MomentumOptions.com Pre-Market Update for 8/26/2021

Bulls Stay Strong Ahead of Fed Update

8:00am (EST)

The stock market traded in a tighter range on Wednesday as Wall Street awaited a key Federal Reserve event that will take place on Thursday afternoon. The higher close was mostly fueled by the latest passage from the House of Representatives and its $3.5 trillion budget plan.

As part of the legislative action, the House also set up a final vote for the $1.2 trillion infrastructure bill that was passed by the Senate earlier this month. The fourth and fifth-straight day of gains for the major indexes remains a bullish signal with volatility easing back towards key support levels.

The Russell 2000 finished at 2,239 (+0.4%) after tapping an afternoon high of 2,252. Key resistance at 2,250 and the 50-day moving average were cleared but levels that held. Continued closes above this area would suggest a retest towards 2,275-2,300 and levels from late June. Below is a chart of the IWM.

The S&P 500 tagged another all-time high of 4,501 before ending at 4,496 (+0.2%). Key resistance at 4,500 was tripped but held. Continued closes above this level would signal additional upside towards 4,550-4,600.

The Nasdaq closed at 15,041 (+0.2%) with the record peak reaching 15,059. Fresh and lower resistance at 15,050-15,200 was cleared but held. A close above the latter would indicate momentum towards 15,350-15,500.

The Dow traded up to 35,501 before settling at 35,405 (+0.1%). Key resistance at 35,500 was breached but held. A close above this level would be an ongoing bullish development for additional gains towards 35,750-36,000 with the lifetime peak at 35,631.

Market Movers

Shares of Nordstrom (JWN) sank 17% despite reporting better-than-expected second-quarter numbers. The company reported a profit of 49 cents a share on revenue of $3.66 billion versus forecasts of 28 cents and $3.#1 billion, respectively. While this was good news, Nordstrom disappointed on the second half of 2021 guidance.

Volatility Index

The Volatility Index (VIX) was down for the third time in four sessions with the low reaching 16.46. Upper support at 16.50-16 was breached but held. A drop below the latter would indicate weakness towards 15.50-15.

Key resistance remains at 17.50 and the 50-day moving average.

Market Analysis

The Spiders Dow Jones Industrial Average ETF (NYSE: DIA) was up for the fourth-straight session with the high reaching $355.04. Near-term and lower resistance at $355-$355.50 was cleared but held. A close above the latter would signal upside towards $356.50-$357 with the recent all-time peak at $356.60.

Support is at $353-$352.50.

RSI is showing signs of rolling over with key resistance at 60 getting challenged but holding. A move above this level would suggest strength towards 65-70 and the highs from early May. Support is at 55-50.

Sector

The Consumer Discretionary Select Spiders (NYSE: XLY) also showed strength for the fourth-straight session with the intraday high tapping $182.11. Prior and lower resistance at $182-$182.50 was tripped but held. A close above the latter would likely suggest a retest towards $183.50-$184 with the record top from late July at $184.69.

Support is at $1801-$180.50 followed by $179.50-$179.

RSI is in an uptrend with lower resistance at 55-60 getting cleared and holding. A close above the latter would signal strength towards 65-70 and levels from mid-July. Support is at 50-45.

Market Outlook

The financial sector showed the most strength yesterday after jumping 1.2% and something I mentioned in yesterday’s update. There are a number of individual banking stocks on the verge of setting fresh 52-week highs so I went with XLF to play the overall bullish trend. It will be important for them to show some follow through following the Fed update but there is the chance of a sell the news event.

The Dow still remains poised to join the Nasdaq and the S&P 500 in making a new all-time high and my price targets from the early July webinar remain in play: Nasdaq 15,000-15,250; Dow 35,500-36,000; and the S&P possibly trading up to 4,550-4,600. The key to them making higher highs is for the VIX to make another drop towards 15-14.50.

I have mentioned there is a chance for the 13.50 area to come into play but the VIX will need to close below 15 to make this a possible reality. This level has been breached but hasn’t held since February 2020. The June 29th intraday and 52-week low reached 14.10 before a close above 16 and the July 2nd close was at 15.07 with the session low hitting 14.25.

Momentum Options Play List

Closed Momentum Options Trades for 2021: 22-17 (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.

Financial Select Sector SPDR Fund (XLF, $38.68, up $0.45)

XLF October 40 calls (XLF211015C00040000, $0.50, up $0.17)

Entry Price: $0.50 (8/25/2021)
Exit Target: $1.00
Return: 0%
Stop Target: None

Action: Yesterday’s peak reached $38.92 with lower resistance at $38.75-$39 getting cleared but holding. A close above the latter and the recent all-time high at $38.95 would signal a possible breakout towards $40.50-$41. If shares reach the latter these calls will easily double from current levels. Support is at $38.50-$38.25.

Keurig Dr Pepper (KDP, $34.92, down $0.05)

KDP October 36 calls (KDP211015C00036000, $0.50, down $0.05)

Entry Price: $0.55 (8/23/2021)
Exit Target: $1.10
Return: -9%
Stop Target: None

Action: Shares kissed a low of $34.60 with upper support is at $34.75-$34.50 getting breached but holding. Resistance is at $35-$35.25.

Rite Aid (RAD, $16.98, down $0.01)

RAD September 15 puts (RAD210917P00015000, $0.35, unchanged)

Entry Price: $0.82 (8/19/2021)
Exit Target: $1.65
Return: -57%
Stop Target: None

Action: Shares ended slightly lower despite trading to a high of $17.44. Lower resistance at $17.25-$17.50 was cleared but held for the second-straight session. Support is at $16.75-$16.50.

Juniper Networks (JNPR, $29.48, up $0.05)

JNPR September 30 calls (JNPR210917C00030000, $0.45, unchanged)

Entry Price: $0.55 (8/3/2021)
Exit Target: $1.10
Return: -18%
Stop Target: None

Action: Wednesday’s 52-week peak hit $29.77 with key resistance at $29.75 getting cleared but holding. Support remains at $29.25-$29.

Smith & Wesson Brands (SWBI, $24.57, up $0.79)

SWBI September 30 calls (SWBI210917C00030000, $0.45, up $0.20)

Entry Price: $0.85 (8/3/2021)
Exit Target: $1.70
Return: -47%
Stop Target: None

Action: Shares extended their winning streak to four-straight sessions after making a run to $24.91. Prior and lower resistance at $24.75-$25 was cleared but held. New support is at $24.25-$24. Volume was heavy with over 3,000 contracts exchanging hands.