Weekender for 10/4
1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
The Overall Economic Figures Are Improving
– There is still lots of talk about stimulus, but parts of the market are rallying anyway. As job losses are starting to pile up, there is a big impetus for Congress to act.
– Tech stocks and other leaders close at session highs while others back off.
– The economic figures are still improving, but the jobs report was the next “what have you done for me lately” moment. Indeed, since it was the most recent hurdle, we are looking to use what it has given us.
– The NASDAQ filled the Sept. 8 gap lower, but the S&P 500 still has room to move.
Stimulus on. Stimulus off. Stimulus on. Stimulus off. Market up, market… not up so much. A good deal is being discussed with regards to the renewed efforts to pass a new COVID-19 stimulus package — at least that is what it is currently being called. The truth is that the legislative package contains many items that are not related to COVID-19 at all. Indeed, some analysts are saying that this is why the market lost a chunk of its gains during the session. While the losses were not nearly as significant as the fade on Wednesday, the NASDAQ didn’t lose anything off of its high.
The NASDAQ gapped higher and moved up a bit more to close at the upper gap point from the Sept. 8 gap lower. While this is a key level, the NASDAQ did not appear to flinch. Moreover, many of the recent leaders did not back down at all during the day. The Trade Desk, Datadog, Square, Beyond Meat, Tesla, Netflix, Twitter, Roku, Pinterest, Zscaler, Zendesk, Buckle, Kirkland and Snap did not fade due to a “no go” on further stimulus.
Indeed, one of the worries after the Wednesday close, which saw stocks drop sharply from a solid upside session, was that the slingshot up and down would continue the Wednesday fade. In reality, it didn’t. Futures and stocks were higher, though the NASDAQ, the PHLX Semiconductor Sector and the Russell 2000 Index were the clear winners. Clearly, growth was in vogue, regardless of whether stimulus was on or off.
Technical Analysis:
NASDAQ: The NASDAQ moved over the recovery high and is at the gap point. It is very important that the NASDAQ breaks on through to continue the move back to the all-time high. Tech stocks will be able to do that because they have enough support and good patterns. Of course, they need to have the help of Facebook, Amazon, Apple, Google, Netflix, Nvidia, Microsoft and other huge caps, but those are coming around. For instance, Netflix is there for sure, and Amazon posted upside over the 50-day simple moving average (SMA) on a rise in above-average volume.
S&P 500: The S&P 500 is not where the NASDAQ is at this point in time. It tried to get over the mid-August consolidation for two sessions, but it has failed to hold the move. The initial recovery highs off of the selling are clustered around 3,425 points. When we note that the markets closed at 3,380 points, that is just 45 points higher. The S&P 500 could very well move to that level and then fade back down to form a two-week-or-so right shoulder. Then, it could form an inverted head-and-shoulders pattern. Indeed, this has been one of the most prevalent and reliable upside patterns in the stock market since the March 2009 low.
When the S&P 500 gets there, we should be ready to bank some options gains, particularly the nearer term options, when the index tests. The cool thing is that when the S&P 500 gets there, the NASDAQ will have surged through the second gap point from the early September selling. This will build more gains in positions there as well.
NOTE: The figures and information above are from the 10/1 report.
Watch the Investment House Videos For This Week Here!
NOTE: The videos are from the 9/30 report.
2. Targets Hit
Here are two completed trades from Investment House Daily, offering insights into our trading strategy and the targets that we have hit this week:
Datadog Inc. (NASDAQ: DDOG): DDOG was one of the cloud leaders, and it started to form a base before the early September selloff. It also peaked in early July. Thus, by the time that September came, it was well into a base. The selling only made up a part of it. As soon as the initial selling was over, DDOG put the finishing touches on its base. This signaled that it was ready to move higher with the other techs that based during the selling.
DDOG formed a double bottom and then added a handle starting in mid-September. On Sept. 21, DDOG tested and held the 50-day moving average (MA). During the next session, DDOG jumped higher, and we entered the play through buying November $90 call options for $11.05.
While its subsequent movement was not straight up, DDOG tested the 10-day exponential moving average (EMA), rallied and tested the 10-day EMA again. On Thursday, it shot higher with a big breakout. That move took DDOG to our initial target. As a result, we sold half of the position for $18.80 and banked a 70% gain.
Square Inc. (NYSE: SQ): Square is one of those leaders that was sold during the first three days of selling in September. However, when it hit the 50-day MA, the selling stopped. As with many of the prior rally leaders, SQ immediately started setting up a base. It formed a double bottom at the 50-day MA and put in a second low on Sept. 18. After seeing this, we put it on the report.
On Sept. 21, SQ jumped off of the 50-day MA. As a result, we bought November $150 call options for $17.80. SQ continued higher, tested the 10-day EMA and then experienced upside. On Friday, SQ gapped higher and approached the early September high. Since that value was also our target, we sold part of the position for $26.50 and banked a 48% gain.
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Here are two completed trades from Technical Traders Alert, offering insights into our trading strategy and the targets that we have hit this week:
Trade Desk Inc. (NASDAQ: TTD): While it was one of the leaders in the pre-September rally, TTD certainly sold during the sharp selling that took place in early September. It then held at the July consolidation-range low and bounced. As that bounce failed, TTD was down again. Then, it held the same support and surged upside on Sept. 21.
This created the second bottom in a short double bottom that many of these revived leaders ended up forming. Then, TTD tested over two sessions and formed a short handle. After we put it on the report, it broke higher from that handle. At this point, we bought November $475 calls for $54.50.
TTD moved straight up from there and rallied for five straight sessions. On Thursday, TTD gapped to a new all-time high and surged on the session. We then sold part of the position for $100 and banked an 80% gain.
Beyond Meat Inc. (NASDAQ: BYND): BYND was a stock that rallied well and topped before most of the market did. Indeed, BYND hit a high in June. It then faded back into July and August and worked on a nice cup base. While it rallied somewhat in late August, it was sold during the early September selling. That, however, was the shakeout.
On Sept. 8, when many stocks were gapping lower, BYND was surging upside. When BYND started to test, we put it on the report. On Sept. 15, BYND surged upside. At this point, we bought November $145 calls for $19.90. BYND continued upside with a rise and fade, and then another rise and fade, up the 10-day EMA.
On Sept. 29, BYND hit our initial target. Thus, we sold half of the position for $30.40 and banked a 52% gain. As BYND continued higher after that, we will see how much more it will give us.
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There were no new trades in the Success Trading Group this week.
Still, 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
ZM (Zoom Video–$470.11, +4.61)
EARNINGS: 11/30/2020
STATUS: This should be a familiar play, and ZM did make us a good deal of money on its last move. This was when it followed the earnings gap higher and subsequently tested. After a three-week rally, ZM tested over the course of the past week and then came back to the 10-day EMA via a 38% Fibonacci retracement of the September move. Over the course of this move, the stock’s trajectory formed a pennant pattern.
ZM has set itself up again, and if it breaks higher through the entry point, we are ready to enter. A move to the target will give us a 70% gain on the options.
VOLUME: 8.941M Avg. Volume: 12.257M
ENTRY POINT: $481.67 Volume=18M Target=$574.96 Stop=$456.77
POSITION: ZM DEC 18 2020 490.00 Calls — (53 delta)
To see the chart for ZM, click here!
4. Covered Call Options Play
Ultra Clean Holdings Inc. (NASDAQ:UCTT) — Ultra Clean Holdings Inc. is currently trading at $22.43. The Nov. 21 $22.50 Calls (UCTT20201121C00022500) are trading at $2.15. That provides a return of about 10% if UCTT is above $22.50 by the expiration.
