Invest and Trade Profitably with Jon Johnson

Weekender for 4/12

1. Market Summary

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

A Light at the End of the Tunnel?

– Stocks came right back after the Tuesday gap and reversal.
– Volume is quite low, showing that there are just not that many buyers on this upside.
– The NASDAQ is taking a backseat to the S&P 500, small and mid-caps.
– There is solid breadth as a lot of stocks are rallying.
– If we see the right moves, we can pick up another position or two.

After a horrible Tuesday, futures were back up on Wednesday. It would appear that there is some optimism regarding the virus situation and the economy. Everyone knows that Q2 is in the toilet, but if the virus cases prove far fewer in number than the gloom from last week predicted, the horrible economy will not endure.

Futures started modestly and then moved up from left to right to the open. After a dip during the first half hour from an upside gap, it was all upside to the close. This was an impressive set of steps after the market managed to turn a strong open into a loss on Tuesday. Back then, I said a bit too much too fast because it appears that the market just needed a day to digest the huge Monday move.

All the indices were higher, but the bias was away from tech and more towards the clobbered areas that were on the rebound. Not that tech blew up or anything like that. It just did not have a point on the upside during this session.

Technical Analysis:

S&P 500: This index saw a solid move with a gap and rally to a higher recovery high. It then tried to push through the gap point from the second week in March and on to the 50-day exponential moving average (EMA) at 2,800 (the index closed at 2,750). It was nice that it notched the higher high, but the volume was rather pathetic. If it does not pick up on the upside, then this move will come back to some level or another.

NASDAQ: The NASDAQ tested the 50-day EMA on the Tuesday gap higher and then rallied back to close near that same level. An ABCD pattern is forming as the NASDAQ has been closing near the 61% Fibonacci retracement. However, as with any pattern, the setup is one thing and the move is THE thing. In other words, it could run right on up through the 50-day EMA and move towards the 200-day EMA at 8,392. 8,250 will serve as some resistance along that route for both the NASDAQ and the patterns of some big names. However, the overall NASDAQ pattern is not the same as those stocks. Even so, they have the market cap to move the NASDAQ regardless of the index’s pattern.

NOTE: The figures and information above are from the 4/8 report due to the Friday holiday.

Watch the Investment House Videos For This Week Here!

NOTE: The videos are from the 4/8 report due to the Friday holiday.

2. Targets Hit

Here are two completed trades from Investment House Daily, offering insights into our trading strategy and the targets that we have hit this week:

EQT Corporation (NYSE:EQT): We have played EQT before on its attempts to break its trend. However, its attempt to do so in early March failed. It hung on at the 50-day moving average (MA), however, and worked laterally for five sessions. After we put it on the report, EQT broke higher on April 2. We entered this play by buying stock for $7.58 and some May $7.00 call options for $1.55.

Then, EQT stepped right up and made the trend break stick this time. Our only lament was that we sold our stocks and options before the move peaked. Yet, it was a crazy market and other stocks were selling. Anyways, on April 6, EQT rallied up to the 200-day simple moving average (SMA) and hit our target. We sold the stock for $9.11 and banked a 20% gain. We also sold the options for $2.50 and banked a 61% gain.

Intel Corporation (NASDAQ:INTC): INTC made us money on its initial move off of the March low. Then, after the week-long lateral move, we started looking at the stock again for a new move and put it on the report on April 2. On Monday, INTC gapped through the 200-day SMA and 50-day EMA. Then, with the second leg of the relief rally looking as if it had already started, we chased INTC a bit by buying May $55.00 call options for $4.85 when the stock was at $56.94.

This was a nice move as INTC continued higher off of that gap and closed in on the 50-day SMA. On Tuesday, INTC and other big names gapped higher and surged upward from there. INTC touched $61.49 on the high, but then it and many other “name” stocks on the NASDAQ started to waffle. In addition, the S&P 500 filled the gap which existed at a point that was just over 2,700. This was also our initial resistance on a relief bounce.

Okay, to recap, we saw a relief rally, a second huge gap higher on the second leg of the relief rally and key stocks starting to waffle. We then wasted no time and banked the gains by selling the options for $6.25 and producing a gain that was close to 28%. No, this was not the 90% gain we were looking for, but over the course of a few hours and in the face of an uncertain relief move, banking a 28% gain works for us.

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

Carnival Corp. (NYSE:CCL): Technical Traders trades the patterns because the patterns tell the tale. A stock may be reviled, publicly maligned and otherwise spat upon, but the pattern is the pattern. Thus, when we saw that Carnival Cruise Line was forming a potential double bottom, we put aside our general disdain for that sector and saw the possibilities for a big move upside. We put it on the report on April 2. It started edging higher on April 3, but we wanted to see a good break higher. Then, CCL gapped upside on Monday. Okay, that worked. As a result, we picked up the stock for $9.63 and May $10.00 call options for $1.90.

CCL continued higher during that session. Then, it gapped sharply higher during the next session. That moved CCL to our initial target even though it still had another five points to the peak of the “hump” in the double bottom. So, we opted to sell half the position for $12.75 and bank a 32% gain. We also sold the options for $4.00 and banked a 110% gain. We will see if CCL can put in a modest test and then break back upside towards that peak in the hump. This really impressive play was all foretold by the pattern.

Microsoft Corp. (NASDAQ:MSFT): You know, a person might think we have a thing for MSFT. We do because it makes us money, including 80%, 70% and 50% gains on short trades to the upside in this market selloff. Of course, when we saw MSFT setting up to make us money again, we were ready to go. After a test near the 200-day SMA on the prior Wednesday and a bounce on Thursday, we put MSFT back on the report.

On Friday, MSFT moved higher, and even though it was a Friday, it was moving up off of the low in a potential right shoulder to an inverted head-and-shoulders pattern. If this pattern is formed during a high level of selling and volatility, we have a leader. Thus, we moved in with May $155.00 options for $11.40. On Monday, MSFT gapped up through the 50-day EMA and surged to the 50-day SMA. On Tuesday, MSFT gapped higher and then started to reverse the gains. With two huge market days higher on huge gaps, we closed the position by selling the options for $16.20 and banking a gain of 42%.

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Here are two completed trades from the Success Trading Group, offering insights into our trading strategy and the targets that we have hit this week:

Carnival Corp. (NYSE:CCL)

This is a good example of a stock that was so despised that it had to be loved. CCL set up a double bottom in the midst of the doom and gloom. Even though it is a cruise line and a business that I personally do not like, the pattern is the pattern.

Thus, when we saw it gap upside off of the second bottom in the pattern on April 6, we moved in and bought the stock for $9.89. CCL surged during that session and then started to back off just below the 10-day EMA. In the presence of this volatile market, we sold the stock for $10.31 and banked a gain of 4.25%.

Chewy Inc. (NYSE:CHWY)

CHWY was a leader in the market even as it was selling off. Yes, CHWY sold in early March, but that was just a test of its support. After it held, it took off upside. CHWY peaked to start April and then faded to the 20-day EMA — a great test of a breakout move from a seven-month base. We saw it hold the 20-day EMA for three sessions and were ready to move in when CHWY took off.

It did and we bought stock for $35.72. As the stock then exploded higher, we sold the position as it had peaked and had started to flatten out in the last hour. Since we sold the stock for $38.30, we were able to bank a nice 7.2% gain over the course of a few hours.

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.

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3. Pick of the Week

CHWY (Chewy Inc.–$35.10; -0.87)

EARNINGS: 04/02/2020

STATUS: Test breakout. CHWY gapped higher on Monday and broke to a new high. It showed a doji during that session and was up big during the two prior sessions. Then, CHWY tested from Tuesday to Thursday and showed a tight doji at the 10-day EMA on Thursday. This was just ahead of earnings afterhours.

CHWY jumped to $36 and then faded to $33.75 in the afterhours action. Since that is not a bad course of action after earnings, we want to move into CHWY if it holds and starts back upside post-earnings. However, we may have to adjust the buy point downward. If CHWY starts around $34, we can move in at $35.12. A rally to the target will give us a 16% gain from the $36 entry point and a 55% gain on the options.

VOLUME: 5.6M Avg Volume: 3.041M

ENTRY POINT: $36.02 Volume=5M Target=$41.84 Stop=$34.08

POSITION: CHWY MAY 15 2020 35.00 Calls — (55 delta) &/or Stock

To see the chart for CHWY, click here!

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4. Covered Call Options Play

Pfenex Inc. (NYSEAMERICAN:PFNX) — Pfenex Inc. is currently trading at $8.99. The May 16 $10.00 Calls (PFNX20200516C00010000) are trading at $0.35. That provides a return of about 26% if PFNX is above $10.00 by the expiration.

Learn more about our Covered Call Tables here!

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