Invest and Trade Profitably with Jon Johnson

Weekender for 10/23

1. Market Summary

Still Dealing With Near Support

  • After two days up, stock indices fade but do not break.
  • Still dealing with near support, but more a lack of buyers versus a rush of sellers.
  • Housing starts crater.
  • Oil stocks enjoy a solid session as the indices fade.
  • Afterhours earnings see Tesla miss on revenues, the Lam Research Corporation reverse a nice gain and International Business Machines Corporation (IBM) hanging onto half its initial surge after increasing its revenue outlook.
  • My rant: we are not at a bottom of this bear because of price-to-earnings (P/E) ratios and patterns. If the Fed pivots, that is another matter based upon liquidity.
  • The Fed is ready to bail out other central banks resulting from Fed policies. Will the Fed bail itself out as well?

Stocks were down on the day, but it is hard to describe the action as selling. For a second session, the stock indices rallied higher only to fade those moves with the S&P 500 again swing in 1% moves higher and lower. The low to high action is not bullish in itself, but it did not yield a rollover. That leaves the bigger picture still a test.

All the large-cap indices managed to hold at or near a support level. The action mimicked Wednesday, though, granted, the fade was a bit more aggressive. Even so, the indices did not roll over, holding near a support level, and again showing dojis on the candlestick chart. That keeps the stock indices in the hunt for a continuation of the Monday/Tuesday rebound. Heck, the PHLX Semiconductor Sector (SOX) even finished positive, just as on Wednesday.

NOTE: The figures and information above are from the 10/20 report.

Watch the Investment House Videos For This Week Here!

NOTE: The videos are from the 10/19 report.

2. Targets Hit

ConocoPhillips (NYSE: COP): Oil stocks ran well into mid-summer — too well for their near-term pricing. They peaked when the hype over the Ukraine war subsided … and the government started draining the strategic petroleum reserve. They needed a base, however, and they proceeded to do just that through July and August. The bases were pretty much formed by late August, so of course, we were looking for additional plays for Investment House Daily.

COP rallied to near the June peak and then faded for a couple of weeks, forming a nice handle to its cup base.  When it held the 20-day exponential moving average (EMA) and started upside on Sept. 9, we entered. We issued the alert to buy November $110 call options for $8.75.

COP broke higher and rallied into mid-September. After over a week’s move higher, it tested back to the rising 20-day EMA. Totally normal action. COP looked great, but then trouble hit the entire market, and COP gapped lower to the 50-day moving averages (MAs). It held that support, so we kept the play on.

COP worked laterally for three sessions and then started higher. It then gapped back over the 50-day MAs and rallied straight to our initial target of a gap fill from a gap back in June. An eight-session rally filled the gap, showing a tombstone doji — time to bank some gains. We issued the alert to sell half the position with the options bidding for $14.45 and a 65% gain.

COP tested after that run, as we anticipated, but it held the 10-day EMA on the test — that shows strengthening action. A nice break higher, a bit more testing and then COP rallied to the June high this past Thursday, showing another tombstone doji.

We issued the alert to sell another half of the options, which were bidding for $16.10, for an 84% gain. Now, we will let the rest of the position work for as many rotations up the 10-day and 20-day EMAs as it can on this move.  It should have another two at a minimum if all remains according to the status quo.

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Chevron Corporation (NYSE: CVX): It pays to stick with the trend. Oil stocks topped in June and fell into bases. CVX set up a nice cup with handle base using the 200-day simple moving average (SMA) as support, gapping over the 50-day MAs in late July to show the buyers were crowding in. As CVX tested that move, we readied the play. When it broke higher on Aug. 11, we issued a Technical Trader Alert to enter October $160 calls, which were selling for $7.40.

CVX was testing the 50-day MA and then rallied steadily for two weeks, moving toward our target of a gap fill of a downside gap from mid-June. Very nice, steady rallying. CVX then tested, held the 50-day MA and rallied again. Just as it should.

Then, however, the late September Consumer Price Index (CPI)/jobs report scare hit, and all stocks gapped lower. CVX managed to hold the support in its prior base, so we let it work. After three days of finding and testing the bottom, CVX rallied, gapping higher and through the 200-day SMA. It rallied to near the prior highs, tested the break over resistance and then rallied into last week, hitting our gap fill target.

We issued an alert to sell the options, which were bidding at $11.45, for a 54% gain. We were happy to get such a solid gain with such a roundabout move.

The key here was knowing CVX’s trendlines and watching the buying volume versus the selling. Overall, the buying outweighed the selling days and the trend held.  That happens when you play the best trends in the market, and oil stocks certainly have the best trends — at least upside.

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3. Covered Call Options Play

Yelp Inc. (NYSE: YELP) — Yelp Inc. is currently trading at $37. The Nov. 18 $38 Calls (YELP20221118C00038000) are trading at $1.75. That provides a return of about 8% if YELP is above $38 by the expiration.

Learn more about our Covered Call Tables here!

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