Invest and Trade Profitably with Jon Johnson

Weekender for 11/27

1. Market Summary

Stocks Break Higher Off the Consolidation

  • More expansion of China COVID-19 restrictions fails to sway a break higher.
  • Stocks rally higher from the consolidation, defying yield curve inversions.
  • The Fed only has a couple of options, and one of them is based flat out on hope.
  • What option the Fed takes and why it has to take it.
  • Nice index breaks higher, some better than others.
  • Good moves from nice setups deliver us some solid entries.
  • Data dump Wednesday is ahead, but nothing has stymied the solid market action.
  • Holiday week could be providing a lenient tape, but the setups are good, the moves higher as well.

In a relative vacuum of news, stocks found bids and rallied after six sessions of consolidation. Indeed, much of news that was out was the type that the market has disliked, e.g. expanding China COVID-19 restrictions in numerous regions as the outbreaks spread. Even with that, stocks overcame early futures weakness, shook off a dip at the open (same dip attempt from Monday) and rallied straight up to the close. Bullish low to high action after a week+ of consolidation. Not bad.

NOTE: The figures and information above are from the 11/22 report due to the Thanksgiving holiday. There were no videos this week.

2. Targets Hit

Steel Dynamics, Inc. (NASDAQ: STLD): Industrial metals have done a good job basing, setting up breakouts, making the breakouts and then repeating the process. STLD surged upside late October in a breakout from a seven-month inverted head and shoulders bottom.

The surge lasted a week, taking STLD over the April high that started the base. STLD spent the last week of October testing that breakout, coming back to the 10-day exponential moving average (EMA) and the top of the inverted head-and-shoulders base. That piqued our interest, and we put the stock on the report, crafting a play to take advantage of this test of the breakout in Investment House Daily. If the breakout is going to work, the stock would jump up off the test, and that would give us a nice entry to make some solid gains.

On Oct. 31, Halloween, STLD showed a nice hammer doji just over the 10-day EMA in a four-day test of the breakout and surge.  On Nov. 1, STLD broke higher, and that was our entry signal. We issued the alert to buy January $95 calls, which were asking for $9.20. This was a nice test and a good break higher.

Then, STLD fell for the two sessions, moving just below the 10-day EMA. It was never in danger, as volume fell and the losses were modest, just not the exact turn. That came during the next session with a gap higher. That started a move higher up the 10-day and 20-day EMAs.

Three days up, a dip, followed by another leg higher then a dip to again test the 10-day EMA. Thursday showed a solid gap lower and reversal. Friday was a pause. Monday a break to a higher recovery high.  Tuesday a gap and rally higher on another strong day of volume, moving through our initial target.

The stock is moving well, but we have a plan and we played the plan. That means we issued an alert to sell half the position with the options bidding  for $14.50, a solid 57% gain.  We have the remaining half to participate further in the surge that is underway.

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Atlassian Corp. (NASDAQ: TEAM): Even as the overall market set up for a new break higher in the recovery off the October lows, some stocks were not following that script. We still saw some good downside setups, and we knew we could make some good money on them in Technical Trader Alert.

TEAM was such a stock. It traded in a range from May to early November. It was heading in a trend lower September to early November, approaching the bottom of the range. Then, it underwent a massive gap lower through the bottom of the trading range.  Big downside day, another one after it, then TEAM started the move higher to test that massive break lower.

Whenever we see this, we keep the stock on a watch-list, monitoring the test. We saw TEAM move up to the 10-day EMA, the near term resistance when a stock is trending lower. When TEAM got there, it showed a doji and faded. It rebounded to the 10-day EMA on Nov. 15, again showing a doji below that level. That had us ready to enter if TEAM broke lower, hurting the team so to speak.

That is exactly what happened the next session. TEAM gapped modestly lower off that tombstone doji (the name says it all) and that was our entry signal. We issued the alert to buy January $145 put options, which were asking for $18.44. From there, TEAM headed lower, gapping down on Nov. 17, trying to bounce the next session but rolling over to another loss.

On Monday, TEAM gapped lower again, selling to the early November low. From there, however, it bounced modestly to a hammer doji, an indication the rebound off the selling could be coming. The next session, TEAM sold off that doji, but it again held at that prior November low.  We had a decent gain so we opted to take it, issuing a sell alert for the options that were bidding at $31.40. That gave us a solid 70% gain in relatively short order.

We also took a gain in the following position:

Nucor Corporation (NYSE: NUE): 68% gain in the call options.

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3. Covered Call Options Play

Silverbow Resources Inc. (NYSE: SBOW) — Silverbow Resources Inc. is currently trading at $34.52. The Dec. 16 $35 Calls (SBOW20221216C00035000) are trading at $2.45. That provides a return of about 11% if SBOW is above $35 by the expiration.

Learn more about our Covered Call Tables here!

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