1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
What Goes Up?
– The day higher, day lower pattern continued when Thursday shifted to the downside.
– Markets shifted back to weaker trading. Meanwhile, bond yields are lower, gold is higher, the dollar is weaker and stocks are down.
– Despite the losses, some indices still have a bit of relief bounce left in them.
– Real leaders have continued to perform.
– Repurchase agreement (repo) operations are hugely oversubscribed again as the repo market is either signaling a lot of trouble or indicating the presence of liquidity-addicted users.
– The fact that Friday was jobs report Friday meant something, yet meant nothing.
Okay, it was Thursday and the market had been up on Wednesday, so… we saw a move lower by most stocks. While some were upside, such as the ones that have continued to defy the sellers, most stocks — 8:1 on the NYSE — were lower. On Wednesday, I noted that the Chicago Board Options Exchange’s CBOE Volatility Index (VIX) looked as if it was in a position that could bounce. However, I figured that it would test the 20-day exponential moving average (EMA) again. No. The market weakened overnight and futures were down sharply.
While stocks started with a gap lower, they did start a recovery move. Stocks fought back from the open and rallied for two hours. Then, nothing was left in the tank. Stocks slid into the early afternoon, weakly bounced and then faded to a new session low. A modest recovery in the last hour pushed the DJ30 back to less than 1,000 points down.
Wow, it didn’t break 1,000, but it did trade in a 1,000 point range intraday. I’m not sure if that’s good or bad. The market is so volatile that it is consistent — consistently volatile.
The move was, of course, not encouraging for a continued relief move, much less anything beyond that. The question is, was it the end of the relief move? Would the jobs report help spring the move higher, given that the report would reveal the February jobs figures?
NASDAQ: Neither the NASDAQ nor the PHLX Semiconductor Sector (SOX) suggest the move is presumably over. A rebound upward session was hammered again the day after, but those two patterns are still well above the initial rebound low. After gapping lower, both indices managed to hold where they had opened.
S&P 500: While it gapped lower, it did cross over the 200-day simple moving average (SMA). That move did not hold, however, and the S&P 500 broke the 200-day SMA as the session progressed. Interestingly, the S&P 500 held at 3,000 on the intraday low and rebounded from that level to close. While the rebound may be able to continue in the absence of any new bad news, this fact is encouraging, not dispositive.
NOTE: The figures and information above are from the 3/5 report.
NOTE: The videos are from the 3/4 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:
Verastem Inc. (NASDAQ:VSTM): Drugs and biotechs are getting some bids, albeit spotty ones. When they move, however, they really move. During the last part of February, VSTM put in a nice test of a break higher earlier in the month. We saw a solid advance from the 20-day EMA on Feb. 19. After this “get ready” kind of move, VSTM broke higher on Feb. 20.
We entered with stock, given the low price, and bought some for $2.20. VSTM moved up during the next session and looked quite good on some good volume. Then, it had one of those biotech hiccups and made a quick test to the 50-day EMA. It showed a tight doji at the 50-day EMA, shot higher on Feb. 28 and closed at over $2.75. During the next session, VSTM was up again, gapped lower and reversed hard. After it shot higher, we sold half the position for $3.00 and banked a 36% gain.
The stock spent the rest of the week moving both laterally and a bit higher. During this time, VSTM ignored the selling in the market and looked as if it was going to make a new move higher.
Here is one completed trade from Technical Traders Alert, offering insights into our trading strategy and the target that we have hit this week:
NVIDIA Corp. (NASDAQ:NVDA): This is one of the stronger big “names” in the market as it rode out the selling while also holding onto most of its gains. Thus, when the opportunity to play something upside came along, we were on it.
NVDA came back to the 50-day moving average (MA) in late February when it sold back in that initial market downdraft. It then sold hard on Feb. 25. On Feb. 26, it started to bounce from some support at $261, which was just over the 50-day MA. We moved in with some April $265.00 call options when the stock price was at $267.11 and bought the options for $20.90.
During the next session, NVDA completed the 50-day EMA test — okay, it would have been better to have waited. However, it held and shot higher during the next session to $270. NVDA rallied during the week, and though it was volatile and moving back and forth with the market, it continued to trend higher. On Wednesday, NVDA posted a nice gain and closed at the session high as the relief rally kicked into gear.
It looked great. During the next session, however, the market opened down again. While NVDA gapped lower, it then rebounded near the Wednesday high. Then, it started to fade and we opted to sell our options for $27.50 in order to bank a gain of 31%. While this wasn’t the 60% we were hoping for in this market, we took the 30%. Now, we will look for NVDA to test the 50-day MA again. Then, we will redo the play.
Here are three completed trades from the Success Trading Group, offering insights into our trading strategy and the targets that we have hit this week:
Bilibili Inc. — ADR (NASDAQ:BILI)
The fact that this was a stock that held up during the market selling made BILI a good candidate for some gains, particularly when the market bounced back and forth during each session. While BILI moved up on Monday, it tested the 20-day EMA when the market sold on Tuesday. We saw that as a potential opportunity, and when BILI jumped up off the 20-day EMA on Wednesday, March 4, we moved in. We bought the stock at $27.50 since it was holding the rebound.
We held the position into Thursday, and when the rest of the market was showing its weakness, BILI rallied. Subsequently, it posted a solid advance. Then, when the move looked as if it might start to feel the effects of the overall market, we sold the position for $38.12 and banked a gain of 2.25%. That works for less than a full session in the position.
Etsy Inc. (NASDAQ:ETSY)
ETSY is another stock that showed strength in a weak market. It broke higher on the prior Thursday and gapped over the 200-day SMA on an earnings beat. While it paused on that Friday, ETSY started up again on Monday. As we wanted to catch more of the earnings breakout momentum, we moved in with positions at $59.13.
Even though the market tanked during the next session, ETSY held steady. On Wednesday, ETSY surged upside as soon as the overall market selling pressure abated. Unfortunately, we sold the stock a bit early for $60.75 and banked a 2.74% gain. However, with the stock down Thursday and Friday and the market all over the map, we were happy enough with that gain.
Slack Technologies Inc. (NYSE:WORK)
This is yet another stock that was able to mind its own business in a weak market. Initially, WORK was working on a flag test of its breakout from the first half of February. Then, the stock tested the 20-day EMA, held it for a couple of sessions and then started higher. We moved in as it started upside by buying stock at $27.11 on March 2.
During the next session, WORK tested, but easily bounced off the 20-day EMA on an intraday test as it already had done. On March 4, WORK rallied nicely. Thus, we sold the position for $27.75 and banked a gain of 2.36%.
However, we were too hasty on WORK because it shot higher on Thursday, reversed intraday and sold off Friday. When considering the larger picture of the market, this strategy worked, but it could have worked even better!
These are examples 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.
3. Pick of the Week
CERS (Cerus Corp.–$5.25; +0.35): Biotech
STATUS: CERS has trended lower since mid-2018. It then formed a cup base from October 2019 with a short inverted head-and-shoulders pattern at the bottom and broke higher in February. Then, its moving average convergence divergence (MACD) turned upside and started trending higher when CERS put in lower price lows. Finally, the stock broke through the 200-day SMA on Feb. 19 — a nice break higher with good volume.
During the recent selling, CERS faded back, tested the 200-day SMA and spent a week testing that level after clearing it on that breakout. As it looks as if CERS is ready to make a move, we want to enter as it continues higher through the buy point. A rally to the target will give us a gain of 12% on the stock and 50% on the options.
VOLUME: 3.92M Avg Volume: 1.96M
BUY POINT: $5.31 Volume=2.5M Target=$5.98 Stop=$5.07
POSITION: CERS May 15 2020 5.00C — (62 DELTA) &/or Stock
4. Covered Call Options Play
Digital Turbine Inc. (NASDAQ:AAPS) — Digital Turbine Inc. is currently trading at $7.14. The April 18 $7.50 Calls (APPS20200418C00007500) are trading at $0.45. That provides a return of about 17% if AAPS is above $7.50 by the expiration.