Invest and Trade Profitably with Jon Johnson

Weekender for 4/23

1. Market Summary

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

Stocks Fail to Follow Through on a Setup

– Once again, stocks fail to follow through on a setup and initial move.
– President Biden’s proposal to nearly double capital gains taxes undermines a move higher.
– The start of a new move higher sold on higher volume.
– We have not seen breakdowns, but we have seen struggles in key groups, such as chips and big-name Nasdaq stocks. Alongside a compliant Fed and trillions in stimulus, what could go wrong?

The indices went from rallying over 300 Dow points on Wednesday to dropping over 300 points on Thursday. How do you do that? You have the president, who is making all other presidents look like novices in terms of spending, announce plans for a 39.6% capital gains tax. This would be an increase from the current 20% tax.

We have been told that it will only apply to those making $1 million or more per year. When you look at who is paid that kind of money, you realize that areas like Silicon Valley, and all of the other versions of it around the country, fit the bill. So, a doubling of such a key tax will stifle innovation.

321 Dow points? That is a small rock in the road compared to what will happen if this, as well as the other proposals from the White House, become reality.

Technical Analysis:

S&P 500 and DJ30: They are at the 10-day exponential moving average (EMA) again. We will see if they can stem the tide, consolidate a bit more and then try again.

NASDAQ: It looked really good on the midday high and then dropped precipitously. It closed at a point between the 10-day and 20-day EMA. Volume climbed 12% as the Nasdaq reversed. We saw lower volume on the Wednesday bounce and then noticed higher volume as the sellers came in and sold stocks. There wasn’t a breakdown on the day here, either. Rather, another perfect upside setup tossed itself back.

NOTE: The figures and information above are from the 4/22 report.

Watch the Investment House Video For This Week Here!

NOTE: The video is from the 4/21 report.

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.

Pfizer Inc. (NYSE: PFE): After all of its vaccine glory, PFE peaked in December 2020. As it then fell hard into a base, most people forgot about it. Frankly, we did too. But, we always scan all market sectors to see how the money is flowing, if stocks are setting up bases and so on.

We saw PFE doing something in late spring. It came off of the lows and set up a pretty darn nice inverted head-and-shoulders pattern. That pattern has launched many a winner since the 2009 bottom, and as we saw it setting up in mid-March, we put PFE on our list. After it started to move higher on March 26, we put it on the report that weekend.

On the following Monday, PFE continued the break higher from the pattern. So, we moved in with June $35 call options for $2.20 when the stock was at $36.60. Why did we not pick up the stock?

Well, PFE is not a barnburner when it comes to moves. Similarly, while the pricing on the options was very good, it had a long base, no one was really interested in the stock and both implied and historical volatility were low. Thus, we could make very good money on very small relative moves.

Indeed, PFE did not have to rally that much. It tested that initial break higher and then started back upside with a series of solid moves. Indeed, PFE rallied during eight out of nine sessions and moved from $36.60 to $39.53, or 8%. The options, on the other hand, moved from $2.20 to $4.05. This is an 84% gain.

As PFE wobbled after that good move, we sold our options and banked that strong gain. Now, PFE is testing that move. As a result, we are once again looking at a new play.

Colgate-Palmolive Company (NYSE: CL): We also banked a gain in this recovery stock when it set up an inverted head-and-shoulders pattern and broke higher during the first week of April. It stair-stepped its way slowly higher into April 20 and hit our target. Then, we opted to sell our options for a 52% gain.

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Here is one completed trade from Technical Trader Alert, offering insights into our trading strategy and the target that we have hit this week:

Steel Dynamics, Inc. (NASDAQ: STLD): This play looked so simple when it set itself up. STLD is a recovery stock in the steel sector and rallied well from early February into the second week of March. It put in a very orderly test back to the 38% Fibonacci retracement of that February-to-March rally and held that level.

If a stock can hold and bounce from the 38% retracement of a prior move, this shows that there is still a lot of momentum left to the upside. Indeed, we always look for the stock to break through the prior high when it rallies. Thus, we had a lot of positives: a recovery stock, an excellent retracement and a superb setup.

STLD made the bounce off of its support, and we entered on March 25. We bought May $45 call options for $4.55 when the stock was trading at $47.68.

Then, STLD rallied nicely into early April. On April 5, STLD gapped higher and came ever so close to our target. Since it all looked great, we let it work. Then, the move stalled. STLD frittered laterally and tested the 10-day EMA.

It tested and then moved laterally into mid-April. Finally, on April 19, STLD gapped higher again. This time, it touched the target. We wasted no time and sold the options for $7.75 and banked a 70% gain. We are glad we did, because, during that same session, STLD reversed the gap higher. It is still working laterally.

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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:

BioCryst Pharmaceuticals, Inc. (NASDAQ: BCRX): The market, despite the fact that the large-cap indices are punching out new highs, has taken on some defensive attributes as well. Personal products, food and health care were getting money pushed their way as some winning sectors saw volatile action. That had us looking for good setups in some defensive areas. Soon, BCRX caught our attention.

The stock set up a double bottom off of the rally through March as it consolidated the prior rally. We saw it break higher on April 21. This took it just to the edge of a breakout. During the next session, BCRX did make that break. This was our entry signal.

We bought the stock for $11.94 and anticipated a good, sharp move, given the setup. Sure enough, BCRX did make a sharp move and rallied to our target during that same session.

We sold the position for $12.42 and banked a 4% gain on a nice, quick move. As it turns out, BCRX faded a good part of the move during that session.

Cloudflare Inc. (NYSE: NET): We also banked gains in NET. We bought the stock for $77.21 and sold it for $81.11 in order to generate a 5% gain.

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

CRWD (CrowdStrike Holdings — $215.20, +2.09)

EARNINGS: 06/15/2021

STATUS: Double-bottom-with-handle pattern. Cloud software broke higher and is consolidating the move. In addition, many of these stocks are coming off of nicely formed double bottoms. This consolidation of the initial break higher is forming a handle and serves as the pause before the next move higher.

CRWD broke over the 50-day simple moving average (SMA) last Tuesday after a two-day pause. It also showed great action to close out the week, tapped the 50-day moving average (MA) on the lows and rebounded to close.

We are simply waiting for CRWD to show that buyers are sticking with it by making the next break higher. The move through the entry point is our signal. A move to the target will give us an 80% gain on the options.

Volume: 3.58M Avg Volume: 4.573M

ENTRY POINT: $217.42 Volume=5.2M Target=$242.44 Stop=$209.09

POSITION: CRWD JUN 18 2021 220.00 Calls — (55 delta)

To see the chart for CRWD, click here!

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4. Covered Call Options Play

Turtle Beach Corp. (NASDAQ: HEAR)Turtle Beach Corp. is currently trading at $27.75. The May 21 $28 Calls (HEAR20210521C00028000) are trading at $2.15. That provides a return of about 10% if HEAR is above $28 by the expiration.

Learn more about our Covered Call Tables here!

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