, PINK and Victoria’s Secret Beauty.

Volatility Index

The Volatility Index (VIX) tagged an opening high of 20.44 before falling 7%. Lower resistance at 20-20.50 was breached but held. A close above the latter would suggest a retest towards 21.50-22 and the 200-day moving average.

The fade to 17.70 afterwards breached upper support at 18-17.50 and the 50-day moving average but levels that held.

Market Analysis

The S&P 400 Mid Cap Index (NYSE: MID) snapped a two-session slide after rebounding to a high of 2,709 while closing back above the 50-day moving average. Lower resistance at 2,700-2,725 was recovered. A close above the latter would signal additional upside towards 2,750-2,775 with the all-time high from early May at 2,780.

Support at 2,675-2,650.

RSI (relative strength index) is trying to curl higher with lower resistance at 55-60 getting cleared and holding. A move above the latter would signal strength towards 65-70 and levels from mid-March. Support is at 50-45.

Sector

The Health Care Select Sector SPDR Fund (NYSE: XLV) extended its winning streak to six-straight sessions and was up for the 10th time in 11 sessions with the fresh record peak hitting $134.21. Unchartered territory and lower resistance at $134-$134.50 was breached and held. A close above the latter would suggest a further run towards $135.50-$136.

Rising support is at $132.50-$132 followed by $131-$130.50.

RSI is signaling overbought levels with key resistance at 75 getting cleared and holding. Continued closes above this level would indicate strength towards 80 and the April high. Support is at 70-65.

Market Outlook

The VIX once again flirted with the 20 level but retreated back towards the 50-day moving average which remains in a slight downtrend. I would like to see a close below 17 over the next couple of days and ahead of Friday’s jobs report to confirm another round of possible all-times heading into next week.

The Fed’s meeting in Jackson Hole later this month could be a bigger wild card than Friday’s action and the earnings season will remain quite busy over the next few weeks.

A month ago, I did some detailed chart work for the major indexes that highlighted the uptrend channels from November 2020. The channels showed higher price targets of Nasdaq 15,000; S&P 4,500-4,600; and Dow 35,500-36,000. The mid-July mini selloff got the bottom of these uptrend channels in play but levels that held.

Momentum Options Play List

Closed Momentum Options Trades for 2021: 19-15 (56%). 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.

Juniper Networks (JNPR, $29.05, up $1.04)

JNPR September 30 calls (JNPR210917C00030000, $0.60, up $0.23)

Entry Price: $0.55 (8/3/2021)
Exit Target: $1.10
Return: 9%
Stop Target: None

Action: Shares tested a fresh 52-week high of $29.10 with key resistance at $29 getting cleared and holding. This area represents a major headwind from early June with continued closes above $29 being a bullish development. New support is at $28.75-$28.50 with a close below $28 signaling a false breakout.

The September 2018 multi-year peak came close to clearing the $30 level with the February 2011 high around the $44 area. If shares can trade past $31.10, technically, by mid-September, these options will easily double from current levels.

Smith & Wesson Brands (SWBI, $25.24, up $0.77)

SWBI September 30 calls (SWBI210917C00030000, $0.90, up $0.25)

Entry Price: $0.85 (8/3/2021)
Exit Target: $1.70
Return: 6%
Stop Target: None

Action: Tuesday’s peak reached $25.56 with prior and lower resistance at $25.50-$25.75 getting cleared but holding. Support is at $25-$24.75 and the 50-day moving average.

This stock has been on my watch list for a couple of years and I apologize I didn’t get us into this trade on the earlier breakout in mid-June. While I was bullish on the stock, I didn’t want to chase the options at the time as RSI was approaching 70 and prior overbought levels. However, as you can see, RSI exploded to 90 by the start of July with shares reaching an all-time high of $39.61.

I’m not sure if a return towards the $40 level is back in play but we only need a run past $31.70, technically, by mid-September to get a double-up on this trade.

Cisco Systems (CSCO, $56.25, up $0.80)

CSCO August 57 calls (CSCO210820C00057000, $1.00, up $0.28)

Entry Price: $0.65 (7/29/2021)
Exit Target: $1.30
Return: 54%
Stop Target: 80 cents (Stop Limit)

Action: Set an initial Stop Limit at 80 cents to start protecting profits and to avoid a loss.

Shares were up for the fourth-straight session with the 52-week high reaching $56.42. New and lower resistance at $56-$56.50 was cleared and held. A close above the latter would indicate momentum towards $57.50-$58. Support remains at $55.50-$55.

International Game Tech (IGT, $19.12, up $0.14)

IGT August 22 calls (IGT210820C00022000, $0.25, down $0.05)

Entry Price: $0.70 (7/21/2021)
Exit Target: $1.40
Return: -64%
Stop Target: None

Action: Shares were up 9% ahead of the opening bell but struggled after topping out at $20.24. Prior and lower resistance at $20-$20.25 was breached but held. Support remains at $18.75-$18.50.

GoDaddy (GDDY, $84.05, down $0.95)

GDDY August 97.50 calls (GDDY210820C00097500, $0.20, down $0.05)

Entry Price: $1.20 (7/7/2021)
Exit Target: $2.40
Return: -83%
Stop Target: None

Action: Upper support at $84-$83.50 was tripped but held on the fade to $83.61 yesterday. Resistance is at $84.50-$85 and the 50-day moving average.

Earnings are due out after today’s close.

Canoo (GOEV, $7.84, down $0.15)

GOEV August 10 calls (GOEV210820C00010000, $0.10, unchanged)

Entry Price: $1.10 (6/30/2021)
Exit Target: $2.20
Return: -91%
Stop Target: None

Action: Close the trade this morning to save the remaining premium.

I mentioned a close below $8 would be a bearish development and shares are unlikely to make a 25%-30% move over the next two weeks to give this trade the opportunity to recover.