Invest and Trade Profitably with Jon Johnson

Weekender for 3/7

1. Market Summary

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

Fed Chairman Powell’s Tap Dancing Fails to Soothe the Markets

– Growth stocks avoided the opening drop but rolled over after a short bounce failed.
– Stocks were recovering well until Chairman Powell’s tap dancing failed to soothe the markets.
– The NASDAQ, PHLX Semiconductor Sector (SOX) and S&P 500 broke the 50-day exponential moving average (EMA), while the DJ30, S&P 400 and Russell 2000 held that level.
– Recovery stocks more or less test normally. Meanwhile, energy rallies but growth and big Nasdaq stocks tank.
– Sentiment edges more negative as more margin is required and the Fed’s control of interest rates has come under attack.
– The Chicago Board Options Exchange’s CBOE Volatility Index (VIX) is up, but not as you would want to see, indicating that selling is getting stretched.
– Friday was Jobs Report Friday, but this one may have not meant much to the market after a big drop to support by many big names. Perhaps this was due to some short covering.

Stocks were flattish premarket with the recent theme holding — the DJ30 was positive and the Nasdaq and S&P 500 had modest losses. Stocks had started the morning session lower and then recovered. However, this was not the continued selloff we wanted to use to make money via our downside and rebound strategy. That said, I noted that what might happen was a modest move higher that was then sold hard and rebounded. In short, I expected the same result, albeit with a front-running move. That is pretty much what happened.

Stocks opened flattish, rallied with a burst higher for five minutes and then fell back. As a result, we took some gains on some of the downside positions in anticipation of a rebound. That rebound started 50 minutes into trading, and stocks broke to a session high by 12:00 p.m. So, we saw a noncommittal open, a move higher, a continued selloff and then a rebound.

Then came Chairman Powell. The markets were anticipating some form of bond relief through either Operation Twist III or some variation of it. However, what Chairman Powell did not say, and did not acknowledge, had more power than anything he could have said. He did not offer a solution for, discuss or even mention the recent bond market and other financial market volatility.

Technical Summary

S&P 500: It broke below the 50-day moving average (MA) and came off of the low. However, it offered us nothing that showed any strength. This was its first close below the 50-day MA since early November, but it managed to break through the 50-day MA on strong volume.

NASDAQ: It gave up 13,000 points on the open, dropped to the early December peak and managed a modest recovery. The head-and-shoulders pattern did not dissipate. However, since the neck has been broken, we must watch for when the Nasdaq tests the break.

NOTE: The figures and information above are from the 3/5 report.

Watch the Investment House Videos For This Week Here!

NOTE: The videos are from the 3/4 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:

With the market setting up to sell, we were looking at several downside ways to make money. As volatility shot higher from day to day, and then intraday, we started entering downside plays. We picked up put options on several stocks, and over the course of the week, we sold partial positions as the selling continued.

By Friday morning, we had banked the positions and began to anticipate a bounce in relief. In the future, we may reload some of these as they bounce to test their resistance. The gains we made on these plays can be found below.

The key was entering on the break and then taking gains on each leg lower. Then, when the bounces came, we would see if they would roll over again. When they did, we let the new downside leg run its course. Then, we would take another part of the gains. We did that three times on each of these plays.

EXACT Sciences Corporation (NASDAQ: EXAS): We entered on Feb. 25 with April $130 put options for $10.40. We then sold half of the options on March 4 for $15.45 and banked a 38% gain. We sold a quarter of the options later that day for $14.40 and banked a 48% gain. We sold the last quarter of the options on March 5 for $20.70 and banked a 99% gain.

Jumia Technologies AG – ADR (NYSE: JMIA): We bought April $45 put options on March 2 for $6.75. We then sold part of the position on March 4 for $9.40 and banked a 39% gain. We sold a quarter of the position later that same day for $10.70 and banked a 73% gain. We sold the last portion on March 5 for $11 and banked a 62% gain.

ProShares UltraShort QQQ (NYSEARCA: QID): We entered on March 2 with April $27 call options for $1.85. We sold part of the position on March 4 for $3.47 and banked an 87% gain. We sold a quarter of the options later that session for $3.53 and banked an 80% gain. We sold the rest of the options on March 5 for $4.00 and banked a 116% gain.

We also took gains on these upside plays:

Century Aluminum Co. (NASDAQ: CENX): We sold the rest of the stock and banked the last 22% gain.

Schnitzer Steel Industries, Inc. (NASDAQ: SCHN): We took another half of the 13% gain in the stock and a 55% option gain.

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Here is are several completed trades from Technical Trader Alert, offering insights into our trading strategy and the targets that we have hit this week:

The amount of volatility present was shouting that some of the leaders were going to fall hard. Thus, we were looking at some of the solid movers that had weakened on their last legs. We could not get them all, because, as is often the case, they gapped big to the downside when they went down. However, we did manage to score some nice gains. You can see some of them below.

RingCentral Inc. (NYSE: RNG): We entered this play with April $380 put options for $26.80 on March 2. At the time, RNG was hung up to dry, so to speak, and was slammed down hard. On March 3, we sold part of the options for $48 and banked a 79% gain. We sold more options on March 4 for $53.40 and banked a 99% gain. On Friday, RNG broke the 200-day simple moving average (SMA). When it started to firm up, we sold the rest of the options for $74.50 and banked a 177% gain.

Solaredge Technologies Inc. (NASDAQ: SEDG): This was another play that sold on March 2. We entered with April $290 put options for $29. On March 4, SEDG sold hard and approached the initial target. So, we sold part of the position for $44 and banked a 51% gain. It sold again that session after bouncing, and when that leg eased, we banked more gains by selling a quarter of the options for $47.50. This generated a 63% gain. On Friday, SEDG sold again. So, we sold the rest of the options for $55 and banked an 89% gain.

Roku Inc. (NASDAQ: ROKU): ROKU was primed to sell as well. When it broke lower on March 2, we picked up April $395 put options for $34.20. Then came March 4, the day on which everything growth-related sold. We sold part of the position for $54.50 and banked an 87.5% gain when ROKU hit our initial target. On March 5, ROKU tanked again. So, we sold the remaining position for $69.20 and banked a 100% gain.

Square Inc. (NYSE: SQ): We entered SQ on Feb. 26 and had to ride through some ups and downs before the selling really took hold. As it never broke its negative pattern, we let it work. Since we purchased April $220 puts for $20.20, SQ had a longer way to drop to turn profitable for us. By Friday, March 5, SQ was at our initial target. As a result, we sold half of the position for $31.00 and banked a 53% gain. Now, we will see if SQ continues lower.

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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 QQQ (NYSEARCA: QID): The market was primed for a selloff as volatility was jumping and the indices were touching new highs. In that environment, some downside plays using derivative securities were a good way to profit.

Since the big tech stocks were leading downside, we looked at QID, an exchange-traded fund (ETF) that rises as the Invesco QQQ Trust Series 1 (QQQ) falls. We saw QID break higher on March 2. Not surprisingly, this was when the Nasdaq broke lower. So, we moved in and bought stock for $26.66.

QID finished near the top of the range that session, and during the next session, it continued to rise as the Nasdaq continued to sell. Indeed, QID hit our target during that session. We sold the stock for $27.80 and banked a 4.28% gain.

Of course, if we had kept it, who knows what would have happened. However, that was not the play. A 4% gain in less than a full session works.

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

CAT (Caterpillar — $214.91, -0.90)

EARNINGS: 04/30/2021

STATUS: CAT tested the 50-day MA in late January and then gapped upside to start February. That set off a solid run through late January. Over the past week, CAT has been testing the move. It held the 10-day EMA on Wednesday after gapping lower and then recovering.

A nifty flag pattern test moved it back to just over the 38% Fibonacci retracement. As we saw nice solid volume higher and lower overall trading on the test, we will wait for CAT to finish the test and break higher — the Wednesday action was not bad and we want to be ready. A move to the target — a very conservative one, as the 127% Fibonacci extension is $238 — will give us a 65% gain on the options.

Volume: 2.664M Avg Volume: 3.108M

ENTRY POINT: $215.84 Volume=4M Target=$229.06 Stop=$210.98

POSITION: CAT MAY 21 2021 220.00 Calls — (47 delta)

To see the chart for CAT, click here!

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4. Covered Call Options Play

Xpel Inc. (NASDAQ: XPEL) — Xpel Inc. is currently trading at $49.51. The March 19 $50 Calls (XPEL20210319C00050000) are trading at $3.50. That provides a return of about 11% if XPEL is above $50 by the expiration.

Learn more about our Covered Call Tables here!


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