Weekender for 2/16
1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
News Regarding China Shakes Up Markets
– China’s new case data change stalled stocks for a bit before they rebounded.
– Stocks recovered well, but struggled late in the day as the Fed, after a big repurchase operation (repo) in the morning, said that it will reduce the amount of the repos.
– Leaders performed well, but semiconductors are at an important crossroads.
– The market has a three-day weekend to wait for more news.
China’s overnight rewrite of the coronavirus numbers was really no surprise at all because both the models and China’s doctors were telling the same story. However, it did shake up the markets. Yet, as I noted two nights ago, the buy-on-the-dip mentality is strong. On Thursday, the “opportunity” bids returned. Actually, stocks bottomed before the open, rose into the bell, survived a quick test and then rallied into mid-afternoon, producing new highs on the large-cap indices.
With this kind of news, you can bet that the repo demand for money was high. It was. The overnight repo saw $45.85 billion in demand, blowing past the Fed’s offer. The two-week repo saw $59.02 billion versus the $30 billion the Fed was providing. In the end, the Fed added $79 billion of liquidity. From this point of view, it is easy to see why the urge to buy the dip succeeded, given the added liquidity.
Then, something strange happened, or, at least, something that was strange for this market and this Fed. In the afternoon, the Fed announced that it would be reducing the amount of money that it was offering in its repo operations. This meant that overnight operations would decrease by $20 billion and two-week repos would drop by $10 billion. As a result, the buy-the-dip move stopped and stocks faded to the close. This pushed the large-cap indices into the red.
Technical Analysis:
NASDAQ: The NASDAQ is still solid enough as it broke higher in early February from its volatility at the end of January, tested and then broke higher on a new leg on Monday. While this index was not extended due to this new move, the NASDAQ can test laterally for a few sessions and then continue onward. Thursday’s action would classify as a lateral move, given the start lower and the recovery.
S&P 500: The S&P 500’s trajectory was similar to the NASDAQ’s, but the S&P 500 started this move down at the 50-day exponential moving average (EMA) with a good test of support. Similarly, it moved up to the prior high from January, tested to the 10-day EMA and then broke higher again on Monday. As with the NASDAQ, the S&P 500 can consolidate laterally a bit, let the 10-day EMA catch up and then move higher once more.
NOTE: The figures and information above are from the 2/13 report.
Watch the Investment House Videos For This Week Here!
NOTE: The videos are from the 2/12 report.
2. Targets Hit
Here are three completed trades from Investment House Daily, offering insights into our trading strategy and the targets that we have hit this week:
Ambarella Inc. (NASDAQ: AMBA): After we saw some big semiconductor names shaping back up in February, we locked onto some of the better patterns. For instance, AMBA set up a five-month triangle and came up off of the bottom of the triangle at the 50-day EMA during the prior week. We were watching AMBA and had it on the report when it surged upside on Feb. 11 and broke out from the pattern. We moved in with some March $65.00 call options at $5.40 and some stock at $66.37.
AMBA surged more during the next session and then surged again on Wednesday. On Thursday, AMBA opened lower and then rallied back to the Wednesday high. It stalled, however, at that same level. As a result, we thought that it was a good time to bank some gains.
We sold half of the options for $8.50 and banked a gain of 57%. We also sold half of our stock for $70.93 and banked a 6.9% gain. Now AMBA will likely test a bit after such a strong break out. Then, it will continue upside. In the meantime, we will let our position work and might even look at adding more if the test is solid.
Netflix, Inc. (NASDAQ:NFLX): While it was pretty much the forgotten one of the Facebook, Google, Apple and Amazon group, NFLX was nonetheless setting up a nice cup base from the July 2019 peak. We were watching when NFLX made a big move in late January, but it soon dropped to the 200-day simple moving average (SMA). We knew that move would take a lot out of it. So, we waited for a test of that move. Sure enough, we put NFLX on the report when it faded to the 20-day EMA.
On Feb. 3, NFLX surged upside, which was our entry signal. We moved in with April $360.00 call options at $23.50. NFLX made short work of a move higher as it rallied up the 10-day EMA with surges and pauses. However, it always held the 10-day EMA during this time.
On Feb. 13, NFLX hit our initial target. We sold half the options for $37.90 and banked a gain of 61%. We will let the rest of the position work.
Sunrun Inc. (NASDAQ:RUN): We saw RUN coming off the lows in a downtrend as it had formed a very nice cup base from October through January. It then put in a handle to that pattern late in the month. On Jan. 30, RUN made the breakout as it gapped higher but faded off of the high. When it came back to test the 10-day EMA, we put it on the report. On Feb. 3, RUN started back up and we bought stock for $17.50 and April $16.00 call options for $2.65.
From there, we sat back and watched. RUN ran up the 10-day EMA in a pretty straight line into this week. After it hit our target on Wednesday, we sold our stock for $20.31 and banked a 16% gain. We also sold our options for $4.20 and banked a gain of 58%. Now, we will let RUN take a breather in order to see if it will run again with our remaining positions.
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Here are three completed trades from Technical Traders Alert, offering insights into our trading strategy and the targets that we have hit this week:
American Tower Corp. (NYSE: AMT): AMT is always a stock we like playing, and with the 5G network buildout, AMT is a good play — when it sets up. AMT broke upside from a triangle in late December, but after the initial move, it struggled to surge higher. It then continued to work higher. In the middle of the month, it tested the 10-day EMA after a rally. After we put it on the report, it broke higher on Jan. 21. As a result, we moved in with February $235.00 call options for $6.40 as we were looking for a steady move higher after the breakout.
While AMT did move higher for a few sessions, it then tested back to the 20-day EMA to end the month of January. However, this was not a breakdown. It was just a fade to the next support. Since this fade was not so bad, we stayed with it and toyed with the idea of adding more positions. While we eventually decided not to, it didn’t matter as AMT moved up off the 20-day EMA starting on Feb. 4 and continued up until Monday, when it surged higher by five points.
During the next session, AMT gapped higher and rallied 15 points on the high. We then sold our February options, lock, stock and barrel, for $19 and banked a gain of 198%. We did this because we figured that it was not going to get much better for the February options.
Laboratory Corp. of America Holdings (NYSE:LH): LH broke out from a five-month trading range in early January and posted a solid week of gains. After we saw that move, we opted to wait for the test. LH then tested into the middle of the month and we put the play on the report. On Jan 21, LH broke higher and we moved in with February $180 options at $5.10.
LH proceeded to test further and bounced up and down along the 20-day EMA for a week. While we had to keep the Pepto close by, LH held its support during each session and indeed rallied off of it in the intraday period. LH broke higher for a few sessions, tested the 10-day EMA and then started upside this week. On Wednesday, LH hit our target, and, given the back and forth volatility and the fact that its earnings would be released before the markets opened on Thursday, we sold the options for $9.20 and banked a gain of 80%.
Great! The thing is that LH exploded higher on earnings and the options are now trading at $13.70. This would have more than doubled our gains. However, here’s the deal. We bought February options because we did not plan to hold them past earnings. As a result, we executed our plan. If LH had missed earnings, our February options would have been cooked. Sure, we could have sold half and kept half. However, we didn’t do so this time.
Teva Pharmaceutical Industries Ltd. (NASDAQ:TEVA): TEVA was one of the stocks that was coming off of the lows of a long downtrend. As we like to say, it was “turning the corner.” It then rallied to the 200-day SMA and stalled for two months.
TEVA finally made the move we wanted to see, breaking the 200-day SMA in mid-January. As it tested that break upside, we put it on the report. On Jan. 22, TEVA bounced off the test and we moved in by buying stock for $10.43 and some March $10.00 calls for $1.13.
While TEVA immediately made one more test of the move, it rebounded rather quickly to the 10-day EMA. As it was then ready to move, it broke higher and gobbled up gains with big surges. Starting on Feb. 5, TEVA tested for a few sessions and then surged upside again this week. On Feb. 13, after a gap to a doji on Wednesday, we sold our stock for $12.98 and banked a 24% gain. We also sold our options for $3.10 and banked a gain of 174%.
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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:
Crowdstrike Holdings Inc. (NASDAQ:CRWD)
This stock’s nice double bottom, which spanned late 2019 and early 2020, caught our eye. After CRWD formed this nice pattern, it tested back to the 50-day EMA in late January. It then started to recover and set up an upside move. On Feb. 4, it broke higher and looked good to run. Then, we moved in and bought stock for $63.21.
As CRWD opened higher during the next session, the stock looked great. It then fell back to its near support at the 10-day EMA, which was the same support that it was already using. CRWD then flat-lined for three sessions. This was not what we wanted as we coveted a nice, quick gain. Finally, Tuesday gave us a good move by gapping upside.
We went ahead and sold the stock for $65.71 and banked a gain of 3.9%. In retrospect, we are glad that we did so because CRWD is not showing a lot of momentum despite sporting a good pattern.
Okta, Inc. (NASDAQ:OKTA)
OKTA is trading in a nice uptrend channel. In late January, it started to move up from the bottom of that channel. On Jan. 30, we moved in on a good bounce, buying stock at $132.83.
OKTA promptly dropped during the next session, but then surged back to a higher high later that week. Then, it suffered another drop and gave back much of that move. Finally, OKTA found terra firma and moved higher into this week.
On Monday, it hit our initial target, and, given the presence of all of this volatility, we sold the stock for $135.82 and banked a 2.25% 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.
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3. Pick of the Week
GOOG (Google–$1,508.68; +29.45; optionable)
EARNINGS: 05/04/2020
STATUS: GOOG is one of the huge names that is making a break higher. After seeing a great rally in January, it faded towards the end of the month. Then, GOOG held the 20-day EMA for two weeks before starting upside on Thursday. The stock then saw a solid break higher on rising volume on Monday. We are ready to move in as GOOG continues upside. A rally to the target will give us a gain of 65% on the options.
VOLUME: 1.318M Avg Volume: 1.55M
BUY POINT: $1,509.55 Volume=1.6M Target=$1,580.45 Stop=$1,486.88
POSITION: GOOG APR 17 2020 1510.00C — (53 delta)
To see the GOOG chart image, click here!
4. Covered Call Options Play
Smith Micro Software Inc. (NASDAQ:SMSI) — Smith Micro Software Inc. is currently trading at $6.73. The April 18 $7.00 Calls (SMSI20200418C00007000) are trading at $0.90. That provides a return of about 14% if SMSI is above $7.00 by the expiration.
