Invest and Trade Profitably with Jon Johnson

Weekender for 2/23

1. Market Summary

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

Some Selling in the Favorite Names

– Stocks felt some selling in the favorite names.
– When Apple (AAPL) sales were called into question, the market dove but then recovered much of the lost ground.
– Small and mid-caps led the market. However, they will have to once again prove that this is not just a bounce higher while the large-caps test.
– The Philly Fed and the Leading Economic Index (LEI) have turned in strong performances as the U.S. economy has picked up. Will we blow it again or take advantage of it?
– There is no reason to presume that the Fed will not help the markets. It won’t cut rates, but that will not stop it from engaging in formerly unconventional methods.

Stocks started lower but recovered into the open and after the bell. There were modest losses as more virus cases in other parts of the world offset the overnight positive of fewer Chinese cases — though whether that was an accounting trick or not is debatable. A stellar U.S. Philly Fed report and ¥5 trillion yuan in new debt stimulus by the People’s Bank of China helped assuage the morning’s losses.

While stocks did recover, a major sell program hit the American market when Europe’s stock markets closed. The U.S. LEI came out with a big beat at that hour (0.8 vs. 0.4 expected vs. -0.3 prior), but that could not offset news out of the Global Times that iPhone sales may be off by 40% to 50% in March as a result of slower sales in China and an inability to produce phones. Along that line, Foxconn, a major AAPL producer, issued an earnings warning.

On the news, stocks broke sharply lower. The DJ30 dropped 400+ points from its high just before the news hit. The financial stations were even asking if this was the “factor crash” that Morgan Stanley had just recently warned would occur.

Technical Analysis:

NASDAQ: It sold to the 10-day exponential moving average (EMA) and then rebounded. At least it filled the gap from Wednesday. It is still using the 10-day EMA as it trends higher.

S&P 500: It tapped at the 20-day EMA on the low, rebounded to a modest loss and showed a doji with a tail. Then, buyers stepped in and bought it.

NOTE: The figures and information above are from the 2/20 report.

Watch the Investment House Videos For This Week Here!

NOTE: The videos are from the 2/19 report.

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:

Visa Inc. (NYSE:V): V set up a nice pennant consolidation after its rally into mid-January. As it started breaking higher from the pattern on Feb. 10, that was the entry signal. We moved in with May $205.00 calls for $8.30 when the stock was at $204.86. V, as it often does, stepped right up to our target and hit it on Feb. 19. We then sold the options for $13.60 and banked a gain of 63%. This was a pretty easy and reliable setup from V.

Slack Technologies Inc. (NYSE:WORK): This is an initial public offering (IPO) from back in 2019 that struggled. However, we saw that it was ready to turn the corner in late January. After it broke through the 50-day moving average (MA) and then tested, we put it on the report. On Feb. 10, WORK broke higher and we bought stock for $23.88 and April $24.00 calls for $2.40.

While WORK slowed its movement after that initial surge, it remained steady and rose into Tuesday, Feb. 18. Then, WORK surged during that session and started to fade. After several sessions upside, WORK hit the initial target and was due for a test.

We then sold half the stock for $28.66 and banked a gain of 20%. We also sold half the options for $5.60 and banked a gain of 133%. As WORK was upgraded on Friday and is up 5%, we are letting the rest of the position run.

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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:

Reliance Steel & Aluminum Co. (NYSE:RS): The pattern was there, it just took some time for this downside play to work. We saw RS crash the 50-day MA in late January after it stalled at the end of 2019 and failed a new move higher in mid-January. Then, RS tested the break below the 50-day MA and started lower again on Jan. 27. As that was our entry signal, we moved in and bought some March $115.00 put options for $4.90 when the stock was at $115.15.

RS stayed at the same level for a few sessions and then moved up to test the 50-day MA again. It then failed, dropped and then tested again and faded. This tried our resolve, but it continued its course of weak action. The pattern suggested earnings weakness.

When earnings hit, RS tumbled down to the upper gap point from Oct. 2019. This was our initial target. Furthermore, given the size of the drop, the option volatility ended up being pumped up. So, we went ahead and banked the gains by selling the options for $9.80. By doing this, we obtained a 100% gain.

Zoom Video Communications Inc. (NASDAQ:ZM): ZM zoomed higher on earnings in early February and then consolidated that big one-day surge by forming a two-week pennant. After we put it on the report, it broke higher again on Feb. 10. As that was our entry signal, we moved in with March $90.00 options at $7.00 when the stock was at $89.62.

While ZM took two more days to finish the lateral consolidation, it then surged and gapped higher on Tuesday and Wednesday. After it hit our initial target on Wednesday, we sold half the position for $14.30 and banked a gain of 104%.

During the next session, ZM surged again. However, after that early surge to $110, it started to stall. As we saw the overall market looking as if it was losing momentum, we sold more options for $20.40 and banked a gain that was over 190%.

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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:

PayPal Holdings Inc. (NASDAQ:PYPL)

In early February, PYPL was testing the break higher from a cup with handle pattern that had started to be formed in July 2019. After PYPL tested, we saw it firm up at its near support before jumping higher on Feb. 4. As that was our signal to enter, we picked up the stock for $119.11.

While PYPL gapped higher during the next session, it faded as fast as it gapped upside — literally just a few seconds before it reversed. We then assumed that it would surely bounce right back. It did, but it took a few days. Then, PYPL tested the 10-day EMA and then started back upside off that test. On Feb. 14, it surged to a higher recovery high. Then, we sold the position for $121.81 and banked a gain of 2.27%.

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

ULTA (Ulta Beauty–$294.57; -2.51)

EARNINGS: 03/12/2020

STATUS: After a spectacular implosion in late August 2019, ULTA has worked its way back into the upside. Although ULTA was in recovery mode almost from the point of implosion with that big downside gap, it has since put in a series of steps higher from the November low. If we had any brains, we would have played at least one of those prior moves. Now, ULTA has recovered the 200-day simple moving average (SMA), and for certain people, it has become a stock that is worth considering.

Just over a week back, ULTA broke over the 200-day SMA and showed some good volume when it did so. Last Wednesday, ULTA jumped off a two-day consolidation of that break, but it was not quite ready and faded modestly on very light trade into Friday.

While it may want to test back a bit more, it certainly looks to be ready to move higher. Thus, it behooves us to be ready as well. We will enter on a break upside through the buy point as we are looking for a run toward filling that massive August gap lower. That move will give us a gain of around 65% on the options.

VOLUME: 445.873K Avg Volume: 957.17K

BUY POINT: $299.47 Volume=1.9M Target=$337.23 Stop=$289.04

POSITION: ULTA MAR 20 2020 300.00C — (53 delta)

To see the ULTA chart image, click here!

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4. Covered Call Options Play

Advanced Micro Devices Inc. (NASDAQ:AMD) — Advanced Micro Devices Inc. is currently trading at $57.27. The April 18 $57.50 Calls (AMD20200418C00057500) are trading at $4.25. That provides a return of about 9% if AMD is above $57.50 by the expiration.

Learn more about our Covered Call Tables here!

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