Invest and Trade Profitably with Jon Johnson

Weekender for 3/21

1. Market Summary

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

Stocks Sell Off

– Stocks sold off after the post-Federal Open Market Committee (FOMC) rally. The DJ30 held out, but finally sold in a very normal test.
– The Nasdaq failed at the January high and is now testing an important level at 13,000.
– The S&P 500 is getting weaker and weaker.
– Fed Chairman Powell can’t reprise his soft-shoe moves from Wednesday. The current contrasts are the weaker patterns in growth versus the massive stimulus and Fed largesse.

Stocks definitely took the other direction route on Thursday by selling back the Wednesday post-FOMC bounce. Growth stocks were not helped by the fact that the 10-year bond yield hit 1.75% intraday as the same issues from a few weeks back returned.

The DJ30 attempted to hold out to the upside, but in the end, even it cracked and slipped into the negatives by about a half percent.  This was not a massive dumping, but with the PHLX Semiconductor Sector (SOX) and Nasdaq slipping away from resistance, we had to close some of those NASDAQ plays.

It very well could be that this dip to 13,000 on the Nasdaq ends up setting the bottom of a right shoulder in a four-week inverted head-and-shoulders pattern.  If so, then we can reload as stocks rebound from that setup.  With the sensitivity that tech and other growth stocks are showing toward ever-increasing interest rates, however, the Nasdaq will have to not only bounce but show that it can hold the move.

Technical Summary

S&P 500: It fell from a new high to near the 20-day exponential moving average (EMA) as volume rose above average. The index then moved to a higher high but produced no volume. It broke lower on Thursday as volume rallied and then fell back below the mid-February peak. The S&P 500 has been weakening for six weeks. It is still putting in new highs and higher lows, but they are getting weaker. We will see if it breaks the trend, and then we can follow the downside.

NASDAQ: It gapped down from the January highs to just over 13,000. This level is important as the Nasdaq tested it in late January after breaking to a new high, and again in late February before the selling took the index lower. That late February hold at 13,000 set the bottom of a right shoulder to an inverted head-and-shoulders pattern. Now, the NASDAQ is there again, and if it holds and reverses from there, this will be very positive news. That said, it has not held yet, and the tech stocks were less than great on Thursday.

NOTE: The figures and information above are from the 3/18 report.

Watch the Investment House Videos For This Week Here!

NOTE: The videos are from the 3/17 report.

2. Targets Hit

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

Williams-Sonoma, Inc. (NYSE: WSM):  I love WSM, the stock and the stores. I love browsing the stores even though I am a lousy cook — my wife is a great cook and I love to eat, so I am more than happy to go in to browse and buy her what she wants so she will cook up more of her great meals, pastries, etc.

WSM is also a great stock to buy, own and trade. In late February, WSM set up a double bottom off of a January rally and bottomed at the 61% Fibonacci retracement. Since that is a reliable upside pattern, we were looking for an entry as the stock rallied from that formation.

On Feb. 25, WSM made a break higher, and we entered with April $130.00 call options since the stock was at $133.  The options cost us $12.20. While this was not great, it was not too bad in terms of volatility.

WSM broke higher from there and rallied into March. Then, it dipped. During the market selling, WSM fell to the 50-day EMA. Then, it held during the next session, tested and reversed with a doji.  That put in the bottom, and WSM moved up to a higher rally high this week. However, it was still short of our target.

Since it was in a great pattern and selling tons of merchandise online, we opted to hold it through earnings.  They were great. On Thursday, WSM gapped upside.

We watched for a while and saw that it was not able to hold further attempts to move higher. So, we sold our position for $27 and banked a 120% gain.

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Here is a completed trade from Technical Trader Alert, offering insights into our trading strategy and the target that we have hit this week:

United Airlines Holdings Inc. (NASDAQ: UAL): Recovery plays were still hot heading into the week, though they cooled as the week progressed. Back in June, however, they were breaking higher with airlines actually helping to lead the way.

UAL formed a nice three-month cup with handle base and broke higher in late February. On Feb. 22, the stock cleared the handle, and we bought June $50 call options for $7.10 when the stock was trading from $49.61.

After a very solid breakout, UAL gained altitude into early March. It then hit its cruising altitude, however, and just worked laterally for two weeks. In other words, it was holding the breakout, but not moving higher.

This week, all that changed. On Monday, UAL gapped upside and rallied after the gap. That hit our initial target. So, we sold half the position for $12.15 and banked a 71% gain. UAL paused on Tuesday and then jumped again on Wednesday. At this point, we sold another half of the position for $14.80 and banked a 108% gain.

On Thursday, UAL pushed to a higher high and then faded that move. This was a warning signal. On Friday, UAL opened flat and then stumbled around. We could have hung on, but we opted to sell the rest the options for $12 to close out the position. If the stock holds, we can move back in with a fresh buy.

Receive a risk-free trial to Technical Trader and save 50% by clicking here now!

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:

Schnitzer Steel Industries, Inc. (NASDAQ: SCHN):  What we call recovery stocks have led the market as of late, but in reality, they are nothing more than your economic basics and the stocks of companies that make commodities and the essentials for life. Oh, and travel and recreation as well. Here, there is lots of pent up demand.

Anyway, we saw the steel stocks pulling back from good runs, and SCHN caught our eye with its three-day pullback to the 10 day EMA and then a doji on Wednesday. This suggested that it was ready to bounce and make us a nice, quick and profitable trade. Sure enough, SCHN started higher off that doji on Thursday.

We entered by purchasing the stock for $43.65. Later that morning, SCHN hit our initial target.

We contemplated letting it run, but the mood in the stock and in the market were starting to fluctuate. Since this was a quad expiration week, there was also going to be some volatility. So, we opted to take the gains by selling the position for $45.54. This produced a 4.33% gain.

Sure enough, the market dropped its gains that afternoon, recovery stocks included. SCHN finished just below the flat line. However, since it was holding the 10-day EMA, we are looking for another play.

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.

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3. Pick of the Week

SCHN (Schnitzer Steel–$42.90, +0.74)

EARNINGS: 04/08/2021

STATUS: Flag. SCHN is testing the 10-day EMA and 38% Fibonacci retracement of the run from late February. This was when SCHN tapped close to the 50-day moving average (MA) and then rebounded. This set off this latest rally.

SCHN put in something of a cup with handle off the early January high and finally broke out with that strong move to start the second week of March. We also saw a nice test that left it sitting on its near support, the 10-day MA, the 38% retracement and the early January peak.

It started back upside on Wednesday, and if SCHN can continue the move into Thursday, we are ready to enter. A move to the target will give us a 70% gain on the options. If you are interested in the stock, the gain will be a nice 15%.

Volume: 277.056K  Avg Volume: 282.322K

ENTRY POINT: $43.11 Volume=400K Target=$49.69 Stop=$40.91

POSITION:  SCHN MAY 21 2021 43.00 Calls — (44 Delta)

To see the chart for SCHN, click here!

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4. Covered Call Options Play

Rada Electronic Industries Ltd. (NASDAQ: RADA) — Rada Electronic Industries Ltd. is currently trading at $12.18. The April 16 $12.50 Calls (RADA20210416C00012500) are trading at $0.75. That provides a return of about 13% if RADA is above $12.50 by the expiration.

Learn more about our Covered Call Tables here!

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