Invest and Trade Profitably with Jon Johnson

Weekender for 10/16

1. Market Summary

Consumer Price Index Smoking Hot

  • Consumer Price Index (CPI) smoking hot on top of Producer Price Index (PPI)
  • Stocks reverse 750 Dow points premarket high to low. Then 1300+ Dow points low to high.
  • New 2022 lows for most indices then a massive surge — the action we were looking for early in the week. Is this a massive head fake?

As I opined late Wednesday night, a smoking CPI would likely send stocks lower, but then there was a real chance of a reversal after six sessions lower. CPI was hot, futures flipped from positive 300+ to -450 — a mere 750+ point swing. The resident contrary signal personality on one of the main financial stations was calling everyone stupid — stupid for buying when the market was obviously going lower — just as in March when the bear market was over? Or again in July when tech stocks were “very near” a buy?

NOTE: The figures and information above are from the 10/13 report.

There were no videos this week due to the Vegas conference.

2. Targets Hit

H World Group Ltd. (NASDAQ: HTHT): We saw HTHT range-trading from late June through August in a rather ragged way. HTHT demonstrated a type of pattern I just discussed at the W3BX conference this past week: an attempted breakout from a trading range that fails.

HTHT attempted a breakout from the range in late August, but that move failed as the stock reversed off a gap out of the range. It fell to the 200-day moving average (MA) but could not hold. After that break of support, HTHT did what stocks typically do, i.e., it rebounded to test that 200-day MA break.  The pattern was a good downside setup: a failed breakout attempt, a drop through the bottom of the range and then a test of the break. The play also had an enhancement, an upside gap to fill from mid-June.

On Sept. 20, HTHT showed a doji at the resistance of the old range.  That was a “get ready” signal.  The next session, HTHT gapped slightly lower and started to sell.  That was our cue, and we sent an Investment House Daily alert to buy December $35 put options for $3.94 when the stock was trading at $34.05.

HTHT sold farther that session, closing on the low. It sold again the next two sessions, heading toward that gap fill. At that juncture, however, HTHT gapped higher with the market on some news. Again it stalled, this time below the trading range. So, we let the play work.  After two more such gyrations, HTHT rolled back over this past week, gapping sharply lower on Monday.

It sold further, finally filling the gap. We issued an alert to sell half the position with the options bidding for $6.08 and a solid 54% gain. Now we are letting HTHT work laterally, looking for a second leg lower to fill another gap from late May.

Receive a risk-free trial to Investment House Daily and save 50% by clicking here now!

ProShares UltraShort S&P500 (NYSEARCA: SDS): After rallying back up to the 20-day exponential moving average (EMA) in early October, the S&P 500 was ready to fall gain. We like to play SPY puts as they are very liquid, but we also like the SDS Ultrashort S&P 500 Exchange-Traded Fund calls as well. With SDS, you can play an upside call for a downside move in the S&P 500, and the price point is good for a lot of people.

Sure enough, after that test of the 20-day EMA, the S&P 500 gapped lower on Oct. 7. That is the move we were looking for in Technical Trader Alert, and we issued the entry alert to buy some SDS December $52 call options for $5.73, when the SDS was trading for $52.78.

The S&P 500 continued lower, as anticipated. SDS moved up to the prior highs from June and late September, starting to pause.  Then on Thursday, Oct. 13, SDS gapped sharply higher on the CPI. I had written in the report the night before, and in the morning alert, that after a downside gap on the CPI, the market would likely rebound as it would be down for six days straight.

Anticipating the reversal move, when SDS gapped lower, we used that gap to take some gains. We issued an alert to sell one-third of the position with the ask bidding  for $7.70, banking near 35% — not a huge haul but a logical point to lock in some gains, as we anticipated the reversal session. We anticipate that reversal will fail, and thus we still have two-thirds of the position to work for us as the S&P 500 continues lower in the bear market.

We also banked a gain in the following trade:

Murphy Oil Corporation (NYSE: MUR): 97% gain in the options.

Receive a risk-free trial to Technical Trader and save 50% by clicking here now!

3. Covered Call Options Play

Chindata Group Holdings Limited (NASDAQ: CD) — Chindata Group Holdings Limited is currently trading at $7.38. The Nov. 18 $7.50 Calls (CD20221100C0000750C0) are trading at $0.60. That provides a return of about 11% if CD is above $7.50 by the expiration.

Learn more about our Covered Call Tables here!

Log In

Forgot Password