Invest and Trade Profitably with Jon Johnson

Weekender for 3/15

1. Market Summary

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

Panic and Despair Grips the Nation

– The Fed fired another cannon shot, but this is a battle that it cannot win alone.
– Congress is dithering when the economy needs immediate action.
– The market is pricing in a deep recession due to a lack of information and because we are making panicked decisions about closures and cancellations without a proper risk/reward assessment.
– The S&P 500 and the DJ30 are testing the trend line from March 2009, which marked the start of the long bull run.
– The mother — or cousin — of all relief rallies is near, but it is likely just going to be relief unless we do the right things quickly and get some luck.

In my day, the only “panic buying” was when the bartender yelled “last call!” As U.S. citizens panic, buy toilet paper and sell stocks, it is best to keep a sense of humor.

Once again, the market was unimpressed by the Federal Open Market Committee’s (FOMC) actions. The Fed loaded up its cannon with $1.5 trillion in repurchase (“repo”) operations and shifted its $60 billion in monthly maintenance purchases to coupon bonds and Treasury Inflation-Protected Securities (TIPS). The latter did not add liquidity, but it did get the Fed in position to ramp up the size of asset purchases when they will be needed at some point in the future.

That news hit in the middle of the day and boosted stocks. The indices gapped lower as the president’s address discussed more preemptive containment action (largely banning foreigners from Europe other than the United Kingdom). However, it was light on the fiscal side simply because the executive must let Congress appropriate the money. Of course, the Democrats and the Republicans are at odds over what the stimulus will look like. As everyone knows, this means wrangling and delay. Meanwhile, futures are headed lower and lower.

Technical Analysis:

The DJ30 undercut the December 2018 lows and followed the S&P 400’s move on Wednesday. While the other big indices have not made it that far, we can anticipate that the S&P 500 will also go in that direction as its lows are not far from its current location. However, there is another important point at hand — see the S&P 500 discussion below. Then, you also have to consider that the NASDAQ and the PHLX Semiconductor Sector (SOX) are both still a long distance away from that low. Will they necessarily have to test it or will the DJ30 and the S&P 500 be a good enough proxy? As futures went down hard again because Japan and China were blitzed lower on Wednesday, they will at least get closer.

NASDAQ: The NASDAQ’s December 2018 low is 6,190, or 1,010 points from the close. At Thursday’s pace, this is just 1.5 days away. Of course, that pace cannot continue. Actually, yes it can because the first leg lower was 1,574 points in seven sessions. The current selloff is currently 1,876 points in six sessions. As the market likes symmetry, the fact that the trend is getting just a hair asymmetric may suggest that a bounce is close. On the other hand, the trend line off of the March 2009 low is still 1,000 points lower.

S&P 500: A critical level has been reached. This level is not the December 2018 low, but rather, it is the trend line from the 2009 market bottom low. That is the trend line of trend lines for this bull run. If it breaks, so will the bull run. Thus, some kind of stand will likely be made at this point.

NOTE: The figures and information above are from the 3/12 report.

Watch the Investment House Videos For This Week Here!

NOTE: The videos are from the 3/11 report. There are only two videos this week.

2. Targets Hit

Here is one completed trade from both Investment House Daily and Technical Traders Alert, offering insights into our trading strategy and the target that we have hit this week:

Lam Research Corporation (NASDAQ:LRCX): LRCX broke its trend in late February and gapped below the 50-day exponential moving average (EMA). In that instance, we waited for a trend break test. Sure enough, after breaking and sliding lower until Feb. 28, LRCX rebounded over the course of the following week and moved back up to the 50-day moving average (MA). On March 3, LRCX gapped higher, tested the 50-day simple moving average (SMA) and then fell. As we liked that failure at LRCX’s resistance, we entered the position by buying March $295.00 put options for $19.10.

LRCX hung out at the 50-day MA for a couple more sessions and then started lower. It gapped down and then recovered to test the 10-day EMA on the big Thursday market down session that saw the DJ30 lose 10% of its value. That turn of events sent LRCX down to and through the 200-day SMA.

Given that such a drop happened after so many down sessions, this extreme fall from grace meant that we wanted to look for a rebound. As a result, we sold our options for $49.00 and banked a 155% gain.

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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:

ProShares UltraShort S&P500 (NYSEARCA:SDS)

This is the upside way to play downside moves in the S&P 500, and it is often a more affordable way of doing so. In other words, when the market gets volatile, SDS provides a stable way to participate.

We bought stocks for $32.22 — as is often the case when this kind of stock is a good choice, the times were turbulent and the market was bouncing up and down with tremendous volatility. If you look at the sessions from March 9 to March 11 (when SDS was at our entry point), you can see how much volatility we had to ride out.

Nonetheless, with the market under stress, Thursday was the day of days in this selloff because that was the day that the DOW lost 10% and the S&P 500 tested the long-term trend line from the March 2009 market low after the financial crisis.

That move also indicated that it was time to take the gains — you rarely get that kind of move in one day on top of so much prior selling. Thus, we sold the position for $38.05 and banked a gain of 18%.

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

AAPL (Apple, Inc.–$248.23; -27.20)

EARNINGS: 04/28/2020

STATUS: ABCD. AAPL gapped lower on Thursday — as did most stocks — and opened near the Feb. 28 low that it had hit on that downside gap. At the same time, AAPL had been at its prior low during the selloff. At that time, it had big volume — the biggest amid the selling. During the next session, AAPL put in a new low on the open and then sold down to the 200-day SMA to close just above the 78% Fibonacci retracement of the October to February rally.

This meant that AAPL has beautifully set itself up for a move higher. This stock is also not only a super important stock for the market, it is also currently in an excellent upside pattern. If it makes this move, we will play it. A move to the target will give us a gain of 50% on the options — and they are not as bad as others.

VOLUME: 104.619M Avg Volume: 46.57M

ENTRY POINT: $255.68 Volume=65M Target=$279.78 Stop=$247.68

POSITION: AAPL APR 17 2020 255.00C — (43 delta)

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4. Covered Call Options Play

Chegg Inc. (NYSE:CHGG) — Chegg Inc. is currently trading at $36.80. The April 18 $40.00 Calls (CHGG20200418C00040000) are trading at $2.25. That provides a return of about 18% if CHGG is above $40.00 by the expiration.

Learn more about our Covered Call Tables here!

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