Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
Stocks Shake Off Wednesday and Advance
– Stocks shake off Wednesday and advance again. There was nothing powerful, but the movement was very steady.
– The Nasdaq and the S&P 500 punch nominal new highs as volume lagged the selling volume all week.
– Despite the recovery move, stocks still have to prove that the trend is all back to “normal.”
– The jobs report gave stocks a chance to show that the sellers have left the building and that all of the downside patterns will convert to bases.
Stocks made it to the upside for more or less four straight days, with a good comeback off of the Wednesday wobble for growth stocks. It was not technically four straight gains, but Wednesday was pretty moderate for all of the indexes except for the PHLX Semiconductor Sector (SOX). On Thursday, even the SOX looked better with a bounce off of the 20-day exponential moving average (EMA).
As you can see, there was nothing really powerful. However, the movement was steady. The Nasdaq and S&P 500 checked off new highs while the DJ30, S&P 400 and Russell 2000 moved up as well. While the SOX is lagging, it managed to hold the 20-day EMA and bounce.
Stocks thus moved into Friday and the January jobs report while sitting on a week of gains that had the Nasdaq and S&P 500 sporting nominal new highs and the other indices following on up. This was not a bad recovery from the prior week’s selling. However, even after this move, the notion that they have found the strength to move higher and higher from here is not a done deal.
NOTE: The figures and information above are from the 2/4 report.
NOTE: The videos are from the 2/3 report.
2. Targets Hit
Here are several completed trades from Investment House Daily, offering insights into our trading strategy and the targets that we have hit this week:
Vaxart Inc. (NASDAQ: VXRT): It pays to follow patterns versus just following names. Virtually no one had heard of (or has heard of) VXRT. Nonetheless, when looking at different sectors, and which stocks were doing well in each sector, we saw VXRT in a seven-month cup base. At the time, it was setting up a seven-week inverted head-and-shoulders pattern at the tail end.
VXRT broke higher on Jan. 25. While this was nice, we wanted to see if it could test and resume the move. This would show that, yes, buyers not only bought the breakout but also wanted it at a higher price. VXRT tested in a one-two-three pullback. Then, we put it on the report, as we were ready to trade the move up from the test.
On Jan. 29, that is exactly what happened. VXRT jumped higher, and we moved in by buying stock for $10.14 and some March $10 calls for $3.20. VXRT surged so much that we took some gains during that session. This was when we sold half of the stock for $12.31 and banked a 21% gain. We also sold half of the options for $4.80 and banked a 50% gain.
During the next session, VXRT surged again. So, we sold another half of the stock for $15.17 and banked a 49% gain. We also sold half of the options for $7 and banked a 118% gain. Then, we got stupid. During the next session, VXRT surged again and closed at the high. At the time, there was no reason to sell, because the action showed no indication of a top, e.g. closing well off of the high with a doji and so on. Did I say we were stupid?
The next morning, VXRT decided to announce positive results on its vaccine. Great! Not. The stock gapped lower, and we had to bail on our last quarter position. The moral of the story is that when a move is too good, take some profits.
Tilray Inc. (NASDAQ: TLRY): We also entered a play in TLRY on Jan. 27, as the stock broke higher from a nice 10-day EMA test of its early January breakout and run. The stock came back to the 10-day EMA in a very nice low-volume test and showed a doji with a tail that reached below the 10-day EMA. It then rallied back up on the close to hold the 10-day EMA. Essentially, the buyers came back in after the sellers tried to sell it.
So, we put it on the report and watched for the bounce higher from that signal. On Jan. 27, TLRY made that move. At this point, we bought stock for $18.72 and June $18 calls for $4.55. For three sessions, TLRY tried to move higher, but its intraday bounces higher would fail. Finally, on Tuesday, Feb. 2, TLRY sparked higher and held the move. We sold half of the stock for $24.02 and produced a 28% stock gain. We also sold half of the options for $9.50 and generated an 86% option gain.
On Wednesday, TLRY was still feeling quite mellow and surged higher again. So, we sold another half of the stock for $27.48 and banked a 46.7% gain. We also sold another half of the options for $11.70 and banked a 157% gain.
TLRY faded off of the high during that session and is now in a bit of a lateral move. It is currently mellowing out again and waiting for the 10-day EMA to catch up to the break higher. When it does, we will see if TLRY can spark upside again. If so, perhaps we will pick up an additional position.
Here are two completed trades from Technical Trader Alert, offering insights into our trading strategy and the targets that we have hit this week:
Ferrari NV (NYSE: RACE): Ferrari put in a rather weak high in late December with no volume and weaker moving average convergence divergence (MACD). It started to fade off of that level and found the 50-day moving average (MA) during the second week of January. It bounced just a bit and put in what looked to be a short right shoulder to a head-and-shoulders top.
RACE broke the 50-day EMA on Jan. 29, and was weak during following session. We moved into a downside play with March $210 put options for $10 when the stock was trading for $208.75. Well, RACE tried to rev its engines and bounced back to the 50-day MA in a quick move. However, it then fell to a lower low. Great.
Then, it revved up again and tested the 50-day MA again on Monday. That peaked the move, however, and RACE spun out. It dove to our target on both Tuesday and Wednesday — as I often say, when selling hits, it can wipe out days of fighting to the upside.
That is exactly what happened. RACE dove lower on Wednesday and hit our target. As I also often note, fast downside can turn fast as well. Thus, when RACE hit our target, we sold our options for $16.50 and banked a 65% gain. During that same session, RACE slammed on the brakes and reversed. It then bounced up off of the low to close well off of the lows.
Lakeland Industries (NASDAQ: LAKE): LAKE put in a classic setup that we love. It featured a breakout from a solid, longer-term base (this one was six months in the making) followed by a test right back on top of the prior base. We saw this pattern setting itself up with a nice, flat test in late January.
Then, on Feb. 1, LAKE made the break higher. We were ready. We moved in with April $30 call options at the price of $3.94. As anticipated, after the test, LAKE was ready to resume the breakout. It rallied nicely higher all week, moved past the prior high on Thursday and added some more upside on Friday.
After a solid week of gains in a market that may be on a bit of borrowed time, we decided to bank some gains. So, we sold half of the options for $7.50 and banked a 90% 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:
Lakeland Industries (NASDAQ: LAKE): A beautiful setup appeared following a three-week test of a prior run. LAKE peaked out a run during the second week of January and then spent roughly three weeks testing the move. It then came back to just over the 50-day EMA and worked laterally for over a week. After it hedged higher to end January, we were ready.
LAKE started February by breaking higher off of a one-day pause after bouncing from its consolidation. We used that move to enter and bought the stock for $29.70. LAKE’s levels rose that day and hit our target. So, we sold the stock for $30.92 and banked a 4.11% gain. We jumped in, enjoyed a swim in LAKE and got out with a solid 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
ZM (Zoom Video — $383.40, +0.58)
STATUS: While the effects of the pandemic saw ZM zoom higher, the stock finally peaked in mid-October 2020 after a rather huge 250-point move. Since there was too much upside, ZM has trended lower since. Meanwhile, the 50-day MAs have been acting as resistance on the rebound attempts.
In late December, ZM hit a new low on this downtrend, but the MACD did not put in a lower low. It bounced modestly and then came back to test again in mid-January. While it put in a lower price low, the MACD put in a higher low.
ZM rallied up to the 50-day EMA last week and also touched the down trend line from October. ZM then faded into Friday and showed a pair of dojis at the 20-day EMA on Thursday and Friday. This looks like it could be the trend break for ZM. If it is, we will move in on the break. Then, when it tests, we will move in again. A rally to the target will give us a 65% gain in the options.
Volume: 2.792M Avg Volume: 6.401M
ENTRY POINT: $394.11 Volume=8.8M Target=$444.48 Stop=$381.48
POSITION: ZM MAR 19 390.00 Calls — (52 delta)
4. Covered Call Options Play
GrowGeneration Corp. (NASDAQ: GRWG) — GrowGeneration Corp. is currently trading at $57.41. The Feb. 20 $57.50 Calls (GRWG20210220C00057500) are trading at $4.60. That provides a return of about 10% if GRWG is above $57.50 by the expiration.