1. Market Summary
A Tsunami of Positives
Excerpted from Thursday’s paid content of “Investment House Daily” by Jon Johnson.
– The Federal Open Market Committee (FOMC) has held steady and is not going to raise rates in 2020. Chairman Jerome Powell is also open to bond purchases.
– The Consumer Price Index (CPI) has become hotter, but the Fed continues to lament “muted inflation.”
– The PHLX Semiconductor Sector (SOX) made a breakout and the other indices were poised to follow.
– Will the trade war get in the way of the other indices breaking out?
– Chairman Powell will address the potential repurchase agreement crisis over the next several days. He has also stated that he is open to more quantitative easing (QE) — and all that goes with it.
A tsunami of positives spurred the stock market onward on Thursday and much of the rest of the market stampeded to follow SOX’s Wednesday breakout to an all-time high. The S&P 500 and the NASDAQ certainly achieved new highs while the S&P 400 and Russell 2000 (RUT) rallied to a higher recovery and achieved their own version of success. The Dow, well, it hit a new all-time high as well — intraday.
The gains were not huge on the indices as that honor was left to the individual stocks and groups that suddenly found out that a dead weight had been removed from their necks. Those stocks have had that weight removed before… and then added right back. I am sure you know what kind of news causes this on again, off again action.
Okay, you guessed one of the stories (and likely already knew it). It is the Phase One trade deal — in principle. Groan. Yes, just after the opening bell, President Trump tweeted that the United States was “very close to a big deal with China.” Shortly thereafter, other sources reported that some kind of a deal had been reached. This deal involves foregoing the upcoming tariff increases and even rolling back 50% or another percentage of the existing tariffs.
The S&P 500 and the NASDAQ: Both indices achieved new highs. However, the S&P 500 is stronger than the NASDAQ as the latter faded somewhat substantially off the highs. Still, both hit new highs.
NOTE: The figures and information above are from the 12/12 report.
NOTE: The videos are from the 12/11 report.
2. Targets Hit
Here are two completed trades from Investment House Daily, offering insights into our trading strategy and the targets that we have hit this week:
Lam Research Corporation (NASDAQ:LRCX): Since semiconductors tend to lead the market upward and downward, we are always watching the leaders in this group. LRCX is one of those leaders and it surged with a gap and rally on earnings in late October. After it started to consolidate, we waited for our opportunity.
Well into the month of November, LRCX faded to the 50-day moving average (MA) with a gap lower to a doji at that support. It gapped back up during the next session. While sellers then sold the stock, they could not break it as it popped right back up.
We put it on the report and were ready to enter when it broke higher. On Dec. 6, LRCX gapped over the 20-day MA. That was our cue to enter. We moved in with January $270.00 call options for $10.05. LRCX paused after that gap for two sessions and then it was ready to move again. It rose substantially on Wednesday and even more on Thursday due to the trade news. That pushed LRCX back to the early November peak and our initial target.
We sold half of our options for $19.20 and banked a gain of 90%. We are leaving the other half for another rally in chips in case a rally happens in the future.
Skyworks Solutions Inc. (NASDAQ:SWKS): We saw SWKS making an initial test of its late October breakout from a larger base. Here, it is worth noting that we love playing the first test of a breakout because if a stock starts back up after that test, it means that the buyers still want it at that elevated price.
Thus, we put SWKS on the report on Nov. 19 as SWKS made the test. On Nov. 25, SWKS broke higher with a gap. Then, we moved in and purchased January $100.00 calls (when the stock price was $100.51) for $4.40.
SWKS immediately went lateral on us for a week. That would be the last consolidation, however, as SWKS started upside with a gap and then rallied during each session this week.
On Dec. 9, it hit our initial target at $105. Soon afterwards, we sold part of our options position for $6.60 and generated a solid 50% gain. Then, SWKS really took off on Wednesday and Thursday. On Thursday, SWKS hit a high at $112.50 and started to stall.
After all of these big moves during the week, this was our cue to bank some more gains. We sold more options for $13 and banked a 195% gain. As we still have a quarter of the position, we will wait and see if SWKS can continue higher for us.
Here are two completed trades from Technical Traders Alert, offering insights into our trading strategy and the targets that we have hit this week:
Google Inc. (NASDAQ:GOOG): While we already have a play working on GOOG, that fact did not stop us from focusing more money into a winner. Thus, when we saw GOOG make that quick gap lower to the 50-day MA on Dec. 2 and then reverse on Dec. 3, we put it on the report. On Dec. 4, GOOG gapped back up through the 20-day exponential moving average (EMA).
That was our cue, and we entered the play with January $1,320.00 call options at $36.80 when the stock was at $1,322.25. We love that kind of gap to the support when it is followed by an immediate reversal as this kind of pattern shows that the buyers are moving in and that they still want the stock.
GOOG stepped right up to our target on Dec. 9 when it and other stocks surged upside. As GOOG started to fade after nearing $1,360, we sold half our options position for $55 and banked a gain of 49.5%.
Nike Inc. (NYSE: NKE): NKE is always a stock that we trade when it gives us a proper setup. After its late October and early November 50-day MA test, we started looking for an opportunity.
NKE broke out from a six-month trading range in late September when it rallied at close to $100 and tested back to show that 50-day MA test. After seeing this, we put it on the report and waited for the break higher. We then waited some more. Finally, NKE made its move higher on Nov. 14.
As a result, we bought January $90.00 calls for $4.75. NKE then rallied nicely for two-and-a-half more sessions and then stalled for two weeks. After the stock let the 50-day MA catch up to the move, NKE gapped to a higher recovery last Wednesday and last Thursday.
While NKE then continued moving higher into this week, it kept falling somewhere in the $97.50 to $98 range and stalling. So, we opted to sell half the options position on Dec. 10 for $8.00. Although that was a solid 68% gain, we left the rest to work in order to see if NKE could break on through and give us even more upside.
Here are two completed trades from the Success Trading Group, offering insights into our trading strategy and the targets that we have hit this week:
NASDAQ:AMD (Advanced Micro Devices)
Last week, we discussed the AMD trade and stated that we were waiting to see if it would make us a good turn in short order. It did.
We entered on Dec. 4 when AMD moved higher after a wild session on Dec. 3 where it gapped lower. However, the buyers soon moved right back in. In general, when sellers try to break a stock but fail, it will likely move higher.
So, when AMD moved higher on Dec. 4, we bought it for $39.42. After another lateral move along the 20-day EMA near its support on Thursday, AMD surged with the latest “we have a deal or not” China trade story. We sold the stock at $41.02 and banked a 3.5% gain.
NASDAQ:SWKS (Skyworks Solutions Inc.)
We saw SWKS break out in late October by moving from a seven-month base with a gap and a rally on big volume. This is always a good indication. However, since this was an earnings move, we waited to let it test. That decision was important because volatility rallies just ahead of and just after earnings. After this period, it falls.
So, we waited for the test. SWKS finally made that test in mid-November and came back to the 20-day EMA near the support. This is unsurprising as this is often where a stock tests after a breakout.
We put the stock on the report and when SWKS moved up on Nov. 25, we bought some stocks for $100.57. This situation looked great, and then the trade uncertainty hit. As a result, SWKS slid back to the 20-day EMA. The stock then held and gapped up on Dec. 4. That started the next move and SWKS steadily, albeit slowly, moved higher.
On Dec. 9, SWKS gapped higher, rallied more and then started to stall. We sold the position for $104.81 and banked a 4.22% gain.
This is an example 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
AMAT (Applied Materials–$59.04; +2.42; optionable)
STATUS: The late October breakout from the four-month triangle and the gap higher in mid-November were solid, but AMAT and other chips were hit in mid-November. AMAT gapped lower, but held the range and support at around $55.
It then worked laterally and bided its time. When large-cap chips broke higher on Wednesday, AMAT participated.
Since it looks as if the upside move is back on, we want to move in as AMAT continues this upside break. A move to the initial target will give us a 10% gain on the stock and a 100% gain on the options.
VOLUME: 8.559M Avg Volume: 7.769M
BUY POINT: $59.15 Volume=9.5M Target=$64.94 Stop=$55.01
POSITION: AMAT FEB 21 2020 35.00C — (48 delta) &/or Stock
4. Covered Call Options Play
First Majestic Silver Corp. (NYSE: AG) — First Majestic Silver Corp. is currently trading at $10.69. The Jan. 18 $11.00 Calls (AG20200118C00011000) are trading at $0.50. That provides a return of about 9% if AG is above $11.00 by the expiration.