1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
Big Names Are Sluggish Again
– Stocks rebound and some strong leaders surge, but the big names remain very sluggish.
– Big-name tech stocks are sluggish and lag again, but the market is not all about those stocks.
– The Russell 2000 (RUT) leads higher, while the large-cap indices are unimpressive.
– We are looking to play the good setups in chips and other areas while also being cognizant of the extremes of sentiment.
For the indices, the Thursday rebound off of the sharp Wednesday selling was just not that impressive. There were certainly strong moves from many stocks, e.g. Cloudflare, Twilio, Spotify, Square, ConocoPhillips, Jumia Technologies, Okta, Cleveland-Cliffs Inc., Patterson-UTI and Zendesk — but the large-cap stocks did very little to change their plight with their modest, at best, recoveries.
That left the indices — outside of RUT — with lackluster and unconvincing recoveries off of the Wednesday selling. Okay, some of the indices failed to recover at all. While they subsequently lost more ground, their losses were much more modest.
With the weak rebound attempt of the large-cap indices, the market remains at risk of not being able to continue the year-end advance. The plan is to let some of those big names rebound off of the selling if they can. At the same time, their rebounds have already been reflected in the large-cap index bounces, i.e. they were unimpressive. If they can continue the rebound, so be it. At the same time, given how weak the moves were in the big names, unless something changes and more bids return, we will likely be closing more of those positions. We will likely do so when the indices try to move a bit higher in the bounce.
NASDAQ: It gapped lower and continued the Wednesday selloff. However, it recovered to the 10-day exponential moving average (EMA) and closed decently positive. As with the PHLX Semiconductor Sector (SOX), it was not necessarily that convincing of a test, but it was what it was. In other words, we are looking at some nice techs that moved well. While the Nasdaq can do what it wants, we will be in those stocks.
S&P 500: It gapped lower, sold further and then recovered to the 10-day EMA to show a doji at the close. While this was barely a pullback, I am not convinced that it will just bounce right back up.
NOTE: The figures and information above are from the 12/10 report.
NOTE: The videos are from the 12/9 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:
Jumia Technologies AG — ADR (NYSE: JMIA): It is called the African Amazon. Whether it is or isn’t, we like it because it moves well. After a breakout run in November, JMIA came back to test the move to end the month. As December started, JMIA finished the test, reached the 20-day EMA on the Dec. 2 low and rebounded. We were waiting for that kind of signal, and we entered the play by buying stock for $29.61 and February $30 call options for $7.20.
JMIA reversed nicely during that session and closed near the high. It then proceeded to move up the 10-day EMA. However, it was volatile intraday for pretty much every session. It would surge and then fade intraday, or sell and then rebound. All in all, however, it trended higher. So, we gave it some room to move.
It did. A strong move on Thursday, and then a surge on Friday, took JMIA back near the prior peak and our initial target. We then sold half of the stock for $40.55 and banked a 36% gain. We also sold half of the February options for $13.90 and banked a 90% gain.
Other trades we took gains in during the week included:
Cleveland-Cliffs Inc. (NYSE: CLF): 52% gain in the stock, 307% gain in the options
Entegris Inc. (NASDAQ: ENTG): 94% gain in the options
Etsy Inc. (NASDAQ: ETSY): 26% gain in the options
Cloudflare Inc. (NYSE: NET): 43% gain in the options
ON Semiconductor Corp. (NASDAQ: ON): 11% gain in the stock, 75% gain in the options
Veeco Instruments Inc. (NASDAQ: VECO): 11% gain in the stock, 82% gain in the options
Ralph Lauren Corp. (NYSE: RL): 90% gain in 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:
Snap Inc. (NYSE: SNAP): After the big gap higher on earnings in October, SNAP continued moving higher and made runs up the 20-day EMA. We saw one of those moves setting up again in early December. This was after SNAP tested back to the 10-day EMA in late November. It showed some good dojis at that level — it would dip to test, and buyers would enter and push it back up. This showed that buyers were eager to pick SNAP up at that near support.
SNAP soon broke higher from that testing pattern. We moved in by buying January $48 call options for $3.90 when the stock was at $48.01. The nice thing about these setups in a running stock is that they appear in a pause that occurs between big runs. Sure enough, SNAP put in a good run and moved up the 10-day EMA for four sessions. It tested on Wednesday and then surged again on Thursday.
That Thursday surge took SNAP to our initial target. So, we sold half of the position for $6.30 and banked a gain on our options that was just over 60%.
Other trades we took gains in during the week included:
QUALCOMM, Inc. (NASDAQ: QCOM): 121% gain in the options
Silicon Laboratories Inc. (NASDAQ: SLAB): 79% gain in the options
Simon Property Group Inc. (NYSE: SPG): 88% gain in the options
Taiwan Semiconductor Mfg. Co. Ltd. (NYSE: TSM): 170% gain in the options
Trade Desk Inc. (NASDAQ: TTD): 106% gain in the options
United States Steel Corporation (NYSE: X): 61% gain in the stock, 417% gain in 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:
Upwork Inc. (NASDAQ: UPWK): We have come to like trading UPWK, as it is a relatively new issue that has a lot of movement. UPWK started December by testing a run and priming itself to make a new upside break.
We watched it make a nice fade, and then, on Dec. 7, Pearl Harbor Day, UPWK moved up. So, we bought some stock for $33.14. During that session, UPWK surged upside and then started to falter and slide back. It then broke higher. Since we had a good gain in our hands, we sold the position for $34.38 and banked a 3.74% gain on the day.
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
SDGR (Schrodinger, Inc.–$67.99, +1.80)
STATUS: SDGR turned the corner in November and moved off of a double bottom that spanned from late September to that early November low. A solid enough run higher to end November broke some important resistance with a nice upside gap. After hitting a recovery high to start December, SDGR fell to the 10-day EMA from Wednesday to Friday.
On Friday, it reached down to the 20-day EMA on the low and bounced back. On Monday, SDGR bounced higher — while there was not a lot of trading, there was a good start upside. It has a lot of open space to run, and the gap from mid-July looks pretty enticing. We already have one position that has made us money, and we are looking to enter another one as SDGR continues this break higher through the entry point. A move to the target will give us a 15% gain in the stock and a 75% gain in the options.
VOLUME: 735.603K Avg Volume: 1.116M
ENTRY POINT: $68.36 Volume=1.6M Target=$78.69 Stop=$64.91
POSITION: SDGR FEB 19 2021 65.00 Calls — (62 delta) &/or Stock
4. Covered Call Options Play
Ironwood Pharmaceuticals Inc. (NASDAQ: IRWD) — Ironwood Pharmaceuticals Inc. is currently trading at $12.12. The Dec. 19 $12.50 Calls (IRWD20201219C00012500) are trading at $0.50. That provides a return of about 9% if IRWD is above $12.50 by the expiration.