1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
Stocks start lower, test, then roll over . . . only to catch a bid
Stocks tried to bounce early premarket but rolled downside, ready to continue the Wednesday move lower. They did. Opened lower, tried to rebound and then started to roll back over. That is what we were looking for and we picked up some downside. Even with rates rising, however, stocks recovered with a pair of moves, the first into early afternoon, and the second through the last hour. That flipped the indices positive in pretty decent low to high action.
Recovery stocks acted as you would anticipate from their patterns. They sold below near-support after just over a week of pullback, reversing intraday to post gains. The NYSE showed stronger volume, indicating buyers moved in and pushed these stocks back upside.
As for growth, we will actually look for possible entries to the downside as the rebound was not convincing and likely, more downside will be the result after perhaps another attempt on resistance. There is not much confidence in them as bond yields are rising again (10-year closed at 1.624%). Not certain if enough time has passed, such that investors are comfortable with the yield increases such that they are at the point that they are ready to put significant money back in these stocks. We could be wrong, but the action Thursday did not suggest strength rushing back into growth.
The Nasdaq gapped lower after the 13-thousand breach, rallied back to test that level on the close. Volume faded from the Wednesday selloff. The Nasdaq broke support on Wednesday and tested that break Thursday. If it rolls down from here, we are ready to pick up some more. SOX broke the 50-day exponential moving average (EMA) Wednesday, gapped lower Thursday, put in a recovery, then a drop and finally rebounded into the close. That left SOX below the 50-day EMA, still in the lower half of its four-month range. The SP500 was not bad either, reaching below the 20-day EMA, holding over the 50-day MA and then reversing for a gain, as well.
NOTE: The figures and information above are from the 3/25 report.
NOTE: The video is from the 3/24 report.
2. Targets Hit
We’ve had several completed trades this week in Investment House Daily; below is one such trade:
Square, Inc. (NYSE: SQ): All of the lockdown plays, even with the specter of perhaps another wave of closures, due to what many doctors call just another seasonal virus, are still struggling. While they zoomed in on the original lockdowns, as everyone shifted to a remote-work/social/health, etc. meme, even though that trend continues, they just are not getting the same bang for the buck.
We saw SQ trading in its uptrend channel but then broke it in early March. It recovered relatively quickly and tried to mend the fences. It can happen. SQ actually looked good as it moved back up in the range for several sessions. Then not. A quick dip one session — that reversed back upside, mind you — flipped the next and broke the lower trendline yet again, closing below it. It broke an important trend, tried to recover it, did so and then failed.
Time to play the downside. We put it on the report and during the next session, we entered the play as SQ struggled again. We bought May $220.00 strike put options for $20.25 with the stock trading at 223.25. SQ tried to be a gamer, hanging on the next session below the trendline, but on Tuesday it started to break lower. On Wednesday, it saw a big break lower, then, on Thursday, SQ gapped lower in that general market selloff. It opened at the target, right at support points from November, December, January and early March lows. In this market, you take it if it is there. We sold options for $28.50, banking a decent 40% gain.
We’ve had several completed trades this week in Technical Traders Alert; below is one such trade:
Facebook, Inc. (NASDAQ: FB): One good thing about range trading is that even in a choppy market, and even in a sector (Big Nasdaq) that is feeling some selling, trading ranges usually hold. Thus, in mid-March, as we saw FB bounce off the bottom of its range and test, even though our guts made us loathe to look its way, we put in a play on FB.
The stock spent just over two volatile weeks at the bottom of the range then broke higher over the 50-day EMA with a solid surge. It then tested the next session, gapping lower and dropping below the 50-day MA intraday, only to rebound and close with a big doji-with-tail pattern. What that told us was the buyers jumped it higher, but then the sellers took their shot that next session. They sold it for sure, but they could not entirely win the day — the buyers moved in on the selloff to buy more.
With that, we put it on the report. On Monday 3/15, the next session, we had a play on it. The stock jumped higher and that was our signal to enter. We picked up the May $270.00 call options for $19.80 with the stock trading at 273.03. FB rallied steadily — with a volatility hiccup on the session — to the top of the range. This past Monday, FB broke out, moving to near 300 on the high. It started to backtrack, however, from that nice round number. Okay, a two-week upside move, plus or minus a day or two, a breakout over the top of the main range resistance, then a sprint to a nice round number which was followed by some faltering. Don’t get too cute, particularly in this volatile market. We sold the options for $30.50, banking 54%.
There were no new trades this week in Success Trading Group.
3. Pick of the Week
STLD (Steel Dynamics–$47.03, -0.15)
STATUS: Nice breakout from a six-week inverted head-and-shoulders pattern in mid-February and then a run to 50 this month, rallying up the 10-day EMA. In the past one-and-a-half weeks, STLD has tested back to the 20-day EMA and just over the 38% Fibonacci retracement. We saw a nice pair of dojis on Friday and Monday, tapping the 20-day EMA on the session lows and rebounding. We watched for a new break higher to give us the entry. The initial target is near the 127% Fibonacci extension. A move to that target gives us a gain of roughly 75% on the options.
Volume: 2.206 million. Avg. Volume: 2.173 million
ENTRY POINT: $47.55 Volume=3M Target=$52.68 Stop=$45.89
POSITION: STLD MAY 21 2021 45.00 Calls- (65 delta)
4. Covered Call Options Play
Vericel Corp. (NASDAQ: VCEL) — Vericel Corp. is currently trading at $51.74. The April 16 $55 Calls (VCEL210416C00055000) are trading at $1.94.