Invest and Trade Profitably with Jon Johnson

Weekender for 4/19

1. Market Summary

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

The Pandemic Continues

– Stocks move up off of the Wednesday selling and continue the pattern. However, this is not that strong a move — for most stocks.
– Economic data are generationally bad.
– The data are bad, but stocks continue to set up promising patterns.
– After hours reports of Gilead Sciences’s (GILD) drug provide promise. Boeing also promised to restart Seattle production.
– Gap higher set for Friday expiration. We planned to use it for profits, but not much buying.

While there was not much of an upside session, there was upside nonetheless — mostly among large-cap stocks. The NASDAQ took the point again and led higher while the small and mid-caps brought up the rear, unable to close in the black.

Stocks moved through a ragged session, rose, gave it up and then saw a slow, slow rise into the market’s close that put large-cap stocks in the positive and in the upper half of a very narrow range. Of all the indices, the NASDAQ and PHLX Semiconductor Sector (SOX) were the strongest again because they left themselves in a position to continue the move higher on expiration Friday.

Futures surged during afterhours on Gilead Sciences’s drug report and news from Boeing. Indeed, they likely would have continued the upside on Friday, given the afterhours news that GILD’s Remdesivir drug is “seeing rapid recoveries in fever and respiratory symptoms.” Boom, SPDR S&P 500 ETF Trust (SPY) futures jumped 3.2% in post-session trading. GILD itself did not do poorly, as it was up 10+ clicks (or 15%) after the news. The market is looking for something that could cement the idea that the country is going to reopen soon, and a treatment that is without controversy and able to slam the door on the virus is a huge step in that direction.

Technical Analysis:

S&P 500 and the DJ30: Both of these indices moved laterally below the 50-day EMA and put in a flag or handle that is similar to the late March/early February move that set up the second leg higher. Right now, they are trying to set up leg number three.

NASDAQ and the SOX: Both gapped back over the 200-day simple moving average (SMA) and 50-day SMA, holding most of their gains as they closed near session highs. The NASDAQ closed at 8,532, about 450 points from a key level on the rebound rally. Overall, the action remains positive for these two leading indices — up on rising volume, down on lower trade. They are still volatile, but the fact that they feature more upside sessions than downside ones keeps the trends moving higher.

NOTE: The figures and information above are from the 4/16 report.

Watch the Investment House Videos For This Week Here!

NOTE: The videos are from the 4/15 report.

2. Targets Hit

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

Amgen, Inc. (NASDAQ:AMGN): AMGN is a big name, and we were trolling for big names with good patterns as the market came off of the March selling. AMGN was one of the cadre of names that formed an inverted head-and-shoulders pattern off of that low in the selling. It then moved up to the merging 50-day moving average (MA) and the 200-day SMA. After it slid laterally, we put it on the report.

Two sessions later, it broke through that resistance. That was our entry signal. We moved in and bought May $215.00 calls (since earnings are on April 30 and we wanted to be out before then) for $12.00. AMGN then did the market two-step by sliding laterally for two sessions and then surging higher on Tuesday. It sold on Wednesday and surged sharply on Thursday.

After one more step in the two-step, AMGN gapped higher on Friday and hit our target. As we saw it fading from the gap, we knew that it was time to exit. Thus, we sold the options for $21.80 and banked a gain of 76%.

Advanced Micro Devices, Inc. (NASDAQ:AMD): This was another stock that was sported an inverted head-and-shoulders pattern when it came off of the March selling. We also saw AMD come out of the trough in its right shoulder and bump into the 50-day MA. After we put it on the report, it broke higher on April 8 after sliding laterally.

We then moved in with May $48 call options at $4.25 when the stock was at $48.62. After a day where it gapped and then faded, AMD was pretty much all upside. It hit our initial target on Tuesday, April 14, and we sold half of the options for $7.65. This allowed us to bank a gain of 80%.

Then, AMD continued higher with an upside gap on April 16. The presence of a solid breakout and a rally to the February high, followed by the stock backing off of the initial surge, meant that it was time to bank some more gains. We sold the other half of our options for $9.60 and banked a gain of 125%.

Match Group, Inc. (NASDAQ:MTCH): Another inverted head-and-shoulders off of the March selling? Sure! MTCH formed this pattern from late February to early April as part of a large cup base. As it was one of many such stocks, we frankly did not put it on the list during the first round of these bases. But, after it broke over the 50-day MA in early April and then made a textbook test of that support, we knew that we wanted in on it. We put it on the report as it tested and showed a doji at its support on April 13. It then broke higher on April 14.

Thus, we moved in by buying June $70.00 call options for $7.70. MTCH then jumped higher into Friday and hit our initial target. As a result, we sold half the position for $13.60 and banked a gain of 76%. We are keeping the remaining half for a run at the January 2020 high.

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

Docusign Inc. (NASDAQ:DOCU): I know several small businesses that applied for CARE Act funds and used DOCU as a way to sign the forms. That fact was well and good, but it was the pattern that caught our attention. It broke out from an inverted head-and-shoulders pattern in late March and immediately tumbled below the 50-day MA in early April. During the next session after that break, however, DOCU reversed upside on huge volume. It then tested for two days. We saw it and put it on the report as we anticipated a continuation of the big action that reversed from the selling.

The following is so important to watch for — the sellers tried their best to take it down, but they could not do it because the buyers shot the stock back up like a cork. We put it on the report over the weekend, and on April 13, DOCU broke higher.

We entered with May $95.00 calls for $6.20. Then, DOCU marched higher for three-and-a-half straight sessions. On Thursday, it gapped higher, surged and then started to fade. That was the signal that the initial move was done. We then sold our options for $11.20 and banked a gain of 80%.

NVIDIA Corp. (NASDAQ:NVDA): What do you know? Another big name in the market was able to form an inverted head-and-shoulders pattern off of the March selling. NVDA was a textbook example as it used the 200-day SMA on the March lows as a support, recovered to the 50-day MA, formed a handle and then moved higher. After we saw it setting up and breaking higher from the right shoulder on April 6, we put it on the report.

During the next session, it gapped, but dropped to a loss. During the session on April 8, it started back upside and we moved in with May $265.00 calls since earnings are scheduled for late April and we wanted to be out before those hit. NVDA was a bit volatile, but it was trending higher. Tuesday was the big move as it gapped higher and cleared the recent highs when it broke out from the pattern.

Wednesday was an off session — volatile — but it gapped higher on Thursday, rallied and then started to back off. It filled the gap lower from mid-February, which served as a logical resistance point. When we saw it backing off intraday, we sold our options for $35.30 and banked a gain of 76%.

Zscaler Inc. (NASDAQ:ZS): ZS recovered from the March selling in a straight line off of the lows and cleared the 50- and 200-day SMAs in a steady run. This showed us that the buyers wanted it, and when it started to test laterally in a very nice and orderly move, we wanted to get in on it if it could break higher again after resting at its support. We put it on the report, and on March 31, ZS started higher with a nice break on volume.

We moved in by buying May $60 call options for $6.40. At this point, it looked ready to surge. Well, ZS moved higher, but it was suddenly slower. It edged up the 10-day exponential moving average (EMA), moved up a session, stepped off a bit and then moved up again. It did that shuffle into this week.

Then, it came to life on Tuesday, when it surged and held the gain. It surged even more on Wednesday. On Thursday, it gapped upside and surged over $73 — then, it started to fade. As we knew it was running out of gas in the near term, we sold our options for $13.50 and banked a gain of 109%.

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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:

Slack Technologies Inc. (NYSE:WORK)

This week, we saw WORK working (pun intended) along the 50-day MA in what looked like the trough of a right shoulder in an inverted head-and-shoulders pattern. That pattern started back in February with that peak, followed by a drop in the market overall. Indeed, many stocks that were performing the best had formed this pattern during the selling. WORK has plenty of volume and, at its price point, it can return nice percentage gains rather quickly. It was a perfect candidate.

Thus, when we saw it break higher off of its support on Wednesday, April 15, we were ready to get in. We waited on that day to make sure that it was holding. In the afternoon session, WORK dipped off of the high, and we used that opportunity to enter. We were thinking that perhaps with a charge to the finish, it would hit our target during that session.

We entered and bought stock for $27.59. Afterwards, WORK started upside, but did not make our target by the close. During the next session, WORK opened slightly lower — something that happens after a rally to the close. As so often happens on a strong move and a soft open, buyers used the opening dip to enter.

Indeed, WORK surged higher and was up 5% by midmorning. After we saw it start to falter, we sold the position for $29.31 and banked a 6.2% gain.

This is an example 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

LULU (Lululemon Athletica–$207.95; +2.76)

EARNINGS: 06/25/2020

STATUS: LULU moved up off of the mid-March low and rallied to the 200-day SMA in late March. After the stock faded through the first week of April, LULU moved up over the past week to bump and work along the 200-day SMA. Volume rose to an average level on Wednesday as LULU started to break higher through that resistance.

We want to move in when LULU posts a move through the entry point on some solid volume and holds that move to the close. If it surges, then we can go ahead and get in earlier. A move to the target will give us a gain of 65% on the options.

VOLUME: 1.875M Avg Volume: 2.662M

ENTRY POINT: $208.44 Volume=3.8M Target=$233.49 Stop=$200.09

POSITION: LULU JUN 19 2020 $210.00 Calls — (52 delta)

To see the chart for LULU, click here!

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4. Covered Call Options Play Inc. (NASDAQ:JD) — Inc. is currently trading at $47.50. The June 20 $48.00 Calls (JD20200620C00048000) are trading at $3.50. That provides a return of about 10% if JD is above $48.00 by the expiration.

Learn more about our Covered Call Tables here!

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