Invest and Trade Profitably with Jon Johnson

Weekender for 10/18

1. Market Summary

Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.

A Big Gap Lower to Near Support

– Stocks opened the third selling session with a big gap lower… to near support.
– The large amount of negative sentiment accompanying the early downside helped, along with a -10:1 breadth, to bounce stocks back upside.
– As the third day of testing rebounded, we will be able see if the leaders will go ahead and make new breaks higher. Alternatively, they could put such a move off until next week and launch a run into some big earnings reports.

The post-market headlines tell us that stocks closed lower for a third day (apparently small-cap and mid-cap stocks are not included in financial stations’ definition of “stocks”) because of concerns over the U.S. stimulus and a COVID-19 spike in the European Union. That was during afterhours.

Before the open, we were given a litany of reasons as to why the market is just bad: Valuations are way too high, whales are leaving the market, there is too much stimulus pessimism, the second virus wave, Goldman Sachs’ decision to downgrade tech, the number of jobless claims is rising and just missed a 900,000 handle, figures from the Empire and Philly Purchasing Managers’ Indices (PMIs) split the baby, with the former missing (10.5 vs. 14.0 expected vs. 17.0 in September) and the latter beating (32.3 vs. 16.0 expected vs. 15.0 prior). This is a veritable cornucopia of reasons to run from the market and then run some more. Yes, analysts said, the market has put in a good run off of the low, but they also said that it is stalling below its old highs and is likely forming a double top, or something of the sort, that will lead to another selloff.

There is no doubt that stocks opened sharply lower with downside gaps. We are two days to the downside already, and I said that there would be at least one more day of downside, maybe two. This is the test I said that the indices would make before the run to the end of the year. It could have occurred at the old high, above the old high, like the PHLX Semiconductor Sector (SOX), or it could be here, below the high, after a second run off of the low that matched the first run. Voila, here we are.

Technical Analysis:

NASDAQ: The NASDAQ and NASDAQ 100 held and bounced. Volume was lower, however, and there was not a massive rush back into these stocks. There was no heavy selling in terms of volume, but there was also no surge on the way back up. Again, however, some late buying was to the upside.

S&P 500: It gapped to the 10-day exponential moving average (EMA), undercut it and reversed to basically flat. There was no heavy selling as volume backed off, and we saw more of a good test lower than a rebound. Indeed, all of the selling volume over the past three days has been light.

NOTE: The figures and information above are from the 10/15 report.

Watch the Investment House Videos For This Week Here!

NOTE: The videos are from the 10/14 report.

2. Targets Hit

The market rebound from the lows caught many investors by surprise, and they spent time piling into stocks. By doing so, they augumented the positions that we had purchased when stocks were showing good patterns in a pessimistic atmosphere. That gave us the opportunity to bank some strong gains. Here are some of the trades that Investment House Daily subscribers took gains in over the course of the past week:

Laboratory Corp. of America Holdings (NYSE: LH): 50% gain on the options

Fastly Inc. (NYSE: FSLY): 110% gain on the options

Chewy Inc. (NYSE: CHWY): 16.5% gain on the stock, 65% gain on the options

Nike Inc. (NYSE: NKE): 145% gain on the options

Zendesk Inc. (NYSE: ZEN): 226% gain on the options

Snap Inc. (NYSE: SNAP): 11% gain on the stock, 86% gain on the options

Kirkland’s, Inc. (NASDAQ: KIRK): 40% gain on the stock, 50% gain on the options

Etsy Inc. (NASDAQ: ETSY): 98% gain on the options

HubSpot Inc. (NYSE: HUBS): 60% gain on the options

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I love it when patterns are great, but pessimism is high. This is because, while many investors are frozen with worry or are turning the worry into selling, we can spot the stocks that have good patterns and show relative strength. We can then use the atmosphere of fear to set up entry points. When stocks show the buy signal, we move in.

We did that in September and early October, and as a result, when people finally figured out that stocks were going back up, we benefited greatly. This is because they bought stocks that we held. As a result, we banked more strong gains over the course of the week. The following are some of those gains in Technical Traders Alert:

Trade Desk Inc. (NASDAQ: TTD): 168% gain on the options

QUALCOMM, Inc. (NASDAQ: QCOM): 41% gain on the options

Roku Inc. (NASDAQ: ROKU): 112% gain on the options, Inc. (NASDAQ: AMZN): 37% gain on the options

Fate Therapeutics Inc. (NASDAQ: FATE): 19% gain on the stock, 82% gain on the options

Paylocity Holding Corp. (NASDAQ: PCTY): 182% gain on the options

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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:

Chewy Inc. (NYSE: CHWY): This has been one of the hot retail stocks as of late. Thus, we have stacked some plays on CHWY as it rallies. For example, we often enter one day and take a 5% gain the next day. Then, if the setup is still there, we do it again. The most recent time that we executed this plan was this past week.

CHWY launched on a good move off of the 50-day moving average (MA) two Thursdays ago. After an initial play, CHWY continued to display strong momentum. So, we bought the stock for $62.67.

CHWY moved upward into the close. During the next session, CHWY continued higher and hit our target. Then, we sold the stock for $65.50 and banked a solid 4.5% gain over the course of a day.

After this, CHWY pulled back to the 10-day EMA on Thursday and started to move up. We should have entered again — the stock gapped sharply higher on Friday. Instead, we will look for the next opportunity to do so. After all, this stock gives us quite a few.

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.

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3. Pick of the Week

SPOT (Spotify Technology–$266.95, +15.51)

EARNINGS: 10/29/2020

STATUS: Cup with handle. SPOT broke higher on Tuesday on strong volume, as it surged out of a seven-week cup-with-handle base that it formed along the bottom of the trading range that it had started in July 2020. As this is a strong move, we are looking to enter as SPOT continues upside. We are looking at a move to the top of the range toward earnings. That move will give us a 60% gain on the options.

VOLUME: 1.587M  Avg Volume: 1.404M

ENTRY POINT: $266.31 Volume=1.8M Target=$298.97 Stop=$259.47

POSITION: SPOT JAN 15 2021 270.00 Calls — (54 delta)

To see the chart for SPOT, click here!

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4. Covered Call Options Play

Horizon Pharma Inc. (NASDAQ:HZNP) — Horizon Pharma Inc. is currently trading at $79.33. The Dec. 19 $80 Calls (HZNP20201219C00080000) are trading at $6.70. That provides a return of about 12% if HZNP is above $80 by the expiration.

Learn more about our Covered Call Tables here!

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