1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
Market Weakness Is Not Over Yet
– Stocks overcome weak data, rally and then give most, if not all, of it up.
– Some leadership is sold on higher volume while most just work in their patterns.
– Indices are still working laterally, but there is some more volatility creeping in.
– We are losing 565 jobs for every confirmed COVID-19 case. Are you kidding me?
– We are letting doctors, who have shown the same propensity for predicting this virus as weathermen have in predicting the weather, run the economy.
– The 2 year/10 year bond curve is flattening.
Now that is more like it! A surge higher on Wednesday was followed by a dud Thursday session. Futures were higher, albeit modestly so, in the morning session and actually gained strength after another 4.4 million new jobless claims were logged. For anyone keeping track, as of that morning, we were losing 565 jobs for each confirmed case of COVID-19. As this is not exactly an equitable trade, this fact is why so many people are questioning the wisdom of shutting down the economy for basically all small businesses while leaving it open for Walmart, Home Depot, Starbucks and the like to further take over after hundreds of thousands of small businesses disappear along with their employees. As I said at the beginning of the epidemic, we should protect the vulnerable with proper systems, but also let the economy continue to operate. Oh well, that is not going to happen. Even when a governor has a plan to reopen his or her state’s economy and has systems in place, the Feds and those who apparently want small businesses to fail are quick to browbeat him or her and threaten to withdraw federal aid. Don’t you just love the limited federal government that is set out in the Constitution? However, I digress.
After a big price upside day on Wednesday, stocks tried to move higher again, but then frittered the move away. One step up, then a partial step back is the pattern we have seen thus far. This would mean that Friday would be up. Sure. That was the pattern, but there was nothing scientific about it, not even magic. It was just the movement of a relief move where not everyone was on board and one where moves were still being used, in some cases, to move out of stocks.
Intraday, stocks rallied after the jobless claims were released and moved higher into the open by about 40 NASDAQ points and 45 DJ30 points. Then, some good moves were made, tested and started moving back up. A pitiful Markit Purchasing Managers’ Index report for the United States (36.9 manufacturing, 29.0 services) was similar to the report for the European Union (13.5 vs 29.7 expected). Yet, stocks still rose after its release.
S&P 500: The S&P 500 moved up through the 50-day moving averages (MAs) before giving them back and closing lower. This was not a huge reversal, but the S&P 500 failed again at the 50-day simple moving average (SMA). As it was simply moving laterally, this means that the rally is still alive. It is just struggling to move higher as earnings unfold.
NASDAQ: The NASDAQ rallied almost to the recovery highs, then reversed all of the move. Its volume rallied on the selling as some big names saw some volume selling. In comparison to the S&P 500, which is still in the lateral consolidation phase, the NASDAQ is still over the 200-day SMA.
NOTE: The figures and information above are from the 4/23 report.
NOTE: The videos are from the 4/22 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:
Crowdstrike Holdings Inc. (NASDAQ:CRWD): CRWD is one of several stocks that used the selloff in March to form a solid accumulation base. This one took the form of an inverted head-and-shoulders pattern. After the recovery from the March low, CRWD moved laterally and formed the right shoulder. We already had taken one position as CRWD moved up off of the 50-day MA, which acted as support for the bottom of the right shoulder. When it looked as if it was going to make a breakout move, we added a second play on the report on April 15.
During the next session, CRWD made the move and broke upside through the 200-day SMA. We moved in and bought stocks for $63.56 and June $62.50 call options for $6.80. CRWD then rallied nicely into the early part of the week. On Tuesday, after continuing a good move from Monday, CRWD stalled and started to fade. As the rest of the market was also struggling a bit, we opted to sell part of the position.
When we sold half of the options for $10.10, we banked a gain of 48%. CRWD stabilized after an intraday 200-day SMA test and has moved higher since. It also posted a nice gain on Friday. We are letting the rest of our position move toward our target near $74.
Roku Inc. (NASDAQ:ROKU): ROKU is one of the “virus stocks” as people are at home eating snacks, drinking more liquor and binge-watching shows. At least, that is what the snack-makers, liquor stores and streaming services have told us. ROKU started a good move off of the March lows, and we wanted to enter this volatile stock in time for the run higher. After we put it on the reports, it did rally. We moved in and bought some May $90.00 call options for $13.40 when the stock was at $92.94 — just in time for ROKU to backslide to its support over the next week.
It held a gap point, however. As we knew it was a bit volatile, we let it work. That was, fortunately, the low. ROKU started back upside, slowly at first, and then started gapping, rallying and posting large moves into this past week. On Monday, ROKU gapped upside again. However, it began to fade after reaching a new recovery high.
This was a serious surge for just over a week as it’s trajectory had featured several gaps and a move through the 200-day SMA during the late part of the prior week. It then started to stall as the market had started to stall. As we had May options, we were more than satisfied to pull the trigger and sell the options for $44.50. This allowed us to bank a gain of 230%.
Here are three completed trades from Technical Traders Alert, offering insights into our trading strategy and the targets that we have hit this week:
Atlassian Corporation PLC (NASDAQ:TEAM): Another inverted head-and-shoulders pattern that was set up during the market selling had us looking for opportunities. We put TEAM on the report on April 10 as the stock was working on the right shoulder at the 200-day SMA. Our goal was to enter when TEAM broke upside from the bottom of the shoulder — others would wait for the stock to break through the neckline. If the pattern is strong and the market is rewarding such a move, however, we do not wait. A good break higher from the bottom of the shoulder is sufficient.
Thus, on April 14, as TEAM broke higher, we entered the play with May $145.00 calls for $9.50 when the stock was at $144.21. TEAM then stepped higher to the neckline of the pattern by Monday. While it then tried to break through, it faltered. So, we sold the options for $14.90 and banked a gain of 56%. TEAM is now consolidating in a flag over the 10-day EMA, and we are looking at a new play when it breaks higher from here.
Beyond Meat Inc. (NASDAQ:BYND): BYND set up a great consolidation pattern in January and February and started to break out just as the market started to break down. It faltered and then rolled over, gapping sharply lower in late February. Okay, so it sold off along with the rest of the market. It also carved out a base and recovered from its lows into April. After we saw it move up through the 50-day MAs in the early part of the week with a gap, we put it on the report on April 22.
During the next session, BYND gapped. So, we moved in during the early part of the session by buying June $90.00 call options for $14.30 and the stock for $92.54. BYND rallied nicely during that session and closed at $99.78. On Friday, BYND continued its move by gapping upside and racing up to near the 200-day SMA in the first half-hour of trading. That hit our initial target and filled the gap from late February.
After some profit-taking started a half-hour into the session, we sold half of our position for $26.90 and banked a gain of 85%. Then, BYND worked through the profit-taking, shot up to the 200-day SMA and touched that resistance. Once it got there, it started to stall again. Figuring that we had been in the play for only one session and already had a 100% gain in the options, we moved. We sold the remaining calls for $29.50 and banked a gain of 106%.
RingCentral Inc. (NYSE:RNG): The company was founded by the doorbell guy who was turned down on “Shark Tank.” RNG’s stock, meanwhile, set up an inverted head-and-shoulders pattern from February to early April. This is a common pattern in the market right now, and our program was pointing them out to us. We liked RNG’s action at the 50-day exponential moving average (EMA) and noticed that it was ready to break higher. While we put it on the report on April 4, RNG had to finish the right shoulder. After it did so, it jumped off of the 50-day MA.
We moved in as it broke higher on April 15 and bought May $230 options for $22.00 when the stock was at $231.55. While this was a good breakout, RNG stepped higher, even though it did need one more 10-day EMA test before surging into this past week. It saw a big move on Monday and then started higher again on Tuesday. However, it started to stall at the prior highs from February and March. With the overall market bucking at the S&P 500 resistance, we decided to bank the gains. That is, we sold the options for $33.00 and banked a 50% gain.
Here is an announcement regarding the performance of the Success Trading Group over the past week:
The week’s volatility kept us mostly on the sidelines as the S&P 500 bumped at its resistance during its relief rally rebound and backtracked. That led to a week of day-to-day back-and-forth trading in a narrow range. When you are on a hot streak and the market suddenly turns less favorable, it is best to pause and wait for great setups to appear.
We did move into Match Group Inc. on Thursday to capture the next move higher from a week-long consolidation that formed after a break through the resistance at the 200-day SMA. We anticipate that this stock will quickly produce a return in the early part of next week.
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.
3. Pick of the Week
NFLX (Netflix–$421.42; -12.41)
STATUS: Earnings are out. Even though NFLX faded on the results, that was more a response to the big move up ahead of the results. Even with the weakness during the session, NFLX still simply tapped the 10-day EMA on the low and rebounded to the close. That dip took NFLX to the 38% Fibonacci retracement of the latest surge higher. Then, a breakout from the inverted head-and-shoulders pattern formed from February to early April.
When NFLX bounced off of that near support, it closed at its prior all-time high from mid-2018. This was a good support to hold. NFLX may want to test some more before it rebounds in the form of a further dip to the 10-day/38% Fibonacci retracement. Either way, we will be ready to move in as NFLX makes its next break higher. A move to the target will give us a 65% gain on the options.
VOLUME: 21.124M Avg Volume: 10.014M
ENTRY POINT: $426.82 Volume=14M Target=$466.00 Stop=$414.62
POSITION: NFLX JUN 19 2020 $430.00 Calls — (49 delta)
4. Covered Call Options Play
Lattice Semiconductor Corp. (NASDAQ:LSCC) — Lattice Semiconductor Corp. is currently trading at $19.74. The June 20 $20.00 Calls (LSCC20200620C00020000) are trading at $1.90. That provides a return of about 13% if LSCC is above $20.00 by the expiration.