Invest and Trade Profitably with Jon Johnson

Weekender for 2/2

1. Market Summary

Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.

Earnings Season Continues

– Facebook (NASDAQ: FB) struggled as did stocks, but they then caught a bid and rallied back.
– The DJ30 and the S&P 400 tested the 50-day moving average (MA), but the NASDAQ and S&P 500 did not. However, this didn’t keep them from rebounding.
– While the Q4 Gross Domestic Product (GDP) has come in at 2.1%, the year has shown the slowest GDP growth rate since 2016.
– Well-positioned stocks have posted solid moves.
– AMZN crushed its opposition and surged by 200 points. Will it set the stage for the rest of the market?

Who needs FB? It gapped down hard after its earnings results. Furthermore, with futures lower across the board, it looked as if the bear flag rebound was over and the stock indices were going to test the 50-day MA as part of a much-needed test.

In the premarket alert, we noted that futures were trying to find a bid in the last hour before the markets opened. Once again, the buy on the dip was coming.

Stocks certainly opened lower, and they did trade in a quite volatile range through midday. Early in the afternoon, they approached the prior session’s highs and then broke higher with 1.5 hours left. By the time that the markets closed, the stocks had rallied to the session’s highs.

Technical Analysis:

NASDAQ and the S&P 500: The NASDAQ and the S&P 500 did not make the 50-day exponential moving average (EMA). Instead, they made turns above it. Only the NASDAQ tested the 20-day EMA and bounced. The S&P 500 somewhat remained in a no man’s land between the 50-day and 20-day MAs before moving up over the 20-day on the close.

NOTE: The figures and information above are from the 1/30 report.

Watch the Investment House Videos For This Week Here!

NOTE: The videos are from the 1/29 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:

Advance Auto Parts, Inc. (NYSE:AAP): We saw many stocks start to weaken in early 2020 just as other stocks took off. There were definitely haves and have-nots. AAP was a have-not. It broke the 200-day simple moving average (SMA) to start 2020 and then sold off.

It then recovered to test the 10-day EMA in a classic bear flag by reaching up to the prior support levels that had been broken and then rolling over from there. As we were waiting for this, we entered on Jan. 21 with some February $150.00 put options for $9.00.

AAP continued to slide lower even though it tested the 10-day EMA on Jan. 23 and closed just below it. That was its last bit of strength. During the next session, AAP moved lower and took out the January low. It then continued lower to the August 2019 consolidation range. Naturally, it found some support there. Thus, we were able to sell some options for $14.20 and bank a gain of 57%.

AAP then held there for three sessions and only broke lower on Thursday. We sold some options for $16.50 and banked a gain of 74%. On Friday, AAP was down again and its options were bidding at $18.60 (a 100% gain). As you can see, playing the downside allows for gains to appreciate rapidly because even though greed is powerful, fear is king. Inc. (NASDAQ:AMZN): AMZN was a nice technical and possibly an earnings play as well. While Facebook, Apple, Netflix and Google rallied, AMZN continued working in a seven-month cup with a handle base. While this was a very nice base, it was bad mouthed because it was not rising while others were. It was, however, taking care of business and setting itself up for its move. We entered on Jan. 6 with some February $1,895.00 calls for $75.00.

At the time, AMZN was breaking nicely higher from its short handle and looked great. It was great again during the next session. Then, it tested a day and bounced higher again. It still looked great. Then, it showed that it was not done with the handle as the stock had faded to the 20-day EMA by mid-January. However, this did not mean that the stock had gone bad. It had just lost its momentum.

Since we still felt that it could make a pre-earnings run, we held on. In hindsight, this proved to be wishful thinking. The stock looked great until Monday, when it gapped all the way down to the 50-day MA. While this was not good, we did not have many options, so to speak, with the gap.

After the stock started to rebound, we decided to play it through earnings due to both the superior base and how quiet AMZN had been. As you know, this strategy paid off when AMZN crushed the results and gapped higher by almost 200 points. We then sold the options for $159.00 and banked a gain of 112%. In retrospect, perhaps we sold off too early as AMZN can continue to rise. However, we wanted to take advantage of the fact that the big move had jacked up the volatility component of the options.

Hershey Co. (NYSE:HSY): Food has become quite popular, but not just for eating. The market has recently been quite favorable to PepsiCo., Coca-Cola, Mondelez International and the venerable HSY as it set up a great triangle pattern from August 2019 to early 2020. While it then broke higher, it immediately tested. We put it on the report, and when it broke higher on Jan. 21, we moved in with some February $150.00 calls for $5.70 when the stock was at $152.51.

While HSY moved higher, it then faded somewhat to start the past week by testing again. HSY then held the 20-day EMA on Wednesday and surged higher on Thursday in a strong breakout move. Since that took HSY to our initial target, we stuck to the plan and sold half our position for $8.00 and banked a 40% gain.

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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:

Facebook, Inc. (NASDAQ: FB): The FB play combined a technical setup and an earnings play. The stock had run well and even broke out in early January from a five-month base. While there was plenty of consolidation for a long-term run, the market started running into trouble in mid-January due to mixed quality economics reports as well as the coronavirus. FB then faded from mid-January to that Monday drop when the entire market fell. It then rebounded to the gap point on Tuesday.

However, we liked the setup for a drop on earnings — technically, it was a setup as FB did tell us last quarter that it would see less growth in the current quarter. It seems that investors had forgotten that little tidbit. We entered on Jan. 28 with February $215.00 put options for $8.30 when the stock was at $213.84.

While we were ready for the earnings report, FB was not. It gapped upside Wednesday into its results and rose to a slightly higher high. As we had to make a decision, we stuck with the original thesis regarding FB’s slowing growth. Well, you know the story.

FB reported slower growth in the United States and Canada and higher expenses. After this, FB gapped below the 50-day EMA and then started to bounce. We sold half the position for $10.50 and banked a rather modest 26% gain.

We left half of the position on the table, however, because it was breaking the 50-day MA and could very easily drop farther after an attempt to hold. On Friday, it was back below the 50-day MA and we will be able to see if it really breaks, fills some lower gaps and really makes us some money.

PayPal Holdings Inc. (NASDAQ: PYPL): Payments systems rallied well into mid-2019 but then peaked, sold back and started new bases. For instance, in late December, we saw PYPL forming a handle over the 200-day SMA to its six-month base. We also saw it break higher in early 2020. We moved in with March $110.00 calls at $5.90 because we were looking for a move to fill the gap lower from late July 2019. After we caught the break higher, PYPL made a quick drop to the 200-day MA that it had broken through. It then reversed intraday and rallied. With that, we stayed the course.

After PYPL found itself, it then started a steady rise up the 10-day EMA for over two weeks. Subsequently, it moved up to our target and started to fade during that session. As that was our initial target, we sold half the options for $10.40 and banked a gain of 75%.

Well, the stock gapped lower during the next session and did bounce off the 20-day EMA. While we are letting the rest of the position work, it is volatile right now — albeit still holding near the support. Since this is a good pattern, we are watching for a new break higher to test that old high and perhaps take it out.

Shopify Inc. (NYSE: SHOP): We initially entered this play on Dec. 13 by buying some February $380.00 calls when the stock was at $381.88. That was when SHOP was breaking out from a double bottom with a handle base that had formed from late August to mid-December. This was a beautiful textbook pattern and performed that way.

First, SPOT made a steady climb up the 10-day EMA right into late January and showed amazing strength. We banked some gains along the way, but as SHOP hit some new highs in late January, volatility crept in. This meant that it kept gapping higher, then falling and then gapping lower and rebounding. Clearly, the sellers did not have such a tight grip on the stock’s action. With that development and the fact that we had February calls, we sold the entire position for $87.50 and banked a gain of 150%.

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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:

Pan American Silver Corp. (NASDAQ:PAAS)

As we had made some money off PAAS during its December run, we certainly wanted to make some more money when we saw PAAS come back to test the 50-day MA in January in order to set up a new run. It certainly helped that the trend in precious metals had remained solid and PAAS’s pattern on this test was also still very solid.

When PAAS bounced off the 50-day MA, we entered with some stock at $22.41. While PAAS paused for a day after that, it then rallied nicely in a one-two punch move. On the second day, it gapped higher and then started to waffle. That was our signal to go ahead and bank some gains. So, we sold the position for $23.15 and obtained a 3.3% 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

TWLO (Twilio–$119.12; +0.04; optionable)

EARNINGS: 02/05/2020

STATUS: TWLO is working on a big cup base and is already moving up the right side of an inverted head and shoulders pattern that had formed from September through December. On its prior run, TWLO made it to the 200-day SMA and tried to break through the prior Wednesday. However, the run faded.

Since then, it has formed a week-plus tight lateral range just below the 200-day MA. As it won’t take too long before TWLO makes the next break higher, we want to play a solid upside break through the 200-day SMA as part of a move to the August consolidation as the initial target. That move will give us a 10% gain on the stock and a 75% gain on the options.

VOLUME: 2.291M Avg Volume: 2.661M

BUY POINT: $121.04 Volume=4M Target=$133.64 Stop=$116.83

POSITION: TWLO MAR 20 2020 120C — (53 delta) &/or Stock

To see the TWLO chart image, click here!

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4. Covered Call Options Play

Iveric Bio Inc. (NASDAQ:ISEE) — Iveric Bio Inc. is currently trading at $6.67. The March 21 $5.00 Calls (ISEE20200321C00005000) are trading at $1.75. That provides a return of about 8% if ISEE is above $5.00 by the expiration.

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