Invest and Trade Profitably with Jon Johnson

Weekender for 12/22

1. Market Summary

New Highs Once More

– Who needs a test? Large-cap indices renewed the upside with more vigor and logged new highs once more.
– The S&P 400 mid-caps joined in with new highs of their own.
– The Philly Fed showed no evidence of a rebound and no indication of having hit a trough.
– Existing home sales have begun to drop as their median price rises and inventory declines.
– We saw some solid moves across the market as the large-caps did not appear so extended. The good bases broke higher as well.

We were looking for the large-cap rally leaders to test the last leg higher with a bit of a pullback when compared to just three days of lateral movement. However, they did not do this. The large-cap indices started modestly upside and grew in strength as the session progressed. While this was not a huge blowout breakout, it was a solid upside that produced good moves from “extended” big names (e.g. Microsoft) and other stocks that were breaking higher from good bases (e.g. Euronet Worldwide, Stitch Fix, American Tower and Rapid7). The market got the best of both worlds and the indices logged more gains and more new highs.

The manufacturing indices are some of the best leading economic indicators that we have. The Institute for Supply Management (ISM), which measures national data, suffered a four-month contraction that lasted from August to November. Chicago’s November measurement was 46.3. New York’s December measurement scraped in at 4.0. At least it was up from 2.9. The Philly Fed Thursday measurement looked grim at 0.3 because 8.0 was expected and November’s figure was 10.4. This is worrisome as Philly is considered to have been unaffected by the trade issues. Yet, it still widely missed expectations.

Is this the start of a crash? Not likely. It is closer to a correction from prices that had jumped too high upwards in a short period of time. When you look at pricing charts, you can see a pattern of stagnation that lasted for years and then a surge over the last 1.5 to two years. While these prices are likely overdone and due for a test, unless something really serious happens to the economy and the financial markets, a crash is not likely.

Technical Analysis:

As noted, all large-cap indices posted new highs and were joined by the S&P 400 mid-caps. A rally off the early December selling was followed by a flattening out this week. Then, a new move occurred on Thursday. If this pattern holds, it will be really positive as, in the recent past, no one wanted to sell anything other than some individuals who were interested in profit-taking.

A renewed rally is good. The volume was lower, even though it was still above average. That shows that there was serious interest in the upside. Indeed, we picked up several new positions on the new break higher.

The S&P 400 was the “star” if only because it finally (albeit barely) put in a new high. As my baseball coach always said, “A bloop hit looks like a line drive in the book.”

NOTE: The figures and information above are from the 12/20 report.

Watch the Investment House Video For This Week Here!

NOTE: The video is from the 12/19 report.

2. Targets Hit

Here is one completed trade from Investment House Daily, offering insights into our trading strategy and the target that we have hit this week:

Hilton Hotels Corporation Common Stock (NYSE:HLT): HLT set up a nice cup with a handle base that spanned from July to November. In early November, HLT broke out from the base with a solid move. We did not enter as we often play the first test of a breakout since it is a very reliable time to buy. This because buyers return after the breakout to get some more.

HLT tested down to the 20-day exponential moving average (EMA) and showed a doji on the candlestick chart at that point. This is a signal which often indicates that a test may be over. We put HLT on the report. On Nov. 14, it broke higher off that test and we moved in with some January $100.00 options for $2.95 when the stock was at $98.92.

When we jumped in, this stock was pretty much set to rally. Indeed, it rallied for three sessions, tested the 20-day EMA again into late November and then took off the upside into the end of that month. On Nov. 26, we banked part of the options for $5.40 and banked an 83% gain.

HLT tested into early December and fell to a test of the near support at the 10-day EMA. We then put another play on, and when HLT bounced off the 10-day, we bought some January $105.00 calls for $3.20.

HTL bounced up for a couple of days, tested the 10-day again and then rallied straight on through this week. On Dec. 18, HLT gapped higher, rallied and then faltered toward the close. As it looked as if the near move was done, we sold the rest of the original options for $9.00 and banked 205%. We then sold half the $105 options for $4.70 and banked a gain of 46%. We left the other half to work. On Thursday, HLT was up another 1%. In general, this is why we let at least part of a position run as it can continue to work for us and turn good gains into great gains.

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Here are one completed trade from Technical Traders Alert, offering insights into our trading strategy and the target that we have hit this week:

Nike Inc. (NYSE: NKE): After a nice rally to a new high in mid-October, NKE faded to the 50-day moving average (MA) at the end of that month. It then started moving laterally and holding that support. As a result, the stock was possibly going to set up a prime entry for the next run. We put it on the report and waited for the move higher. After we waited some more, NKE made the break upside in mid-November. On Nov. 14 we entered the position with some stock at $91.88 and some January $90.00 call options for $4.75. From there, it was pretty much a straight “follow the trend” kind of action — sort of.

NKE rallied nicely off the 50-day MA to $95. Then, the stock spent two weeks testing laterally along the 10-day EMA along with that early December dip that the entire market felt. NKE gapped to test the 50-day EMA intraday on Dec. 3 but then reversed. It gapped higher from there, and gapped again to a higher rally during the next session. At this point, the buyers were really moving in.

From there NKE climbed the 10-day EMA. We took some initial gains on Dec. 10 when NKE hit $97.50 and could not push through for a few sessions. At this point, we sold some options for $8 and banked a gain of 68%. We left half the position and the stock to continue to work.

NKE broke higher again on Dec. 16 and rallied into the session before earnings were released on Thursday. We then sold more options for $10.15 and banked a gain of 110%. Concurrently, we sold the stock for $101.05 and banked a gain of 9.98%.

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Here is one completed trade from the Success Trading Group, offering insights into our trading strategy and the target that we have hit this week:

NASDAQ:MSFT (Microsoft Corp.)

MSFT was cruising to higher highs off of higher lows in a solid uptrend. So, when it bounced up off a 10-day EMA test in late November, we moved in to play the next bounce in the trend. We bought the stock on Nov. 26 for $151.99. At this point, the stock looked great and was continuing into the upside of the next session. Then, the December blip hit right at the start of the month. That is, just as everyone was digesting their Thanksgiving dinner, the market had some indigestion. All large-caps fell to start the month and that included MSFT as well.

MSFT fell to the 20-day EMA and then gapped below it. The general status of the market on Dec. 3 was a bit disconcerting. However, the stock recovered during that same session, however, and reversed to easily hold the 20-day.

From there, MSFT recovered its footing and resumed the trend on Dec. 6. From there, it was a walk up to the new high that it hit on the previous Monday. After the stock gapped to the high, rallied and then started to fade off the high, we sold the position for $155.55 and banked a gain of 2.4%. MSFT tested on Tuesday and Wednesday and opened on Thursday at the 10-day EMA. As it was bouncing on its volume, could this be a new position? I am definitely looking at one.

This is an example of what you’ll get by becoming a member of the Success Trading Group. The system is geared towards bringing you consistent, short-term gains of 5-10% and you can expect four to six trades every month.

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3. Pick of the Week

AMT (American Tower–$217.95; +6.01; optionable)

EARNINGS: 12/18/2019

STATUS: Downward wedge. AMT peaked in early September and has faded into a base ever since. It found the 200-day simple moving average (SMA) in early November and has used that key support to work laterally and consolidate into December. Over the past five weeks, AMT has been working laterally on the 200-day SMA. Note how the volume started to rise late last week as AMT held the 200-day and started to bounce.

Monday saw a good break upside but the stock then faded on Tuesday. Then, the stock participated in a new break upside on Wednesday on good volume. We are ready to move in when AMT breaks through the buy point. A rally to the target will give us around a 65% gain on the options.

VOLUME: 2.123M Avg Volume: 1.683M

BUY POINT: $218.94 Volume=2M Target=$230.98 Stop=$215.88

POSITION: AMT APR 17 2020 220.00C –(54 delta)

To see the AMT chart image, click here! To receive all of Jon’s picks in Investment House Daily, click here now to start your risk-free trial and save 50%!

4. Covered Call Options Play

Weight Watchers Intl. Inc. (NYSE: WW) — Weight Watchers Intl. Inc. is currently trading at $41.22. The Feb. 22 $42.50 Calls (WW20200222C00042500) are trading at $2.75. That provides a return of about 8% if WW is above $42.50 by the expiration.

Learn more about our Covered Call Tables here!

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