Invest and Trade Profitably with Jon Johnson

Weekender for 12/29

1. Market Summary

Season’s Greetings!

– While there was another day of rallying, after stocks faded the move, it took a late rebound to keep the rally solid.
– Small-caps were shunned during this Santa move.
– Pundits continue to sport bullish views based on the Fed’s liquidity.
– Repurchase agreement (repo) operations were undersubscribed again, raising questions about how long the Fed will continue pushing money into the market.
– This rally is making its fourth go-around after testing close to the 50-day moving average (MA) in early December.

Santa continued delivering presents even on the day after Christmas. Futures were up and stocks both opened higher and rallied until mid-morning. At that point, the move peaked and the indices range-traded for four hours until the start of the last hour of trading. In the penultimate hour, many of the stocks that had rallied through the early afternoon and that had been sold aggressively from mid-afternoon onward managed to rebound. That kept the overall gains relatively decent. The fact that this rally featured low volume, middling breadth and gains that were solid enough kept with the continuation of the Santa Claus rally.

What can you say about a kind of move that pushes the NASDAQ over 9,000 points for the first time ever? Certainly, everyone is now on the “liquidity train” as experts and pundits are all talking about the fact that Fed liquidity is driving the move. As a corollary, the market must go up as a result.

That being said, just because sentiment is grossly positive does not mean a correction is imminent. Thus far, the leaders are holding their own. They are also setting up, moving up and holding the moves. As long as this pattern continues, the moves will continue.

Technical Analysis:

Here, we can see a familiar course of action. The indices either tested or tested near the 50-day MA in early December and are now at new highs and running up the 10-day exponential moving average (EMA). We have seen three bounces thus far, and it looks as if the fourth is starting. After this run, perhaps a fifth will come — four to five is what you typically get off the 50-day MA. With the indices putting some distance on the 200-day MAs, this phenomenon is something to watch for as the move to a fifth bounce continues. Thus, we might see stocks reversing hard and breakouts failing.

On Thursday, we mostly let our positions run. However, we did bank some gains on Google (GOOG) and Spotify (SPOT) and picked up a position or two. If they continue to present good moves, we can still move into more. However, we also know that this move is getting a bit long in the tooth.

Whether we call this phenomenon overbought, long in the tooth or stretched — there are many names for the same condition — stocks can become much more overbought than we think they can endure. Thus, we let them work, keep our option expiration dates in mind and watch for signals that the current move is running out of gas such as the gaps to new rally highs that reverse hard, breakouts that fail or island reversals (which feature a gap higher that is followed by a gap back down through the same gap upside).

NOTE: The figures and information above are from the 12/26 report. There was no video this week due to the Christmas holiday.

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): We originally entered this position on Dec. 6 as LRCX came off a 50-day MA test. We bought January $270 call options for $10.05 with the stock at $269.81. This was an excellent setup. LRCX then posted very steady gains from the entry and moved higher through Dec. 20. We took some initial gains on Dec. 12 by selling half the options for $19.20 and banking a 91% gain.

LRCX continued higher, and our remaining options continued to increase in value. On Christmas Eve, LRCX stalled after a gap higher during the prior session. Thus, we opted to sell another half of our LCRX options for $24.20 to bank a gain of 140%. Now we want to see if LRCX can provide one more spurt higher into the year’s end.

Shopify Inc. (NYSE: SHOP): This was another market leader that rallied to new highs into August and then ran out of gas. As SHOP needed to base and consolidate, it fell into a very nice three-month double bottom with handle. After we saw it setting up the handle in early December, we put the play on the report. On Dec. 11, SHOP made the breakout move and surged from a week-long lateral handle. We then moved in with February $380 call options for $34.90.

SHOP proceeded to move higher, continuing the breakout move. It then tested to the 10-day EMA for three sessions. After that reset the move, SHOP’s share price jumped higher on Tuesday. On Thursday, SHOP came close to the initial target. Thus, we sold half the position for $52.40 and banked a gain of 50%. We are currently letting the rest of the options work.

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Here are two completed trades from Technical Traders Alert, offering insights into our trading strategy and the targets that we have hit this week:

American Tower Corp. (NASDAQ: AMT): This is a perennial market leader that we like to play. After another stellar run to a new high in early September, AMT started to base. It then formed a triangle using the 200-day simple moving average (SMA) as support toward the “point” in the pattern. We put AMT on the report in mid-December when it started to move up off the lower trend line.

On Dec. 19, AMT made the breakout from the triangle and moved through the upper trend line. Since moves from these patterns tend to be explosive, you can play them on the breakout, on the test or both. Thus, when AMT made the break, we issued an alert and moved in with April $220.00 call options for $10.00.

AMT rallied right on into this week. On Monday, it rallied again and then started to back off. During the next session, AMT showed a doji. This was followed by a good breakout and surge that featured a close off the high and then produced another doji. Rather than wait for a test, we sold half the options for $14.50, banked a gain of 45% and let the rest work. The fact that AMT is holding the gains in a good test suggests that it will continue higher after this pause.

Pan American Silver Corp. (NASDAQ: PAAS): Precious metals can be kind of stodgy, but the gains can be solid. PAAS broke out from a cup with handle base in in early December. It then came back to test the 10-day EMA after that breakout and set up a perfect entry point as the breakout move continued. Accordingly, we put it on the report on Dec. 10. On Dec. 11, PAAS broke higher off the test. Then, we moved in with the stock at $20.70 and April $20.00 call options for $2.45.

After this, a nice rally ensued with three solid upside sessions, a lateral test into this week and then a surge higher into Christmas. On Christmas Eve, PAAS was close to the target. As a result, we went ahead and banked half the gains by selling half the stock for $22.73 (a 9.8% gain) and half of our options for $3.55 (a 44.9% gain).

Receive a risk-free trial to Technical Traders Alert and save 50% by clicking here now!

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)

We often go to the well on SNAP simply because it bounces around quite a bit and can give us quick gains over and over. This time, we saw SNAP set up again on Dec. 18, when it rested after bouncing off a test of the 200-day MA.

On that day, we moved in by buying the stock for $15.34. SNAP ended that session basically flat. However, on Dec. 19, SNAP jumped.

On Dec. 20, it rallied again and then started to stall. Since we had a gain, we took it by selling our shares for $15.67. This produced a 2.15% gain. As SNAP consolidated and then started to break higher again on Thursday, we are looking to enter this stock again when SNAP gives us a bit of a pullback.

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.

To receive a risk-free trial and save 50%, click here now!

3. Pick of the Week

YETI (Yeti Holdings–$34.71; +1.30; optionable)

EARNINGS: 01/30/2020

STATUS: Triangle. This stock’s trajectory can certainly be defined as a big ranging triangle as it consolidated during the nice late Dec. 2018 through April 2019 run. YETI is a member of the crop of initial public offerings (IPOs) that sprang up over the past year. Interestingly, YETI actually worked more or less out of the gates and rallied until May 2019. This path was a good triangle and began to show progressively higher lows that were being formed using the 200-day SMA as support.

Earlier in December, YETI came back from a test of the top of the triangle and held at the 50-day MA. Since then, it has moved up to the upper trend line off that higher low. Often, that kind of pattern can set up a breakout from a base. On Friday, YETI moved over the upper trend line and held there.

We are looking to play YETI as it continues this breakout move and are looking for a new high to come. A rally to the initial target will give us around a 15% gain on the stock and a gain of 85% on the options.

VOLUME: 1.469M Avg Volume: 1.699M

BUY POINT: $34.88 Volume=2.2M Target=$40.24

POSITION: YETI FEB 21 2020 35.00C — (53 delta) &/or Stock

To see the YETI video, click here!

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4. Covered Call Options Play

Jinkosolar Holding Co. Ltd. (NYSE:JKS) — Jinkosolar Holding Co. Ltd. is currently trading at $22.91. The Feb. 22 $23.00 Calls (JKS20200222C00023000) are trading at $1.60. That provides a return of about 8% if JKS is above $23.00 by the expiration.

Learn more about our Covered Call Tables here!

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