Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
The SOX Breaks Out
– The PHLX Semiconductor Sector (SOX) breaks out as the other indices continue their consolidation in place.
– Chairman Powell wants 500,000 jobs per month before raising interest rates.
– We see not just chips, but an eclectic mix of stocks moving to the upside.
– Over the three-day weekend, the SOX needs to hold the break higher.
After creeping higher, and not really taking the bull by the horns while the other indices paused, SOX made the break on Thursday. While the other indices were flat to slightly higher in a third day of more or less lateral movement — not bad in and of itself — SOX finally made a definitive move. The chips broke upside through the mid-January prior high with an impressive move from many quality stocks — including some recognizable names such as Nvidia, Lam Research Corporation and Applied Materials, Inc. Other stocks, including Analog Devices, Maxim Integrated Products and NeoPhotonics Corp, are less well-known but were no less solid.
Obviously, the addition of the SOX to the upside bolstered the upside play as the chips filled in with strong gains, while the rest of the market maintained its status in consolidation/pause mode. Again, holding gains in a flat, lateral move is not a bad action in any way. It is simply very good for the upside to see the semiconductors jump into the upside mix.
The big indices, including the S&P 500, DJ30 and the Nasdaq, all threw out a third straight doji and edged upside (though the DJ30 was just slightly lower). They are trying to consolidate laterally, hold the gains and prep for a new upside move. As noted this week, the fact that they are holding their gains and refusing to let them go is potentially bullish action. If they avoid selling and put in a lateral week, that can be enough to lead to new gains.
P.S. Watch the presentation my publisher and I did on the Global Financial Wealth TV network. You can watch it by clicking here now.
NOTE: The figures and information above are from the 2/11 report.
NOTE: The video is from the 2/10 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:
JPMorgan Chase & Co. (NYSE:JPM): With interest rates starting a more earnest rise, it was the season to look at banks for some trades. This was particularly true due to the presence of some good setups immediately preceding the gains.
JPM is a classic play when banks set up, and as of late January, it was starting to test the 50-day moving average (MA). We watched it, put it on the report and on Feb. 2, JPM made a sharp move higher off of a nice, tight doji that it had formed during the prior session. Since that was the entry signal, we entered the play by purchasing March $135 call options (at the time, the stock was trading at $133.55) for $5.20.
JPM typically no longer flies higher, but it is a steady performer. And thus, JPM moved steadily higher up the 10-day exponential moving average (EMA) into this week. When JPM neared the January high, as you would expect, it started to slow. Indeed, it hit near $140 and started to slide laterally.
We had set our initial target just below that prior high — we love easy money when you can make a solid return and not have to break new ground. So, per the plan, we sold part of the position for $7.90 and banked a 51% option gain.
After this lateral pause, we will see if JPM can continue the move on up the 10-day EMA.
Tilray Inc. (NASDAQ: TLRY): It is time to issue an update on this trade. As you know, pot stocks really buzzed higher on the week and then took the Reddit explosion move.
TLRY had already delivered a solid gain, but there is a reason why we left part of the position on the table. In general, when we have a winner in a winning sector, we always let a part run. After we did, TLRY exploded higher this past week. We let it explode upside.
Then, on Feb. 10, we saw TLRY gap upside once more. It did not, however, run higher this time. Instead, it gapped and stalled. In short, we saw a huge move with upside gaps and then a gap that could not run. This is a classic sign that a stock is overdone in the near term.
So, we sold the rest of the options for $45.25 (which we had bought for $4.55) and banked an 894% gain.
At the end of that session, TLRY produced a big candlestick hanging man signal. It pays to recognize these signals and use them to sell. During the next session, TLRY gapped lower and dropped by 49%.
Here are two completed trades from Technical Trader Alert, offering insights into our trading strategy and the targets that we have hit this week:
Goldman Sachs Group Inc. (NYSE: GS): Sometimes, the old ways are the good ways. Actually, a good setup is a good setup. When Goldman puts in a good setup, people listen. Oh, I guess that referred to another brokerage from another time.
In any event, GS started February with a good setup, having faded from a mid-January high back to the 78% Fibonacci retracement of the beginning of the 2021 rally (which, in turn, was part of a larger rally from the prior November). We saw it put in a short double bottom at that level and got ready to play a move up from there.
On Feb. 2, GS broke higher. We entered the play with April $290 call options and paid $15.40 per option. At the time, the stock was trading at $287.81 — we bought calls that were out of the money because we were looking out to April and the numbers worked.
Then, GS embarked upon a steady, if unspectacular, move higher and marched up the 10-day EMA. After eight sessions of upside, the stock neared the January high and showed a bit of slowing action in a market that was also slowing, we opted to take some gains. That is, we sold half of the options for $23.80 and banked a 54.5% gain. Now, we will see if this market pause is just a pause and if GS can continue moving upside in a nice, steady move.
Lakeland Industries (NASDAQ: LAKE): I would like to issue an update on this play from last week, which was when we banked 92% on the initial options sale on Feb. 5. After we banked these gains, LAKE continued higher, as it was just getting warmed up. The stock surged to Feb. 8 with a gap, and we sold another half of the options for $10.80. This generated a 174% gain.
We were going to leave the last part alone, but, during the next session, LAKE gapped higher again, surged and then started to backslide. After such a huge run, that was a classic stall action. So, we went ahead and sold the rest of the options for $16 and banked a 300% gain.
As I have noted before, it pays to take gains on the way up, and recognize when moves are peaking. On Feb. 10, we saw LAKE gap back upside and then stall. It lost 9% and closed lower. This was a reversal of $6.42 off of the high. It is holding over the 10-day EMA, however, and we are looking for another swim in LAKE.
There were no trades in the Success Trading Group this week.
Still, 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
RUN (Sunrun, Inc. — $78.08, +0.51)
STATUS: A test of the 50-day MA. RUN broke to a nice new high to start 2021 and cleared a nice three-month base that it formed by using the 50-day MA as support. It rallied to a new high at $100 and then tested the move by coming back and filling the early January upside gaps while holding the 50-day MA. Since this was a higher low at key support, we are watching for a break higher to play another run at $100. That move will give us a 90% gain on the options.
Volume: 4.379M Avg Volume: 5.69M
ENTRY POINT: $79.77 Volume=7M Target=$94.97 Stop=$74.81
POSITION: RUN MAR 19 2021 $80.00 Calls — (51 delta)
4. Covered Call Options Play
Danaos Corp. (NYSE: DAC) — Danaos Corp. is currently trading at $34.29. The Feb. 20 $35 Calls (DAC20210220C00035000) are trading at $2.80. That provides a return of about 12% if DAC is above $35 by the expiration.