Invest and Trade Profitably with Jon Johnson

Weekender for 2/4/2024

1. Market Summary

  • Market pulls the opposite day, trading the opposite of the post-Federal Open Market Committee (FOMC) selling
  • Solid upside, but the moves were smaller, volume lighter than the stock dumping on Wednesday
  • Regional bank deposit flight reboots and investors start thinking interest rate cuts on the heels of Chairman Powell saying it won’t be March
  • Worst possible timing for the Fed and the optics make the central bank look rather foolish
  • Institute for Supply Management (ISM) rises but still in contraction as prices explode higher, employment falls and inventories rise
  • Initial claims move higher, reported jobs cuts are disturbing, but the Jobs Report likely reflects none of this harsh reality
  • Amazon, Meta up sharply afterhours on very impressive numbers while Apple sees revenues rise after three quarters, but still trades lower
  • Banks, jobs and mega-cap tech set to dominate the Friday trade
  • Can the indices win back what Wednesday lost?

Microsoft and Alphabet, FOMC tossed wet blankets on rate cuts anytime soon, but who cares?  Stocks were nicely higher in a post-FOMC opposite day move. Most indices gained more than 1%, and those that did not were on the high side of getting there. Sure, the recoveries did not wash away the Wednesday pounding on the rate cut dejection, but the DJ30 punched to a new all-time closing high.

NOTE: The figures and facts above are from the 2/1 report.




NOTE: The videos are from the 1/31 report.

2. Targets Hit

Investment House Daily:

Remember the days when the market was all about price determination for stocks based on earnings and perhaps the extraneous, somewhat rare, geopolitical event?  Compare that to today. Fourteen years of Fed-dominated trading where markets have become liquidity addicts. As addicts are wanting, that makes markets hang on every Fed governor or FOMC member statement, every fragment of information that could be construed to impact whether the Fed will hike, cut, lean toward hiking, lean toward cutting, add liquidity, bail out an industry … hard to call them markets.

Even so, during the “in-between” times, stocks behave as stocks should. They set up patterns upside and downside. They break out or down, or fail to do so. They move toward logical targets such as gap points, prior highs/lows, moving averages, trendlines, Fibonacci levels. They behave as they always have, but are very prone to upset if anything comes out that impacts what the Fed may think, say, or do. Thus, you have to apply the Fed overlay to each play, keeping up with key Fed events as well as the all-too-frequent speeches and appearances calendar for anyone working in the central bank (e.g. Chairman Powell on 60 Minutes on Sunday).

Seems daunting and it is. That said, if you apply the right technical indicators and sync them up with seasonal trends and play the artful dodger with the Fed, profits come. This past week, despite the plethora of data, earnings and Fed action and Fed-speak, we banked some gains on some well-known stocks, a couple of those listed below.

Bank of America Corp. (NYSE: BAC):  73.9% gain in the options

Alphabet Inc Class A (NASDAQ: GOOGL): 103% gain in the options

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Technical Trader:

It was the week of mega-cap tech earnings, and we are playing them in their pre-earnings move. Oh, and we played some through earnings. Earnings are extremely problematic as a company can report great results and get hammered, or report a miss, but due to one obscure factor, rally. Even so, some are worth letting work through earnings if the probabilities are in your favor.

Meta Platforms Inc. (NASDAQ: META): We initiated our META play on Jan. 5 when META broke higher off a 20-day exponential moving average (EMA) test that followed a nice two-week rally. Before that rally, META tested the 50-day moving averages (MAs), typically the starting point for new runs in stocks that are trending higher. With earnings in early February, this setup was perfect to get in on a pre-earnings rally. That is exactly what META provided.

Indeed, we used the rally off the 20-day EMA to build and take gain toward earnings.  By doing so, we banked gains of 77% and 120% before earnings week. That allowed us to 1) take solid gains, 2) reduce the risk of a reversal, 3) limit our risk of losing solid gains as our position size naturally decreased toward a major news event 4) and give us the option to swing for the fences on META’s earnings. We opted to do the latter, as META has, after several quarters of disappointing results, started to produce strong quarterly reports.

You know the rest of the story. Sure enough, META crushed results, tripling its profits. The stock, of course, exploded upside.  META gapped higher and rallied farther before some profit taking began. We issued our alert to sell the remaining position, and when the alert hit, our options were bidding at $112.90, a solid 374% gain.

Not the high on the day, not the low, but a solid return on the remaining positions, icing a pre-earnings play that had all the elements: a trending well-known stock, earnings a month away, a perfect technical setup coming off a near support test, a recent history of pounding earnings. In short, the deck was heavily stacked in our favor.  That is exactly the kind of plays we look for every day.

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Rapid Profits Stock Trader:

A rather insane week with data overload (FOMC, Jobs, ISM and more) and mega-cap tech earnings (Apple, Amazon, Alphabet, Meta, Microsoft). In this market, you either play the mega-caps and pay the price in stock or inflated options, or you can find the lower-priced stocks with solid patterns and take what the market gives with short, crisp moves. We did the latter and banked some nice gains on the following:

Peabody Energy Corp. (NYSE: BTU): 4.72% gain in the stock

Cemex SAB de CV ADR (NYSE: CX): 7.65% gain in the stock

Fate Therapeutics Inc. (NASDAQ: FATE): 15.8% gain in the stock

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3. Covered Call Options Play

Gigacloud Tech (NASDAQ: GCT) — Gigacloud Tech is currently trading at $22.22. The Feb. 16 $22.50 calls (GCT20240216C00022500) are currently trading at $1.55. That provides a return of about 9% if GCT is above $22.50 by the expiration.

Learn more about our Covered Call Tables here!

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