1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
Jobs, Jobs, Jobs
– All must be well as large-caps have gapped higher and rallied to new highs.
– Fed Vice Chair Richard Clarida has said that monetary policy is in a good place even though the Fed has been forced to put more into repurchase (“repo”) operations instead of backing off as planned.
– China has confirmed that it will sign the Phase One agreement.
– The fact that sentiment is hitting higher levels suggests that there is a bit of froth in the market.
– Although the jobs report was released on Friday, the Fed is still being forced to continue adding liquidity.
The rebound from the recent geopolitical crisis has continued since the U.S.-Iran dispute was used as a vehicle to get more money into the market. This course of action drove the large-cap indices to new highs.
This Friday was jobs report Friday and expectations were high after the Automatic Data Processing (ADP) report beat expectations and featured a revision upward. The jobs report would have been the news of the week except for the fact that fears of World War III sprouting up. Now that fears regarding an outbreak of war have been tamped down, the jobs report will have some clout again.
Fed Vice Chair Clarida recently stated that monetary policy is in a good place. He then added that since the economic headwinds have improved, the Fed will not take back the rate cuts because there are no signs of inflation. He also said that the consumer, in the aggregate, is in the best condition ever. Is this a bit grandiose or even a bit Trump-like?
S&P 500: Many of the large-cap tech stocks gapped nicely higher and then failed to add much more. In a nutshell, that was the S&P 500’s course of action. This move was not bad as it had plenty of momentum and was 9.8% over the 200-day simple moving average (SMA). By that measure, the index has moved into the extended range.
NASDAQ: The NASDAQ continued to lead the market, starting with that Monday gap lower and a reversal which propelled the stock to new heights on Wednesday and Thursday. As the index gapped to a tight doji on Thursday, the NASDAQ is perhaps a bit overdone in the near-term. On the other hand, it is also 13% above the 200-day SMA and is also getting a bit extended. Yes, the momentum is still strong — until it no longer is.
The point here is that you have to watch the leaders and how they are acting as well. While we are not seeing many reversals, the Facebook, Apple, Amazon, Netflix and Google (FAANG) stocks gapped upside with impressive gains after good runs. For instance, Google (GOOG) gapped to a doji, as did Microsoft (MSFT).
As we are in the process of a run that is perhaps getting a bit extended, we need to watch these doji to see if the stocks will start to fall back from them or if this is just an indication that this trend will continue.
NOTE: The figures and information above are from the 1/9 report.
NOTE: The videos are from the 1/8 report.
2. Targets Hit
Here are four completed trades from Investment House Daily, offering insights into our trading strategy and the targets that we have hit this week:
Advanced Micro Devices, Inc. (NASDAQ: AMD): We decided to revisit a play that we entered on Nov. 13 when we picked up stocks for $37.05 and January $35.00 call options for $3.75. We took our initial gains by selling the call options for $11.19 and left the other half of the options to work for us.
AMD then tested back to the 10-day exponential moving average (EMA). Then, it held this position and worked laterally for three weeks. On Dec. 12, AMD surged. It ran up the 10-day EMA into Thursday, hit a new high and then started to fade. As soon as this happened, we sold some more stocks for $49.05 and banked a 32% gain. We also sold the rest of the January options (since they will expire next Friday) for $14.00 and banked a gain of 270%.
Dynatrace Inc. (NYSE: DT): DT was a new issue in late summer that spent the first months of its trading life forming a base. It rallied into late November, faded into a handle and then formed a cup with a handle base. After we put it on the report to play the breakout, DT broke upside on Dec. 16. We entered by buying stock for $25.10 and February $25.00 call options for $2.90.
DT took its time and trended up the 10-day EMA into Christmas. As it tested again and held the 20-day EMA near its support, we let it work. On Jan. 6, DT broke higher with a big surge and hit our target. We then sold half the stock for $29.12 and banked a gain of 16%. We also sold half the options for $4.90 and banked a gain of 68%. Now, we will see if the rest of the position can bounce off a 10-day EMA test and deliver some strong moves.
ServiceNow, Inc. (NYSE: NOW): We saw software stocks working out of the bases that they had formed in mid-summer. NOW was one of those, as it faded to the 200-day SMA to form a handle. After we put it on the report, NOW broke higher on Dec. 13. Then, we picked up February $270.00 call options for $18.70 when the stock was at $272.46.
NOW jumped hard during the next session and then settled down into a steady move up the 10-day EMA. On Wednesday, Jan. 8, NOW hit our target. We then sold half the options for $33.10 and banked a gain of 77%. It was good that we let the rest run because NOW was up another 1% on Thursday.
Workday Inc. (NASDAQ: WDAY): Here is another software stock that came off the base that it had started to form in late summer. Initially, we saw WDAY turning upward and cracking the 50-day EMA on Jan. 2. After we put it on the report, it continued higher on the following day.
We moved in with March $170.00 call options at $10.00 when the stock was at $168.48. The stock then moved and hit our initial target on Wednesday. We then sold half of our options for $16.00 and banked a gain of 60%.
Here are three completed trades from Technical Traders Alert, offering insights into our trading strategy and the targets that we have hit this week:
Chewy Inc. (NYSE: CHWY): While initial public offerings (IPOs) from the previous summer had issues in the fall, they have since started moving up again. For instance, we saw CHWY set up a double bottom that spanned October and November. After we put it on the report, it gapped higher over the 50-day moving average (MA) on Dec. 11. Then, we moved in by buying stock for $26.41 and April $25.00 call options for $4.20.
CHWY rallied nicely for three sessions and then slowed. It then slowly worked up the 10-day EMA into December and flattened out below our target. On Thursday, CHWY jumped upside and hit the initial target. As a result, we sold half the stock for $30.32 and banked a 14% gain. We also sold half the options for $6.50 and banked a 55% gain.
HubSpot Inc. (NYSE: HUBS): Recently, we had begun to see software stocks starting to turn up off their consolidations. HUBS was one of those as it broke through the 50-day EMA, tested and then bounced on Dec. 19. We then moved in with February $160.00 call options for $9.50.
After HUBS slid laterally for a week, it subsequently started higher. Over the next five days, it moved up to the 200-day SMA and our initial target by Tuesday. We then sold half the options for $14 and banked a gain of 47%.
We then held the rest of the options to see if they could break the 200-day SMA. HUBS did so when its shares gapped over the 200-day SMA on Wednesday and continued up into Thursday. When this move stalls, we will bank some more of the gains.
Snap Inc. (NYSE: SNAP): Social media has begun to set itself up again. For example, SNAP formed a triangle over the 200-day SMA and broke higher in early December. We picked up some stock for $15.32 on a move over the 50-day MA and some January $15.00 call options for $1.30.
After SNAP slid laterally after the break over the resistance, it started a steady (i.e. slow) move up the 10-day EMA. Since it was still moving higher, we just let it work. On Thursday, Jan. 9, SNAP jumped higher and rallied to test the July and September highs. After it hit our initial target, we sold half the stock for $17.50 and banked a gain of 14%. At this time, we also sold our options for $2.49 and banked a gain of 90%.
Here are two completed trades from the Success Trading Group, offering insights into our trading strategy and the targets that we have hit this week:
Chewy Inc. (NYSE: CHWY)
We moved into CHWY at $29.35 on Dec. 20 when it broke higher from a double bottom with handle pattern. After this, CHWY promptly went… nowhere. Okay, it bounced up for a couple of days, faded and then bounced for a couple of days — you get the picture.
However, it managed to hold onto the 10-day EMA all the while. Finally, CHWY jumped higher on Thursday. We then sold the stock for $30.35 and banked a gain of 3.4%. In retrospect, I am glad we did so because CHWY would give up a good chunk of the move by the time that the markets closed.
Paypal Holdings Inc. (NASDAQ: PYPL)
After being somewhat forgotten over the past six months, PYPL slid into a base after peaking in July 2019. Then, we saw the technical indicators lining up as PYPL climbed up over the 200-day SMA in early December. As it was ready to form the right side of a cup base, PYPL crossed the 200-day SMA in mid-December. Then, it moved laterally over that support and formed a handle to the cup.
After it broke higher, we entered the position at $110.77. On the next day, PYPL tested. This was not great, but it held and started upside this week. While it then moved back and forth from day to day, it steadily moved higher until it touched our initial target on Friday. At that point, we sold the position for $113.30 and banked a gain of 2.3%. We will wait for PYPL to test this first move. Then, we will look at playing the next leg as well.
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.
3. Pick of the Week
LLY (Eli Lilly & Co.–$133.71; +1.20; optionable)
STATUS: In mid-December, LLY broke out from a nine-month cup base. Essentially, this one base had just surged straight up from November through mid-December. After a big gap higher on Dec. 20 took LLY out of the base, the stock soon reversed during that same session.
It has since formed a belated handle as the test of the breakout. After a two-week lateral move that let the 10-day EMA catch up, LLY jumped higher on Wednesday on the best volume that it has had since the surge breakout. We want to move in as LLY continues the break higher. A rally to the target will give us a gain of 75% on the options.
VOLUME: 5.096M Avg. Volume: 3.214M
BUY POINT: $133.89 Volume=3.4M Target=$139.94 Stop=$131.91
POSITION: LLY FEB 21 2020 135.00C — (40 delta)
4. Covered Call Options Play
Kodiak Sciences Inc. (NASDAQ: KOD) — Kodiak Sciences Inc. is currently trading at $66.98. The Feb. 22 $70.00 Calls (KOD20200222C00070000) are trading at $3.40. That provides a return of about 13% if KOD is above $70.00 by the expiration.