Invest and Trade Profitably with Jon Johnson

Weekender for 10/30

1. Market Summary

Leadership Still Needs a Near-Term Test

  • NYSE indices outperform, Nasdaq takes its lumps, but still doesn’t break.
  • Gross domestic product (GDP) positive, but it was made up entirely of declining imports and jumping exports of petroleum products and weapons to Europe.
  • Durables orders rise but all on airplanes.
  • Indices still in overall tests.
  • Leadership still needs a near-term test, but others are setting up.
  • More earnings, income and spending, confidence, and Personal Consumption Expenditures (PCE): market faces more major news.

Another session of upside for the DJ 30, Russell 2000 and the S&P400, even if they all closed well off the highs. Just harder to sustain the upside right now after a solid rally from the prior week that teetered and then zoomed on interventions. The S&P500 could not quite close in the green, but for it, just another decent day of testing, closing on the 50-day exponential moving average (EMA).

The Nasdaq and Nasdaq 100 were roughed up thanks to Facebook’s 24.5% implosion as investors have figured out the model is not working. Amazon may not have helped on Friday, and Apple, while higher, is not much higher. The PHLX Semiconductor Sector (SOX) managed to blow a solid gain, but held on to close at the 20-day EMA, staying alive.

NOTE: The figures and information above are from the 10/27 report.

Watch the Investment House Videos For This Week Here!

NOTE: The videos are from the 10/26 report.

2. Targets Hit

Archer-Daniels-Midland Co. (NYSE: ADM): Food is shrinking in supply, and that is only going to worsen in 2023. Thus, when we see top producers in position to buy, we buy them. ADM posted a nice move into mid-September and then tested the move. That caught our attention for inclusion in Investment House Daily, as we watched ADM come back to the 50-day simple moving average (SMA).

We had the stock on the report in anticipation of a bounce from the 50-day moving average (MA). That move started on Sept. 19 with a nice bounce. That was our signal. We issued the alert to buy December $87.50 calls for $5.24 with the ADM stock trading at $87.14. ADM posted a nice move that day, continued higher for that week and then … the market hiccupped.

ADM fell but did not wither. It held the 200-day SMA in a tight range then gapped higher to start October.  That kicked off a run, almost straight up, into this past week. That move cleared the August and September highs and touched our initial target.

On Oct. 27, ADM gapped higher and rallied, another upside session in a two-week run. It started to fade off that surge. After a two week run, it surged to the target and started to fade. Time to bank some gains.

We issued the sell alert to take half the gain with the options bidding for $9.40 and producing a 79% gain. We anticipate a bit of a test, then ADM will likely continue the breakout rally.

We also banked gains in the following positions:

H World Group Ltd (NASDAQ: HTHT): 113% gain in the put options.

Nov Inc. (NYSE: NOV):  184% gain in the call options.

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Wingstop Inc. (NASDAQ: WING): WING looked ready to take wing in late September, as the stock faded from a higher high to test the 50-day MA. It worked laterally along the 50-day MA with tight dojis for three sessions, then, on Sept. 28, it broke higher on a nice volume bump. Perfect, exactly what we were looking for.

We issued the alert to enter with December $130 call options for $16.04 with the stock price at $132.02. Nice break … then WING fell back to the 50-day MA.  Three days later, after more tight range testing of the 50-day MA, WING took flight again with a strong upside break, taking it past the prior high on the prior upside break.

Then … it faded again as the market faded, slowly eroding to the 200-day SMA by mid-October. We had another misfire on a break higher, but the pattern was still holding very well and holding solid support.

This continued into the late October, then WING started cooking.  Or flapping. Whatever wings do.  A nice jump from the 200-day MA, another good move, then a big gap higher Wednesday, clearing the early September high and the eight-week base.

WING gapped then stalled that session, showing a doji. It was at the initial target, so we issued the alert to sell two-thirds the position with the options bidding $28.60 and a nice 78% gain. Why two-thirds?  Because it was an earnings gap upside, and we might not get much more from that move as it rallied moving into earnings.  We banked a very nice gain, then if it continued the break, we would get more money in the bank.

We also banked gains in the following positions this week:

APA Corp. (US) (NASDAQ: APA): 55% gain in the options.

HF Sinclair Corp. (NYSE: DINO): 53% gain in the options.

Marathon Oil Corporation (NYSE: MRO): 32% gain  in the options.

Nov Inc. (NYSE: NOV): 80% gain in the options.

PepsiCo, Inc. (NASDAQ: PEP): 35% gain in the options as the initial target.

Exxon Mobil Corp. (NYSE: XOM): 89.9% gain in the options.

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3. Covered Call Options Play

Grocery Outlet Holding Corp. (NASDAQ: GO) — Grocery Outlet Holding Corp. is currently trading at $34.34. The Nov. 18 $35 Calls (GO20221118C00035000) are trading at $1.60. That provides a return of about 8% if GO is above $35 by the expiration.

Learn more about our Covered Call Tables here!

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