1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
Another Gap and Surge Higher
– Another gap and surge higher has the PHLX Semiconductor Sector (SOX) at a new high and the NASDAQ at the October high. The S&P 400 and Russell 2000 Index (RUT) are strong as well.
– After a good surge, a pause or a test should come soon. Then, the move toward the end of the year will continue.
– Many of the market’s leaders mimicked the indices — or was it the other way around?
– The dollar and yields are dropping while gold is surging. Is this in anticipation of more Fed action in lieu of near-term fiscal stimulus?
Well, here we are again. After three torrid days upside, the stock indices are in familiar territory. The NASDAQ is at the October recovery high, while the S&P 500 is less than a recent day’s movement from that same level. The SOX exploded to a new high and gapped over the prior high, largely due to the fact that Qualcomm blew out its earnings.
The mid-caps broke the October highs with a move that was only surpassed by the SOX’s explosion upside. After the index cleared that major obstacle, it moved toward a new high. The RUT took out its October high and, as with the S&P 400, it now has designs on a new high itself.
As these were explosive moves that burned away that oversold condition, we were able to bank some gains on the move. The new positions were not as easy, given the gaps upside, but that is okay. After this run to the more recent highs, stocks will likely test a bit. After this consolidation, there will be new and solid entry points for the next leg up.
NOTE: The figures and information above are from the 11/5 report.
NOTE: The videos are from the 11/4 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:
Cloudflare Inc. (NYSE: NET): As it is one of the cloud software stock leaders, NET has made us money before. So, we are always looking for a new opportunity with regard to this stock. After a fast surge in mid-October, NET needed to consolidate. It faded and consolidated in a nice pennant pattern into early September — a perfect setup for after the election finished and some political certainty returned.
On Nov. 4, NET made the break higher off of the 20-day exponential moving average (EMA) support. Then, we bought December $55 call options for $6.20. We also purchased stock for $56.22, as both the price and NET’s ability to put together strong moves made the stock very attractive. We knew that earnings were coming and that NET was beautifully setting itself up to rally as a result of some renewed earnings optimism after the October pullback.
On Thursday, NET gapped higher and moved to $58. This was decent enough. On Friday, the results hit, and NET gapped sharply higher. We sold half of the stock for $67.77 and banked a 20.5% gain. We also sold half of the options for $14.50 and banked a 130% gain. Next, we will see if this move has some more legs and if it can turn those gains into really big numbers.
We also took some gains on other positions from the Daily this week:
Alphabet (NASDAQ:GOOG): 60%, 50% and 121% gains on the options
Farfetch Ltd. (NYSE: FTCH): 40% gain on the options
Buckle Inc. (NYSE: BKE): 26% gain on the stock, 96% gain on the options
Match Group Inc. (NASDAQ: MTCH): 62% and 81% gains on the options
Baidu Inc. (NASDAQ: BIDU): 44% gain on the options
Texas Instruments Incorporated (NASDAQ: TXN): 30% gain on the options
Laboratory Corp. of America Holdings (NYSE: LH): 29% 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:
QUALCOMM, Inc. (NASDAQ: QCOM): This was a 100% earnings play. After we made money on QCOM during its September-October run, we began looking for the next opportunity. After that run, QCOM faded into late October ahead of its results and put in a textbook flag test toward the 50-day moving average (MA).
After we saw it hold and edge higher, we put it on the report. After we saw earnings getting a better reception as the election hit and noticed the positive reaction to the potential split in the government, we locked in our play. That is, we decided to play QCOM through the results.
On Nov. 4, we saw QCOM move up somewhat. So, we moved in with January $125 calls that we bought for $10.85. We chose a January expiration because we wanted time to bank some gains on the earnings move and then let QCOM rally with the seasonal move at the end of the year.
QCOM reported huge results on Wednesday night, and it gapped sharply upside on Thursday. Per the plan, we sold half of the option position for $22.75 and banked a 105% gain.
Lam Research Corporation (NASDAQ: LRCX): As the election came, LRCX was poised in a classic “three rivers”, or inverted-head-and-shoulders, pattern at the 50-day MA. If LRCX showed the move, we would participate.
On Nov. 3, LRCX jumped, and we bought January $365 call options for $31.10. Then, LRCX marched straight up, gapped higher on Thursday and cleared the entire pattern. As this was a strong move, our plan was to bank half of the gains on that action. Thus, we sold half of the options for $47.50 and banked a 50% gain. Next, we will see if LRCX can make that seasonal run to the end of the year.
We banked gains on other Technical Traders positions over the course of the week. Here are some of them:
HubSpot Inc. (NYSE: HUBS): 233% gain on the options
Chipotle Mexican Grill, Inc. (NYSE: CMG): 63% gain on the options
Roku Inc. (NASDAQ: ROKU): 70% gain on the options
Best Buy Co Inc. (NYSE: BBY): 33% gain on the options
Alphabet (NASDAQ:GOOG): 121% gain on the options
Paylocity Holding Corp. (NASDAQ: PCTY): 180% 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:
Snap Inc. (NYSE: SNAP): After a big move on an earnings gap, SNAP started to consolidate. Once a big surge like that occurs, a stock will regroup, work laterally and then start back upside. After we saw SNAP come back to its near support at the 10-day EMA just before Halloween, we wanted to be ready for when the stock jumped up off of that level. Sure enough, on Nov. 2, SNAP started to move higher.
So, we bought stock for $40.36. SNAP continued higher on Tuesday and again on Wednesday. Then, it hit our target. So, we sold the position for $41.98 and banked a nice and easy 4% gain. As SNAP is now consolidating a bit more, we are watching for a new break higher to deliver an even bigger gain.
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
ZS (Zscaler–$145.35, +10.70)
STATUS: ABCD. We were waiting for ZS to provide the next entry setup. Suddenly, it broke higher out of a downward wedge in mid-September and rallied until mid-October. From there, the market selling dragged it lower. However, ZS used the selling to set up a bullish pattern. It tested the 50-day EMA during the first dip and then bounced. As it could not reach the October high, it put in a lower high.
Then, it sold through the 50-day MA into Tuesday and tested the 78% Fibonacci retracement during each session over the course of the week. Then, it put in a lower low. All of this established an ABCD pattern, which often tricks people into thinking that a downtrend has formed due to the presence of a lower high and a lower low. However, due to the fact that all of this takes place inside the prior rally, the momentum is still there.
Sure enough, ZS gapped upside on Wednesday, gapped over the 50-day EMA and rallied higher to close. We want to play a continued move upside toward that prior high as the initial target. That move will give us a 55% gain on the options.
VOLUME: 2.023M Avg Volume: 1.882M
ENTRY POINT: $145.49 Volume=2.4M Target=$159.98 Stop=$140.97
POSITION: ZS JAN 15 2021 145.00 Calls — (55 delta)
4. Covered Call Options Play
Lands` End Inc. (NASDAQ:LE) — Lands` End Inc. is currently trading at $16.85. The Dec. 19 $17.50 Calls (LE20201219C00017500) are trading at $1.60. That provides a return of about 17% if LE is above $17.50 by the expiration.