1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily.
A Second Premarket Rally Reverses to a Rout
– For a second time, the premarket session showed a rally that was sold during the regular session.
– Long uptrends fight to stay alive as optimism tries to remain … optimistic.
– Sharp dives off of reversals demoralize participants, typically causing them to capitulate and sell just as a relief move nears.
– The indices are down hard and some are breaking their support — a false break scenario may show up and lead to a relief move.
– We saw position-shuffling ahead of options expiration. We also saw sharp selling all week, along with the second downside leg getting extended, as the weekend was ahead. This is your typical short covering setup.
Futures were up for a second session and posted the low-to-high moves once more. During this session, the upside held on longer and made it all the way to the time that the European markets closed. Then, the downside bell rang, and the indices all plunged lower. The selling was notable, even though the small-cap and mid-caps stocks took a bit more of a beating.
NOTE: The figures and information above are from the 1/20 report.
NOTE: The video is from the 1/19 report.
2. Targets Hit
Here are several completed trades from Investment House Daily, offering insights into our trading strategy and the targets that we have hit this week:
NVIDIA Corporation (NASDAQ: NVDA): Downside is good when it is good. For growth stocks, the situation has been good since the start of 2022. NVDA trended lower rather normally, and then broke the 50-day moving average (MA) in early January.
It rebounded to test the break, which is always a key test when the market is weakening. The reasons why we were so interested in NVDA were 1) the market was really weakening for growth stocks, 2) NVDA was toying with a break of an important support and 3) there was an upside gap from late October that was ready to be filled.
All of those added up to put the odds in our favor, and the numbers on the put options, given the target price, worked well.
NVDA bumped the 50-day exponential moving average (EMA) on Jan. 12, which was the third session in a three-day rebound. A day later, NVDA gapped higher and moved over the 50-day EMA. Then, it reversed. The failure at the 50-day EMA was our signal.
We bought March 18 $280 put options for $24.35. NVDA finished that session at the low. This was a textbook bear flag pattern, as the stock tested the break of support, failed to retake it and fell hard.
NVDA trended lower below the 10-day EMA for the next five sessions, and it gapped to the 180-day MA. This was right in the middle of the relatively small gap zone.
NVDA tried to bounce, faded to the open and then started to work laterally. After the week was down for growth stocks and options expiration was at hand, it was time to bank some gains. We issued an alert to sell half of the position for $49.40 and a 100% gain.
We will now see if NVDA goes ahead and finishes filling the gap.
We also took gains in the following positions:
Caterpillar Inc. (NYSE: CAT): 143% gain in the call options.
ConocoPhillips (NYSE: COP): 125% gain in the call options.
Freeport-McMoRan Inc. (NYSE: FCX): 63.6% gain in the call options.
Kosmos Energy Ltd. (NYSE: KOS): 20.2% gain in the stock, 42% gain in the call options.
Marathon Oil Corporation (NYSE: MRO): 14.7% gain in the stock, 100% gain in the call options.
Tractor Supply Company (NASDAQ: TSCO): 58% gain in the put options.
Here is one completed trade from Technical Trader Alert, offering insights into our trading strategy and the target that we have hit this week:
Silicon Laboratories Inc. (NASDAQ: SLAB): There are great downside setups, and there is SLAB. The stock moved to a new high in November and then worked laterally through December. As it put in some nominal new highs, volume was very light and the moving average convergence divergence (MACD) put on lower and lower highs. Then, in the first week of January, it broke the 50-day EMA and made a quick one-two-three test. It even moved over the 50-day EMA intraday but reversed.
That was our entry signal. As SLAB came off of the 50-day EMA, we issued an alert to buy February $190 put options for $11.50. SLAB was quite congenial. It tested the 50-day EMA again and then started to fall. This past week was when it got interesting, as the stock dropped during each session.
The idea was to play a move to the August/September peak, which coincided with the upper gap point from a nice upside gap on earnings in late October. The 200-day simple moving average (SMA) was there as well. If it broke through the ice and filled the gap, all the better.
SLAB fell all week. After it hit our initial target on Jan. 19, we issued an alert to sell half of the position for $22.10 in order to bank a 92% gain. SLAB was not quite done, however. It gapped lower on Jan. 21. While this was not a gap fill, the stock was sitting on the 200-day SMA. Accordingly, we issued a second alert to sell another half of the position for $27 in order to bank a 134% gain.
We still have a bit of the position left, and we are going to see if SLAB can give us one more impulse lower to fill that gap.
There were no trades in the Success Trading Group this week, as we let the leaders test their recent good moves to set up new upsides.
Still, now is a good time to become 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. Covered Call Options Play
Alpha & Omega Semiconductor Ltd. (NASDAQ: AOSL) — Alpha & Omega Semiconductor Ltd. is currently trading at $44.51. The Feb. 18 $45 Calls (AOSL20220218C00045000) are trading at $3.60. That provides a return of about 10% if AOSL is above $45 by the expiration.