1. Market Summary
Trade Issues Move the Market Back and Forth
– Absurdly varied trade headlines are fortunately having less impact than before.
– Indices are testing, but they are not testing much. Is this all the test that they can give?
– Leaders are already testing 5% or more.
– If the leaders start moving back up, the rally to the year’s end will likely do the same.
Each day always seems to feature more back and forth trade stories. The number of conflicting headlines that come out each day has reached the point of absurdity. It is also unbelievable that some of the “news” is stale by a week or more and yet it still sends the markets up or down as investors trade the headlines. While this is ludicrous, the market has immunized itself from this pathology somewhat as the headlines are now moving the indices less and less. Still, the news does move them.
As noted, there are leaders in pullbacks. When they move higher, the market’s year-end run will likely resume as well. Thus, we are watching Google (GOOG), Nvidia (NVDA), Broadcom (AVGO), Advanced Micro Devices (AMD), Microsoft (MSFT), Cummins Inc. (CMI) and others for new moves higher. While Friday is not a favorite buying day, the prior four Fridays have had upside moves.
Of course, that does not necessarily make them good buying sessions even though they can feature good profit-taking if the profits are there. Last Friday, for instance, we banked quite a bit of profit before the market tested during the following week. Before this, the market had consolidated laterally after a rally on the previous Friday. It would appear that the old adage of “buy on Monday, sell on Friday” still works.
It certainly appears that a test is on. While it may not be much of a test if you are looking for a sharp drop, it may be all that this particular market can give. Ever since early October, every dip has been bought even though the dips were typically just lateral moves. Indeed, all three “tests” have followed this trajectory.
The current pullback is actually showing a price fade, but the 10-day exponential moving average (EMA), the nearest possible support, is holding thus far. On both Wednesday and Thursday, the large-cap indices traded below the 10-day EMA, before recovering and holding on until the market closed. With the Fed providing liquidity on top of the seasonal trends, the November pullback may not be much of a pullback.
NOTE: The figures and information above are from the 11/21 report.
NOTE: The videos are from the 11/20 report.
2. Targets Hit
Here are three completed trades from the Investment House Daily, offering insights into our trading strategy and the targets that we have hit this week:
Advanced Micro Devices, Inc. (NASDAQ:AMD): AMD broke higher in late October and cleared a four-month base. It then consolidated in a flag or handle for a week. We were ready to pick it up as it moved up from the consolidation, and on Nov. 13, we entered with some stock at $37.05 and some January $35.00 call options for $3.75. As with many of the market leaders in tech, AMD marched right up and put in six consecutive upside sessions.
On Nov. 19, it hit our initial target. We banked half the stock for $41.43 and booked a gain of 11.8%. We also sold half the options for $7.50 and scored a gain of 100%. AMD then tested to the 10-day EMA from Wednesday to Friday and it looks as if it will bounce again. If so, it will add value to our current position and give us a new entry point.
Microsoft Corporation (NASDAQ:MSFT): MSFT broke out from a trading range with a gap on its earnings in late October. It then consolidated for over a week in a very tight range. When the 10-day EMA caught up with the move, it sent MSFT on the next leg of its journey. We love playing off these breakout consolidations, and when the 10-day EMA caught up, we were ready to enter.
As MSFT soon broke higher, we picked up the January $145.00 call options for $4.85. After that initial surge on Nov. 8, MSFT put in smaller, yet steady, moves. This is often the case with these breakouts. MSFT rallied for five straight sessions and hit our initial target on Nov. 15.
We then sold half the options for $7.50 and banked a gain of 55%. The stock tested the 10-day EMA through Thursday and started back upward Friday in what looks to be its next move. This would not be a bad point to enter once again.
Netflix Inc. (NASDAQ:NFLX): NFLX has been pretty much scorned since its gap lower in July. Indeed, it sold lower and lower into late September. Then, it reversed its sharp selling with a gap upside in conjunction with a higher moving average convergence divergence (MACD). It then built its base off of the low. Even in the shadow of Disney’s launch of its own streaming service, NFLX’s shares were improving.
We moved in on Nov. 11 as NFLX broke higher on the very day that Disney+ launched. We then bought January $295.00 call options at $18.55 when the stock was at $294.31. Disney+’s launch went well and NFLX dropped to the 50-day simple moving average (SMA) over the next two sessions. It held there over the next six sessions.
Then, NFLX rallied to a higher recovery high and it came within a point of our target on the strong Thursday close. We were ready to bank some gains, but NFLX opened lower on Friday. With that, we went ahead and sold our options for $27.00 and banked a solid 45% gain.
Here are two completed trades from Technical Traders Alert, offering insights into our trading strategy and the targets that we have hit this week:
Clovis Oncology Inc. (NASDAQ:CLVS): Not all great money makers are the big names that are out in front. We like to keep track of various sectors to see if any are setting up to rally after downtrends or “turning the corner,” as we like to say. Some biotech stocks, such as CLVS, fit this category. We saw CLVS break upside through the 50-day moving average (MA) on big volume on Nov. 8 and then test for two sessions.
After we put it on the report, CLVS broke higher again on Nov. 13. We then entered by buying stock for $6.27 and some January $6.00 call options for $1.45. Typically, we do not trade options on such low price stocks as they usually do not return the same bang for the buck as they do on higher priced stocks. The deltas may be the same, but they just do not make the same returns.
Anyways, we were in and CLVS was, in fact, turning the corner. It marched higher into Tuesday and then started to fade off of the high. During the next session, it opened lower, rallied to the prior open and then stalled. We then decided to sell part of the position.
As we sold half the stock for $7.69, we obtained a 22% gain. We also sold half the options for $1.90 and banked a 31% gain. This was not bad as, after a quick test, CLVS put in a higher recovery and added more value to the position. Indeed, the options were trading near a 70% return on Friday. It may work out better for us this time, but with the stock up 32% for us, a 70% option return is not what it would be if MSFT was up 32% — the options would be near a 200% gain.
Euronet Worldwide, Inc. (NASDAQ:EEFT): We liked playing EEFT, and after it peaked in July, we looked for the next base to complete the trade. EEFT formed a downward pointing wedge into late October and then formed a sharp break higher out of the pattern through the 50-day and 200-day MAs to start November.
We let the stock test the break as we always like to see it test the break and hold. This shows us that there is no heavy selling, just profit taking. When the stock starts back up, we always move in. We put EEFT on the report on Nov. 11 and EEFT broke higher during the next session.
We entered with December $150.00 call options for $5.00. EEFT rallied right up to the target on Nov. 19 and we sold the options for $7.50. This gave us a gain of 50%. EEFT is now testing the move and we are looking at playing it once again as it breaks higher.
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:
NYSE:HLT (Hilton Hotels Corporation Common Stock)
HLT is one of the hotel stocks that, as a group, set up some pretty nice bases over the past five months. For instance, HLT put in a double bottom and rallied off that second low in late October and early November. It then came back to test that move. As you now know, we love to play off that first test after a breakout. After we saw a doji at the 20-day EMA on Nov. 13, we put it on the report as we anticipated a bounce off that doji.
During the next session, HLT did just that and we entered at $98.89. Then, HLT ran right up to $100.82 and almost reached the target as of Nov. 19. No problem, the stock still looked strong. Then, it faded to test and tap the 20-day EMA again on Thursday.
On Friday, a good strong rebound took HLT right back up and we sold the stock for $101.29 and a 2.43% gain. Instead of being four days long, the holding period ended up being stretched to seven, but we will take whatever we can get.
These are examples of what you’ll get by becoming 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
NASDAQ:ROKU (Roku, Inc.–$158.93; +5.02; optionable)
STATUS: Triangle. Earnings gapped ROKU towards the downside. After that one-day gap, it rebounded straight back up into this week and we banked some gains on the recovery. On Tuesday, ROKU faded to test the 10-day EMA and showed a doji. On Wednesday, it was back upside and was still showing a solid and above average volume. That short test could be all ROKU gives. As it continues upside through the buy point, we want to move in for a run at the prior high. That move will give us a gain of 10% on the stock and a gain of 55% on the options.
VOLUME: 26.428M Avg Volume: 20.762M
BUY POINT: $160.15 Volume=25M Target=$176.43 Stop=$154.82
POSITION: ROKU JAN 17 2020 160.00C — (54 delta)
4. Covered Call Options Play
Boot Barn Holdings Inc. (NYSE: BOOT) — Boot Barn Holdings Inc. is currently trading at $39.48. The Jan. 18 $40.00 Calls (BOOT20200118C00040000) are trading at $2.90. That provides a return of about 8% if BOOT is above $40 by the expiration.