1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
The Dow Jones 30 Joins the Downside
– Another day of pullback to the support was followed by a rebound.
– Economic data are trending weaker again.
– Quality stocks are in good pullbacks, others are in good patterns and still others are unable to hold breaks higher.
Even the recent leader, the DJ30, joined in on the downside on Thursday. All indices fell, not just growth. Of course, growth was the hardest hit, but that was the theme for this pullback.
That said, the action was good for the upside overall. Again, there were reaches lower, as well as recoveries. The Nasdaq recovered more than 100 points off of its low, and the DJ30 recovered more than 200 points off of its low.
For sure, the indices can still slide lower, but that is not the typical course of action. Indeed, by looking at some important groups, and then taking the indices as a whole, we can see that they look ready for yet another bounce in this current move — ready, but they still have to make that move.
SP 500: It broke the 10-day exponential moving average (EMA) after holding it on the Wednesday low. Then, it came right back to hold the 10-day EMA with a doji. Remember, the S&P 500 is the one index that actually tested the 50-day moving average (MA) in late January. Thus, this index is the least extended by that metric.
NASDAQ: It gapped higher on Tuesday and then faded during that session. On Wednesday and Thursday, it fell to the 20-day EMA. Then, it tapped the 20-day EMA on Thursday and rebounded to close above the opening price. It even showed a very decent doji with a tail at the support. Yes, this was another test of the near support in this run without an intervening 50-day MA test — five tests of the 20-day EMA and two tests of the 10-day EMA. However, the Nasdaq is still extended. That leaves it with a question mark on any new bounce, i.e., is it the last leg of the move? At this extension, you have to look at it that way.
NOTE: The figures and information above are from the 2/18 report.
NOTE: The videos are from the 2/17 report.
2. Targets Hit
Here is one completed trade from Investment House Daily, offering insights into our trading strategy and the target that we have hit this week:
Ault Global Holdings Inc. (NYSE: DPW): Electronics and semiconductors held back while the rest of the market posted its last rally. So, we were watching to see if those stocks would lead the market lower, or, after leading higher and resting, they would resume the upside and break to new highs.
Of course, not all good plays were ready to move to new highs. Many were coming up from bases that put them in a position to return large gains in relatively short order.
We saw DPW working on such a base in January and February. We were patient and let it come back to test the 50-day MA. We even waited for the stock to show us that it was done with the test and moving back upside. On Feb. 8, DPW gapped off of the 50-day MA and held a gain. On Feb. 9, it started up again.
That was our signal to enter. We picked up the stock at $5.04, as we were looking at a straight stock play. DPW gapped higher during the next session but stalled. It then tested during both that day and the next.
The break higher was good, however. This week, DPW surged upside and hit our target on Feb. 17. As a result, we sold the stock for $7.18 and banked a 42% gain.
Here is one completed trade from Technical Trader Alert, offering insights into our trading strategy and the target that we have hit this week:
Chewy Inc. (NYSE: CHWY): We like playing stocks like CHWY because they post breakouts that we can profit from. Then, they give periodic tests to consolidate, before taking off to the upside again.
Starting in mid-January, CHWY was consolidating a prior rally and formed a very nice flag pattern as it tested near its support at the 20-day EMA. On Feb. 3, CHWY showed a doji as it started off of the 20-day EMA.
We were ready after that. On Feb. 4, CHWY was up again. So, we moved in with March $105 call options by buying them for $10.50 when the stock was trading for $107.03.
CHWY posted another solid gain during the following session and then slid laterally and a bit lower. It then worked sideways on the 10-day EMA. That formed a perfect handle to what was now a four-week cup-with-handle base.
Those can lead to nice, big breakouts. Indeed, CHWY broke out. The stock surged to $120 and hit our target. As a result, we sold our options for $16.20 and banked a solid 54% gain.
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:
BioCryst Pharmaceuticals, Inc. (NASDAQ: BCRX): Smaller biotechs have performed well in February, and we were looking for stocks that were in a good position to make quick and explosive moves.
BCRX fit the category, as it was testing an early February gap upside. The stock surged and then faded to fill the gap over the next four weeks. We were watching, saw it fill and then watched for a good signal that it was starting to rebound.
That came on Feb. 16, when BCRX continued higher after it closed positive at the end of the prior session. We bought the stock for $10.30. BCRX closed near the session high that day, and then it rallied higher on Wednesday and Thursday. It gapped higher on Friday. As that was the move we wanted, we sold the stock for $11.08 and banked a nice 7.5% gain.
We also took gains in the following positions this past week:
American Airlines Group Inc. (NASDAQ:AAL): 5.45% gain
Carnival Corp. (NYSE:CCL): 5.12% gain
Conn’s Inc (NASDAQ:CONN): 5.54% gain
Schnitzer Steel Industries, Inc. (NASDAQ:SCHN): 4.20% gain
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
PENN (Penn National Gaming — $117.60, +2.33)
STATUS: PENN is testing the 20-day EMA in a one-week test of its new high. PENN is also moving up the 20-day EMA after the late-2020 breakout from a 14-week base. This is the third test of the 20-day EMA after the breakout, which leaves PENN well-positioned to post another leg higher.
It bounced on Friday, faded a bit on Tuesday, tapped the 20-day EMA on Wednesday and rallied. We are ready to move in as PENN continues higher through the entry point. A move to the target will give us a 65% gain on the options.
Volume: 3.444M Avg Volume: 4.381M
ENTRY POINT: $119.11 Volume=5.5M Target=$134.98 Stop=$113.97
POSITION: PENN APR 16 2021 $120 Calls — (54 delta)
4. Covered Call Options Play
Vanda Pharma. Inc. (NASDAQ: VNDA) — Vanda Pharma. Inc. is currently trading at $18.49. The March 19 $19 Calls (VNDA20210319C00019000) are trading at $1.15. That provides a return of about 16% if VNDA is above $19 by the expiration.