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Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
Stocks Rebound From the Selling
– Stocks did rebound from the selling, but it was not a return to the upside.
– Short raiders were undercut by the trading platforms’ decision to restrict their actions — the Wall Street boys club has been bailed out.
– Sentiment indicators remain stretched — one day of downside did not wash away the market extension.
While we had a few indices holding their support well enough, two important ones, including the PHLX Semiconductor Sector (SOX), did not perform well. SOX gapped upside from the ugly gap lower on Wednesday that took the chips below the 20-day exponential moving average (EMA). After this, the SOX moved through the 20-day EMA and then faded to close just below that level, showing a doji. That bounce was really not a bounce. Instead, it was just a relief move after heavy downside that set up a continued decline. Thus, we are looking at buying puts on the VanEck Vectors Semiconductor ETF, NXP Semiconductors NV and Applied Materials, Inc. as they fall from the bounce to resistance.
Obviously, I feel that the downside will continue. Yes, it is clear that I view the bounce as a one-day relief move that will lead to more downside. Nothing in Thursday’s action altered the Wednesday downside selling. It was simply a reflex move that set up more downside. The market was primed to sell, given the technicals, internals and sentiment. After it started, the bounce on Thursday was weak. As we saw both lower volume and weaker breadth, both the SOX and S&P 500 were in a position to roll right back over.
I reiterate that the index trends are still holding their near support. Thus, you can argue that all is well. I will point out, however, that stocks always hold their support, until they do not. Indeed, they often give the appearance of holding and hanging in the trend. Then, they break. With all the indicators hitting extreme levels, the tell was on stock action. Key indices remain in trouble, e.g. the SOX, as noted. One day of downside did not clean the pipes enough to enable a serious new upside move.
NASDAQ: It bounced off of the 20-day EMA and through the 10-day EMA. Then, it slid back to close just below the 10-day EMA.
S&P 500: It rallied back up through the 20-day and 10-day EMAs. However, it finished the day below those levels.
NOTE: The figures and information above are from the 1/28 report.
NOTE: The videos are from the 1/27 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:
Apple Inc. (NASDAQ: AAPL): AAPL’s group of big-name NASDAQ stocks has not performed the best, but that does not mean we cannot use specific setups to make us money. We saw one of these setups appear as AAPL moved toward earnings in late January.
The stock had consolidated well to start the month and worked laterally along the 20-day EMA. With earnings approaching, AAPL was in the perfect position for a pre-earnings rally into the results. So, we put it on the report. On Jan. 20, AAPL started higher off of a nice, tight doji that had appeared during the prior session.
That was the entry signal, and we moved in with March $130 call options for $9.30, when the stock was trading at $132.15. AAPL stepped nicely higher to end that week and started this week with an upside gap. It looked like a really solid candidate to rally toward results. On Tuesday and Wednesday, however, AAPL just could not advance the ball. With that, we opted to sell the options for $17.85 and bank a 90% gain.
This week, we also banked gains on some other positions:
Vaxart Inc. (NASDAQ: VXRT): We saw that VXRT was in a very nice break higher from an inverted head-and-shoulders pattern that was part of a larger seven-month base. When it faded from Tuesday to Thursday, we put it on the report to play the next move higher.
On Friday, VXRT started upside, and as it was showing very good action in a weak market, we moved in. We bought stock for $10.14 and March $10 call options for $3.20. Then, the stock shot higher. Around noon, VXRT touched our initial target.
As of late, we have seen so many stocks surge and then purge. So, we sold half of the position in the stock for $12.31 and banked a 21.4% gain. We also sold half of our options for $4.80 and banked a 50% gain.
We were a bit early, as the stock continued to move upward to near $13, but that is why we kept half of the position.
Remark Holdings Inc. (NASDAQ: MARK): We purchased the stock on Jan. 11 for $2.22. MARK was a slow burner but finally sparked up this week. Perhaps we acted a bit early, but, on Monday, we sold the stock for $2.81 and banked a 26% gain.
Microvision, Inc. (NASDAQ: MVIS): This was another all-stock play we picked up on Jan. 13. Initially, MVIS made a nice break higher off of the 20-day EMA. Then, the stock rallied to the last part of December and tested to the 20-day EMA well into January.
We were ready, and when it broke higher on Jan. 13, we picked up the stock for $6.49. MVIS continued higher, but it was slow going. Indeed, it crawled up the 10-day EMA into this past week. On Monday, it showed more life. On Tuesday, it moved up to the target. So, we sold the position for $8.11 and banked a gain that was a shade below 25%.
Here are two completed trades from Technical Trader Alert, offering insights into our trading strategy and the targets that we have hit this week:
Zscaler Inc. (NASDAQ: ZS): We sold our ZS February $185 call options for $28.21 and banked a 56% gain.
Fastly Inc. (NYSE: FSLY): We also banked a 61% gain on our FSLY March $100 call options.
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:
Draftkings Inc. (NASDAQ: DKNG): In January, we saw DKNG setting up a potential breakout from a four-month base. Of course, those breakouts can produce a lot of gains in a hurry.
DKNG was testing the 50-day EMA to start the week, and we know that test of that level late in a base will often yield a breakout. On Tuesday, DKNG bounced up from the 50-day EMA. This was the move we were looking for.
We started the position by buying the stock for $54.44. Then, DKNG rallied and faded during that session. On Wednesday, DKNG rallied and then faded. However, it continued to hold its position.
On Thursday, DKNG rallied again, moved to our initial target and then started to backtrack. Rather than let the gains disappear for a third session, we sold the position for $57.10. This enabled us to bank a 4.89% gain.
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. Pick of the Week
LAKE (Lakeland Industries — $27.70, +0.55)
STATUS: LAKE broke higher from a six-month base during the second half of December and rallied into the first half of January. Then, LAKE faded over the past two and a half weeks and showed very, very light volume as it made the test. Over the past week, LAKE’s decline has slowed. Indeed, the stock has been working laterally in a tight range and holding the breakout.
Wednesday saw a nice break higher on rising and above-average volume. As this was good action in a weak market, if LAKE can make a break higher, we want it to make a run at the prior high. That is enough to bank a gain of 60% on the options.
Volume: 379.357K Avg Volume: 416.101K
ENTRY POINT: $28.01 Volume=475K Target=$31.98 Stop=$26.68
POSITION: LAKE APR 16 2019 28.00 Calls — (50 delta)
4. Covered Call Options Play
360 Digitech Inc. (NASDAQ: QFIN) — 360 Digitech Inc. is currently trading at $17.41. The Feb. 20 $17.50 Calls (QFIN20210220C00017500) are trading at $1.45. That provides a return of about 10% if QFIN is above $17.50 by the expiration.