1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
The Specter of a New Lockdown
– Tech stocks showed relative strength, but this meant little as all stocks faded on the day.
– The specter of another lockdown was blamed for the market’s weakness, but this is simply a consolidation.
– You can function until a vaccine is out without needing to resort to lockdowns. Recent case histories have shown that to be the case.
– The indices are working through a consolidation of the last leg higher to test the old highs. All of this frustrating back-and-forth action is exactly how the market will set up the next move.
On Thursday, the market was sloppy. Futures started lower for the NYSE, but the NASDAQ was up, perhaps signaling that it could lead another move higher. Nope. By the time that the markets closed, the NASDAQ lost ground even though it showed relative strength. While this was good, it didn’t change anything.
For the day, stocks held up reasonably well until markets in Europe closed. They even rose off of the open. Then, they sold for two hours into 1:00 p.m. ET, sold again to a session low at 3:00 p.m. ET and then rebounded in the last hour to cut some losses. However, this did not come close to flipping anything positive.
What was the blame for the downside? Lockdown threats.
S&P 500: The S&P 500 was lower from the get-go, and it closed lower. However, this was not a damaging session. After surging to a new high on Monday with the vaccine gap and run, the index then reversed much of the move intraday. As a result, the S&P 500 walked laterally and formed either a flag or a handle as the 10-day exponential moving average (EMA) rises to meet it. When they meet over the next couple of sessions, the pattern will be complete. Then, we will see if the S&P 500 can make a new breakout. While this was a nice course of action, it was slow and boring. This may have caused people to give up, but that is how bases work.
NASDAQ: As its movement is a hybrid of the PHLX Semiconductor Sector (SOX) and the S&P 500, the NASDAQ is working laterally at the top end of its three-month range. After the big opening surge on Monday collapsed, there was a test of the 10-day EMA. Now, it is working laterally and trying to put together a higher low and move up. While the NASDAQ has the makings of that move, it simply has a hard time getting consistent traction, due to the fact that some of the mega-caps are unable to put together a sustainable move. When we contrast those names to Alphabet, which looks excellent, you can see a dichotomy in the mega-cap names.
NOTE: The figures and information above are from the 11/12 report.
NOTE: The videos are from the 11/11 report.
2. Targets Hit
Here are several completed trades from Investment House Daily, offering insights into our trading strategy and the targets that we have hit this week:
Farfetch Ltd. (NYSE: FTCH): FTCH gapped higher in mid-August and immediately started forming a new base. From that gap higher into mid-October, FTCH carved an inverted head-and-shoulders base, which is a very successful pattern in this stock market. As it formed the right shoulder, we put it on the report. Indeed, we like to recognize this pattern as it prepares to break higher so we can play it on the move off of the shoulder low, instead of when it breaks over the neckline. If the pattern is good, we at least get a good run to the neckline. Typically, it breaks out from there.
While we watched, FTCH made the break higher from the right-shoulder bottom on Oct. 23. So, we bought stock for $29.92 and January $30 call options for $4.50. These are the perils of a Friday entry. Over the course of the following week, FTCH held its position and just moved laterally. When we started November, however, things changed. A new month meant new money.
FTCH jumped higher and then proceeded to rally for six straight sessions. On Nov. 9, FTCH started lower and reversed to a nice gain, as buyers piled in again. While we let it run, FTCH was weaker during the next session. As it had a great run and tested a bit, we opted to sell. We sold the stock for $40.20 and banked a 34% gain. We also sold our options for $11 and a 144% gain.
We also banked the following gains over the course of the week:
Buckle Inc. (NYSE: BKE): 42% gain on the stock, 190% gain on the options
Moderna Inc. (NASDAQ: MRNA): 66% gain on the options
Texas Instruments Incorporated (NASDAQ: TXN): 89% gain on the options
Urban Outfitters, Inc. (NASDAQ: URBN): 33% gain on the stock, 112% gain on the options
Here are several completed trades from Technical Traders Alert, offering insights into our trading strategy and the targets that we have hit this week:
Lam Research Corporation (NASDAQ: LRCX): It is always good when chips lead. With many showing good setups and moves, we were looking for more to join in. We spotted LRCX at the 50-day moving average (MA), where it was forming the right shoulder of an 11-week inverted head-and-shoulders, or “three rivers,” pattern.
We put it on the report on Halloween weekend. On Nov. 3, LRCX broke higher off of the bottom of the right shoulder. As that was our signal to enter, we bought January $365 call options for $31.10. While they were pricey, when you have a $335 stock, an options price that was lower by less than 10% was not horrid, and historical volatility was acceptable.
LRCX stepped right up from this jump upside. On Nov. 5, it hit the initial target. We sold half of the options for $47.50 and banked a 52% gain. We let the rest work, and LRCX continued upside into Monday. This was when the market gapped upside.
As a result, we saw six sessions of upside with a big market gap on the vaccine news. Would it get better in the near-term? Likely not. So, we sold the rest of the position for $65.50 and banked a 110% gain.
Other targeted gains taken on the week included:
Monster Beverage Corp. (NASDAQ: MNST): 45% gain on the options
Chubb Ltd. (NYSE: CB): 77% gain on the options
NXP Semiconductors NV (NASDAQ: NXPI): 68% gain on the options
Travelers Companies Inc. (NYSE: TRV): 69% gain on the options
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:
Urban Outfitters, Inc. (NASDAQ: URBN): URBN set up a nice inverted head-and-shoulders pattern from late August to mid-September. This was a pattern that consolidated a gap higher in late August. Then, URBN tried to break higher off of the 10-day EMA. As it was not quite ready to do so, it faded to the 50-day MA. The fall allowed the right shoulder to set itself up better, and on Nov. 22, URBN broke nicely higher.
That was our cue to enter, and we bought the stock for $24.66. It looked good, but looks can be a bit deceiving. URBN waffled, continued the lateral move and tested the 50-day MA. While this was not what we planned, it was still in a good pattern. Thus, we let it work a bit more.
URBN started November with new life and very promising upside action. Then came the vaccine news on Monday, and all consumer-related stocks jumped. Actually, URBN more than jumped. It exploded higher and hit $32.80 on the high. While we did not quite get it on the high, we sold the stock for $30.74 and banked a 24% gain. We have come to perceive that gain as rent money for the time that we spent in the play.
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.
3. Pick of the Week
ROKU (Roku, Inc. — $231.43, +14.45)
STATUS: ROKU suffered a hiccup on Monday and Tuesday after a strong surge off of the 50-day MA took the stock to a new high. ROKU tested on lower trading, fell to near the 50-day MA on Tuesday and then rebounded to the 20-day EMA. On Wednesday, we saw a strong break higher on rising volume. If ROKU can continue this move, we are ready to move in for a run at the prior high as the initial target. That move will give us a 55% gain on the options.
VOLUME: 7.409M Avg Volume: 7.732M
ENTRY POINT: $232.11 Volume=9M Target=$254.48 Stop=$224.77
POSITION: ROKU JAN 15 2021 230.00 Calls — (56 delta)
4. Covered Call Options Play
Lithium Americas Corp. (NYSE: LAC) — Lithium Americas Corp. is currently trading at $9.84. The Dec. 19 $10 Calls (LAC20201219C00010000) are trading at $1.20. That provides a return of about 17% if LAC is above $10 by the expiration.