Weekender for 1/5
1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
A New Year Means New Opportunities
– The year 2020 started off with a 2019 flavor as the big names led and the smaller-caps lagged.
– Chinese stimulus got some credit for the gains, but there is no doubt that new money was put to work as the volume jumped to solid levels.
– Was this just a first day of the year event? As buyers still want stocks, there will likely be more entry opportunities after the new money comes in.
The new year started strong in the pre-market period. After a morning test, the first session finished in a strong position. Futures were up all morning, but after a higher open, profit-taking began. Then, stocks cut into the opening gains over the course of the first hour, bounced and then sold off to a session low by mid-morning. After the market held into the early afternoon, the bids returned. Stocks shot higher during the last two hours and closed the large-cap indices out at new highs.
Some analysts lamented the lack of news and the fact that stocks still surged upside. Sure, there were some news stories. However, for us, it was the case of an existing uptrend, a new year and new money being put to work.
Again, it is not the small-caps that typically rally during the first part of the year in a January Effect move. Instead, money chases big names such as Apple, Microsoft, Advanced Micro Devices, Chipotle Mexican Grill, ServiceNow and Intel during this time. These were stocks that were already quite high and were market leaders in 2019. Thus, there is some reason for the concern about the continued move in the same names.
Technical Analysis:
We saw new highs for all the large-cap indices while the small- and mid-caps lagged notably.
S&P 500: It gapped to just below the late-December high and then rallied to close at a new high.
NASDAQ: The NASDAQ saw the same action and gapped upside off the 10-day exponential moving average (EMA) and moved to a new all-time high.
NOTE: The figures and information above are from the 1/2 report. There were no videos this week due to the Jan. 1 holiday.
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:
Chipotle Mexican Grill, Inc. (NYSE:CMG): We saw CMG gap over its 50-day moving average (MA) in late November and put it on the list to watch as it consolidated that move. At the time, we were looking to play a new move off of a test of that strong gap over the resistance.
CMG then worked laterally and tested. It came back to the 50-day MA intraday on Dec. 3 and then reversed. We put it on the report, given that the data showed that buyers were moving in on the opportunity.
On Dec. 5, CMG broke higher again. We used that opportunity to move in with January $820 call options (the stock was at $819.71 at the time) for $27.50. CMG rallied from there for a couple of sessions. During the following week, it tested the move and came back to the 20-day EMA when the market opened on Dec. 13. As it bounced positively from there, we let it work.
CMG then ground higher up the 10-day EMA for two full weeks. The situation was slow going, but at least it was working higher. On Thursday, Jan. 2, the stock caught fire and surged to our initial target at the Sept./Oct. 2019 highs.
We sold our options for $39.50 and banked a 43% gain. CMG continued higher on Friday. Now, the options are trading for $50. We will see how far it will run in order to build more value into those options.
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Here is one completed trade from Technical Traders Alert, offering insights into our trading strategy and the target that we have hit this week:
Match Group Inc. (NASDAQ: MTCH): After leading through the summer, the social media stocks were suddenly overdone and off the buy list for many people. MTCH made a big break higher in early August, but that was its last hurrah on its move. A one-day gap and a rally that then reversed into a selloff soon followed.
Fast-forward to December, and we were watching MTCH as it firmed up in a good base. By now, it was ready to turn back upside and build the right side of the base. On Dec. 13, it broke over the 50-day MA, and we put it on the report.
On the following Monday, MTCH moved higher again and we moved in with some stock at $72.73 and some March $70.00 call options for $6.26.
MTCH then made a quick test of the move and blasted higher on Dec. 19. It then took part in a six-session rally through Dec. 27. On Monday, MTCH stalled somewhat. However, this course of action was understandable after the surge.
As a result, we sold some stock for $82.93 and a 14% gain. We also sold part of the options for $14.00 and banked a 123% gain. We are letting MTCH consolidate a bit — and it is working laterally as it holds its gains — and waiting to see if it can post another run for us.
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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:
EQT Corporation (NASDAQ:EQT)
Stocks that make turns off off long downtrends can produce solid gains when they make that initial turn. Thus, we are always on the lookout for these types of trajectories.
While EQT, a gas utility, is in a group that is typically quite boring, we know that EQT can move quite well. In the fourth quarter of 2019, EQT double bottomed as part of a long downtrend and then broke above the 50-day MA in mid-December. After that initial break, it tested the move and came back to the 10-day EMA late in the month.
When it bounced off the 10-day EMA on Dec. 30, that was our signal to move in. We picked up the stock for $10.66. During the next session on New Year’s Eve, EQT bounced up just past the high on the break through the 50-day MA and then started to struggle.
After we sold the position for $10.90 and banked a quick 2.25% gain, EQT faded to the 50-day EMA into Friday. As a result, we will see if it shows good action and thus gives us a new entry.
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
MMM (3-M Company–$177.26; +0.66; optionable)
EARNINGS:01/23/2020
STATUS: Breakout test. MMM is in the process of turning the corner from a long trend lower off the early 2018 peak. After a recovery attempt through April 2019, it collapsed lower on earnings in April. That started the current base. Since then, MMM has put in three distinct lows in the pattern and each one has been lower then the previous one.
The fact that the last two lows showed higher moving average convergence divergence (MACD) lows indicated that the harsh selling was over and the stock was putting in the bottom of the base. MMM rose off the October low and spent all November and December working on a small cup. This was basically a handle to the base that was formed in 2019.
The past two weeks saw a strong break higher through the 200-day simple moving average (SMA) and marked the first time that MMM has traded over that level since gapping through it in late April. Then, there was a nice solid break upside on volume followed by a low volume test holding the 200-day SMA over this past week.
We are ready to move in as soon as MMM resumes the upside breakout move. A rally to the target will give us around an 80% gain on the options.
VOLUME: 1.473M Avg Volume: 2.583M
BUY POINT: $177.58 Volume=3.8M Target=$187.91 Stop=$174.25
POSITION: MMM FEB 21 2020 180.00C — (46 delta)
To see the MMM chart image, click here!
4. Covered Call Options Play
Lattice Semiconductor Corp. (NASDAQ: LSCC) — Lattice Semiconductor Corp. is currently trading at $19.43. The Feb. 22 $20.00 Calls (LSCC20200222C00020000) are trading at $1.40. That provides a return of about 11% if LSCC is above $20.00 by the expiration.
