Invest and Trade Profitably with Jon Johnson

Weekender for 2/9

1. Market Summary

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

Repo Time

– The NASDAQ led large-cap indices to modest new highs.
– Once again, the S&P 400 and the Russell 2000 Index (RUT) have lagged. The PHLX Semiconductor Sector (SOX) looked somewhat decent.
– Real wages have increased, as has the demand for Fed repurchase (repo) money.
– We have seen four days of upside and might see more due to the jobs report. Perhaps this might lead to some profit taking.
– Monday may provide better entries this time around.

Yes, we have seen some upside, at least for the large caps, but not much more than just upside unless you were a NASDAQ large-cap stock. After rallying for four days (including Thursday’s higher open once again), the large-caps posted gains. However, these gains were less than enthusiastic. This is because the indices moved from breaking downside on Monday to looking ready to sell to new highs on Thursday after gapping higher for four sessions. Even the venerable DJ30, which is not supposed to gap that much, followed this trajectory.

Welcome to liquidity-driven markets. Was it earnings, an impeachment acquittal, some better economic data this week or a bullish State of the Union address that caused the gains? While it could be all of the above, we have seen this movie before, correct? A serious breakdown in the SOX and DJ30 soon reversed when people learned the level of demand for the fourth round of quantitative easing (QE4) — the Fed’s repo operations that have also come to be used by hedge funds — surged this week after the drawdown through the prior Friday.

Indeed, Thursday’s level of demand for the Fed’s $30 billion in two-week repos was $57.25 billion. This figure is on top of the almost $100 billion that was demanded earlier in the week. When the going gets choppy, the big money users clamor for more liquidity. The fact that the Fed is still providing it can be seen when the market reverses its big breaks lower and turns them into rallies to new highs.

Technical Analysis:

We saw new highs on the large-cap indices with the NASDAQ leading the way. Okay, the NASDAQ 100 is really leading.

NASDAQ: The NASDAQ gapped higher, closed near the session’s high ad showed strength to the close. It also showed better action than the Wednesday gap and fade because software stocks have stabilized.

S&P 500: It gapped higher for a fourth session and closed with a doji. It didn’t have as much strength after a four-day climb because it had fallen to the 50-day moving average (MA) on the prior Friday.

NOTE: The figures and information above are from the 2/6 report.

Watch the Investment House Videos For This Week Here!

NOTE: The videos are from the 2/5 report. There were only two videos this week.

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:

Bilibili Inc. — ADR (NASDAQ: BILI): We saw BILI testing a nice first of the year surge and forming a four-week pennant consolidation. This is a very nice pattern to play a continuation of the upside move. We put it on the report on Jan. 25 and waited for the break higher.

As BILI faded a bit more into early February, we adjusted the entry point as the pattern developed. Then, on Feb. 3, BILI made the break higher. We moved in to buy the stock at $23.14 and some March $22.50 call options for $2.45.

BILI gapped higher during the next session, tested on Wednesday and blasted higher on Thursday. It even took out our initial target. As a result, we sold half the stock for $26.58 and banked a 14.8% gain. We also sold half the options for $4.95 and banked a 102% gain. Now, we will let it consolidate a bit and see if it can turn those gains even higher.

Pinterest Inc. (NYSE:PINS): We already had a position on PINS that was making us money. Remember, we had entered this position on Jan. 14 for $20.56. We also had purchased February options at $1.95.

After PINS rallied for us, we banked our initial gains on Jan. 17 — 15% on the stock and 115% on the options. We then let the other half of the position consolidate — and it did for the rest of January and into early February.

We wanted to play the earnings move with the rest of the session because other companies (Match Group Inc. not included) had announced good results and the position was solid. Sure enough, PINS gapped upside on Friday on an earnings beat.

Then, we sold our stock at $26.63 and banked a 29.5% gain. We also sold our options for $6.70 and banked a gain of 240%. This is also why we let half of the BILI position work — the move was so solid that, after a consolidation, it will likely surge again.

Square Inc. (NYSE:SQ): After great runs, online payments systems stocks sold off and spent the last five or so months of 2019 forming new bases. SQ, a stock we like to play along with PayPal, was one of those.

After SQ set up its base, it broke through the 200-day simple moving average (SMA) in January and held there. This was something it had not done in late November. After we saw it consolidating over the 200-day SMA, we put it on the report on Jan. 23 as it showed a doji at the 200-day SMA.

During the next session, SQ gapped higher. Thus, we moved in to buy the stock at $71.27 and also buy March $70 options at $5.20. After a gap lower on the following Monday tested the 20-day exponential moving average (EMA) that soon reversed, SQ took off upside. Not only had SQ rallied nicely two weeks back, when the market dived lower that Friday, SQ just paused and tested modestly.

On Monday, Feb. 3, SQ surged upside and hit our initial target. We sold half the stock for $78.11 and a 9.6% gain. We also sold half of our options for $10.05 and banked a 93% gain. As SQ is now testing back to the 10-day EMA, we anticipate that SQ will surge again after the 10-day EMA catches up.

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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:

Teva Pharmaceutical Industries Ltd. (NYSE: TEVA): We always watch for stocks coming off of declines and reversing the downtrend when the market is trending higher and bringing in new areas to the upside.

TEVA was one of those stocks as it had reversed its trend and rallied to the 200-day SMA. In January, TEVA broke over the 200-day SMA and then tested the move. We put it on the report to catch a move back up off of that test. On Jan. 22, TEVA broke higher and we moved in to buy the stock at $10.43 and March $10.00 calls for $1.13.

The stock looked solid, but then TEVA decided to test one more time by tapping the 50-day EMA on the low and reversing upside on Jan. 27. Then, TEVA continued laterally for a few more days. Over the course of this past week, it broke higher and surged on Feb. 3 and Feb. 4.

On Feb. 4, TEVA hit our initial target. Then, we took half the position by selling the stock for $12.04 and banked a 15.4% gain. We also sold half the options for $2.30 and banked a 100% gain.

Tesla Inc. (NASDAQ:TSLA): Unfortunately, this was not the upside play that saw those two big rushes higher in the early part of last week. We did see, however, that gap to a huge doji on Tuesday. After this kind of explosive move higher on huge volume, TSLA sure looked like it was overdone to the upside (at least in the near term). We put it on the report as a downside play as we wanted to enter a break lower off the doji.

TSLA then gapped lower on Wednesday and started to sell sharply. While we wanted to get in at the upper $800’s, the stock was moving so fast that we moved in with it near $800. Then, we bought March $790.00 puts for $106 as we were looking to play a move to test the 10-day EMA.

During the next session, TSLA gapped lower and tapped the 10-day EMA. As a result, we wasted no time and sold the puts for $144.00 and banked a gain of 35%. While this was not a huge percentage gain, it was a nice take on what they call a “candy hop bounce” in baseball.

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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:

Intel Corp. (NASDAQ:INTC)

After the gap breakout on its earnings, INTC (as is often the case) tested the gap. It then sold back on the big drop on Friday, Jan. 31 and came very close to filling the gap.

During the next session, it gapped modestly higher and went nowhere after that. At that point, we were ready for the rebound. On Feb. 4, INTC gapped higher again and we moved in by buying the stock for $65.39.

On Feb. 5, INTC gapped upside again and started to pause. At this point, we sold the position for $66.77 and banked a 2.11% 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

WORK (Slack Technologies–$23.25; +2.27)

EARNINGS: 03/04/2020

STATUS: After bumping along the same support around $20 for just over four months, WORK is finally making a break higher. You can see how the Moving Average Convergence/Divergence (MACD) moved higher and higher as WORK laterally wound its way in a roughly four-point trading range.

After testing the bottom of the range last week and into Monday, WORK gapped higher and surged through the 50-day moving average (MA) on Tuesday. This was its best volume in two months. As this was a nice move, we want to move into the play as WORK moves through the buy point.

VOLUME: 20.483M Avg Volume: 8.242M

BUY POINT: $23.38 Volume=8.5M Target=$28.44 Stop=$21.74

POSITION: WORK APR 17 2020 23.00C — (61 delta) &/or Stock

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4. Covered Call Options Play

Skechers USA Inc. (NYSE: SKX) — Skechers USA Inc. is currently trading at $37.97. The March 21 $38.00 Calls (SKX20200321C00038000) are trading at $2.70. That provides a return of about 8% if SKX is above $38.00 by the expiration.

Learn more about our Covered Call Tables here!

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