Weekender for 1/19
1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
The Unstoppable Rally
– Stocks bypassed a soft open and gapped upside.
– Small and mid-caps joined the large-caps in achieving strong breaks higher.
– The economic data showed new promise.
– Now, its time for expiration Friday, a long weekend and more earnings.
The unstoppable rally did not stop on Thursday. It actually did not even pause — hence the name. The small and mid-caps, both of which showed signs of interest on Tuesday and Wednesday, vaulted higher and led the upside. The January Philly Fed jumped past expectations by coming in at 17.0 (3.0 was expected and 0.3 was the score during the prior month), notching the first solid showing in manufacturing in many months. With the New York Purchasing Managers Index (PMI) beating expectations, albeit modestly, there is some optimism. Will it be enough to break the S&P 400 and the Russell 2000 out from their laggard status? Thursday was promising.
Despite many big retail names reporting disappointing holiday sales, overall retail sales and the Philly Fed came in solid. With Larry Kudlow talking about tax cuts 2.0 and the signing of the first phase of a U.S.-China trade deal, economic optimism has improved dramatically.
Expiration Friday will be followed by a market holiday on Monday. Most likely, the impressive upward rally will continue (and indeed grow) with the addition of the small and mid-caps. Thus, we will likely see a big move into expiration — and earnings season — alongside the three-day market closure.
Technical Analysis:
The move upward has continued with vigor as some areas that had plateaued for two to three weeks, such as some big name semiconductors, broke higher. In addition, the small and mid-caps broke higher. I have repeatedly stated that if they joined the move, this upward trajectory could have impressive legs. That was certainly the case on Thursday.
S&P 500, NASDAQ and DJ30: A trio of gaps higher ended with rallies that closed either at or near session highs. These three indexes all saw new highs. For instance, the S&P 500 rose over 3,300 and the NASDAQ rose over 9,300. Indeed, both have moved into virgin territory after an absurdly strong run thus far.
NOTE: The figures and information above are from the 1/16 report.
Watch the Investment House Videos For This Week Here!
NOTE: The videos are from the 1/15 report.
2. Targets Hit
Here are two completed trades from Investment House Daily, offering insights into our trading strategy and the targets that we have hit this week:
Pintrest Inc. (NYSE:PINS): Social media stocks have dramatically improved after undergoing a base. Facebook was first, then Snap Inc., Match Group Inc. (both of which made us great money) and then PINS.
We saw that PINS was starting to turn up from a long trend lower and that its moving average convergence/divergence (MACD) was becoming stronger on lower price lows. This meant that it was carving out something of an inverted head and shoulders pattern. We put it on the report on Jan. 11 as PINS bumped the 50-day exponential moving average (EMA) from below. At the time, we were planning to buy on a break through that resistance.
On Jan. 14, PINS made the break and we entered with stock at $20.56 and February $20.00 call options for $1.95. This was a pretty quick march higher, given the market rally. On Jan. 17, PINS gapped higher and hit our initial target. We then sold half the stock for $23.78 and banked a gain of 15.6%. We also sold half of our options for $4.20 and banked a gain of 115%. Now, we will see if PINS can go ahead and fill the gap lower from late October.
Twilio Inc. (NYSE:TWLO): We saw the software stocks starting to turn higher in their basing process after being great market leaders because they had topped out and needed to consolidate. As a result, we were able to pick up several great plays such as ServiceNow and Slack Technologies. Then, we saw TWLO setting up as well. We put it on the report on the weekend of Jan. 4 because it was trying to break higher through the 50-day moving average (MA).
On Jan. 6, TWLO did just that. Thus, we entered the play with the stock at $106.57 and February $105 calls for $8.05. This caught the wave higher in the market and TWLO climbed during each session. On Jan. 10, TWLO hit our initial target as it gapped to a doji that filled the mid-October downside gap. We then sold half the options for $13.60 and banked a 68% gain.
TWLO continued higher from there and bumped the 200-day simple moving average (SMA) this past week. On Wednesday, TWLO surged through the 200-day SMA and looked very strong. This didn’t last because it soon reversed after making the break higher. As we saw the reversal taking place, we sold the rest of the options for $17.00 and banked a 111% gain. We also sold the stock for $120 and banked a 12.6% gain. Now, we will wait and see if TWLO can set up again.
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Here are three completed trades from Technical Traders Alert, offering insights into our trading strategy and the targets that we have hit this week:
Beyond Meat Inc. (NASDAQ: BYND): We saw BYND’s very tight range in November and December alongside a rising MACD when the stock put in some lower lows in the range. This suggested that momentum was building upside. Then, we saw the volume kick in to start 2020 when BYND moved up through the 50-day SMA. Accordingly, we put the play on the report on Jan. 9.
As BYND gapped higher during the next session, we entered the play with some February $95.00 call options at $9.00. At this time, we knew that BYND could rise higher. It did. BYND gapped upside again on Jan. 13 and rallied 18 points. With that kind of move, we sold half the position for $19.50 and banked a 116% gain.
During the next session, BYND gapped upside, surged and then started to fade the move. At this time, we sold more of our options for $26.20 and banked a gain of 191%. After that kind of move, BYND became a bit winded. However, it looks as if it is trying to set up again for phase two of the move. If it does, we will be ready.
NetEase Inc. (NASDAQ: NTES): With the China trade deal close at hand, Chinese stocks have been performing better. For example, we saw an old favorite setting up to start the year by gapping upside on Jan. 2 from a nice 50-day moving average (MA) test. After the gap and surge, NTES tested and showed a nice doji with a tail over the 10-day EMA on Jan. 6. We then put it on the report.
During the next session, NTES started back upside. As a result, we entered the play with March $325.00 calls for $21.70. Then, NTES made a beeline right up to our initial target at $350. When it hit our target, we sold half the options for $34.40 and banked a gain of 58%.
After hitting $350, NTES then moved laterally for a week and let the 10-day EMA catch up to the move. We anticipate that NTES will continue higher in the coming week. When it does, we’ll be ready.
Tesla Inc. (NASDAQ: TSLA): TSLA was overdone with a series of upside price increases and upgrades. In some ways, we viewed it as the poster child for an oversold stock on this rally as it had gapped on not much more than upgrades.
We saw it gap to a hangman doji on Tuesday, Jan. 14, and we put a downside play on the report. During the next session, it gapped lower off that doji — an island reversal in mini form — and we entered with some February $530.00 put options at $45.40. Then, TSLA closed at the session low.
The next morning, TSLA was downgraded, gapped down to the 10-day EMA and held there. We sold our puts for $60.00 and banked a gain of 32%.
While we don’t feel that TSLA is done selling, the rest of the market likely needs to wind down the current upside leg before TSLA can sell more.
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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:
Starbucks Inc. (NASDAQ:SBUX)
SBUX was in the process of building a nice cup base, and we always look for entries at various points during the formation of a base. Indeed, we can get quick, solid moves time and time again during this process.
We saw SBUX testing near the 50-day EMA in late December and early January. On Jan. 8, SBUX started up off a pair of doji at the 20-day EMA and showed that it was ready for the next leg higher. Thus, we moved in and bought the stock for $89.27. SBUX gapped upside during the next session even though it could not move much past the gap. After it tested that move during the next session, it started up during the subsequent session on Jan. 13.
SBUX hit our initial target during that session. Since it was backing off the high, we went ahead and banked the profits. We sold the stock for $91.18 and obtained a 2.14% gain.
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
QCOM (Qualcomm–$88.80; +0.39; optionable)
EARNINGS: 02/05/2020
STATUS: QCOM broke higher in late October and early November from a nice six-month base that consolidated the very strong April surge. An interesting thing about that surge is that it gapped up big, rallied into May, tested and gapped back down right through the same gap zone in late May. This is what is known as an island reversal.
Even so, QCOM held on and started the base. After that surge to a higher high in early November, QCOM tested and came back to the 50-day MA in early December. Once the stock found support and rebounded to just below the November high, it then worked laterally in a tight range. Then, it dipped to test the 50-day EMA again and put in a higher low in the pattern.
We like seeing higher lows in a triangle such as this because this pattern often precedes a breakout move. As this is a very nice setup, we are looking for a strong break higher to signal our entry. A move to the target will give us around a 12% gain on the stock and around a 100% gain on the options.
VOLUME: 5.513M Avg Volume: 10.2M
BUY POINT: $89.27 Volume=15M Target=$99.91 Stop=$85.94
POSITION: QCOM FEB 21 2020 90.00C — (48 delta) &/or Stock
4. Covered Call Options Play
Urban Outfitters Inc. (NASDAQ: URBN) — Urban Outfitters Inc. is currently trading at $26.90. The March 21 $27.00 Calls (URBN20200321C00027000) are trading at $1.95. That provides a return of about 9% if URBN is above $27.00 by the expiration.
