1. Market Summary
Excerpted from Wednesday’s paid content of Investment House Daily by Jon Johnson.
Growth Makes the Bounce
– Growth makes the bounce that was setting up. Chips are leading.
– All indices moved higher and then faded off of the highs as a weak last hour struck again.
– Resistance still stands in growth’s and recovery’s way, at least for the DJ30 and S&P 400. The S&P 500 actually looks pretty solid.
– Stocks rebounded at the end of the month and at the end of the quarter. Buyers and sellers are still at odds and are at roughly equal strength.
Since it was the end of the month and the end of the quarter, there was some adjustment to our positions on Wednesday. Thursday meant a new quarter and a new month ahead of a three-day weekend (due to Good Friday and Easter). Wednesday was up on the close but up and down on the session, as good gains struggled to hang on in a weak close. The good gains were mostly mediocre by the close. Meanwhile, the indices were breaking some resistance, failing at some and giving some back.
The Nasdaq was up and leading from the premarket session. The two days of rest after the two days of initial rebound revived the index. Some groups which I had noted were set to bounce (such as cloud computing) did, in fact, bounce. Semiconductors and some of the big Nasdaq names bounced as well. That action helped push the Nasdaq 100 past the 50-day exponential moving average (EMA) and up to the 50-day simple moving average (SMA) on the session high. In the end, the Nasdaq cleared the 50-day EMA but didn’t really come close to the 50-day SMA. Neither came within distance of the January peak.
The S&P 500 looked as if it was going to become the new market leader, as it bolted past last week’s high and the mid-March all-time high. It could not keep up, however, and faded back to a doji. It actually missed out on the all-time closing high by a couple of points. Once again, an index failed to hold an important move and was shoved back to a weak close.
NOTE: The figures and information above are from the 3/31 report.
NOTE: The video is from the 3/31 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:
Applied Materials, Inc. (NASDAQ: AMAT): Semiconductors were one of the perplexing areas over the past two months — some would argue that they still are. We were told of a global chip shortage, and yet, these stocks struggled and sold down with the other growth stocks.
AMAT was in a lateral range, but it was not breaking down. It was using the selling to form a new base. That is why you should always watch patterns — it doesn’t really matter to the market what WE think or believe. What matters is what the bigger buyers are actually doing. Thus, with regard to AMAT, we saw the pattern, focused on it and when it broke through the top of its six-week range on March 26, we were ready. We put it on the report and were ready to move in when AMAT continued the move.
AMAT was perfect. It broke through that Friday and then tested on Monday and Tuesday. On March 30, it held the break higher and started upside. That was our entry signal. We moved in and bought May $130 call options when the stock was at $127.27. We paid $7.90 for each option.
We love a breakout and a quick test because it leads to solid gains. Sure enough, AMAT gapped higher on Wednesday and closed near the high. It gapped higher on Thursday as well and then hit and surpassed our initial target. Since this was a nice, sharp move, we followed the plan and sold half of the options in the first half hour of trading for $15.55. This produced a 95% gain.
Here are several completed trades from Technical Trader Alert, offering insights into our trading strategy and the targets that we have hit this week:
Facebook, Inc. (NASDAQ: FB): Wait a minute. We just had a play LAST week on FB and banked some nice gains. We sure did, but we also said that if it set up again, we would play it again.
FB had rallied to the top of its range, and we made good money on that move. It then faded to test that rally and held at a higher support level inside the range (the 20-day EMA). If FB rallied from there, it technically had a good chance at a new breakout. Thus, when it held and showed signs of bouncing, we put on a new play. Sure enough, FB did bounce well. So, we entered the new play on March 29 by buying May $285 calls for $18, as the stock was at $287.55.
FB hit the top of the range to close that session, and, on March 30, it paused to collect itself. On Wednesday, it broke through and closed at a new high. On Thursday, FB gapped upside, moved to $300 and hit a new all-time high.
Our initial target was a test of that prior high. The plan was to take half of the gains and then see if FB could push on toward $310. So, per the plan, when FB was trading just over $302, we sold half of our options for $25.50 and banked a 41% gain.
While this was not a huge gain, in this choppy market, we see an entry, calculate the probabilities of the move, calculate the return and then either play it or not based on those numbers. Now, if the Nasdaq is going to make a breakout over the resistance, FB should be leading the move. This is because it is a leader in the big names.
We took gains on some other plays this week as well.
Ternium SA (NYSE:TX): We entered on March 8 and sold our options on March 29 for a 93% gain.
United States Steel Corporation (NYSE:X): We entered on March 17 and sold our options on March 31 for an 87% gain.
Humana Inc. (NYSE:HUM): We entered on March 24 and sold our options on March 31 for a 21% gain. This was not what we wanted, but the half-life on HUM’s move was truncated. That said, it is in a nice pullback, and we are looking to move in again once it finishes this test. This time, we are hoping for a bigger return.
There were no new trades this week in the Success Trading Group.
Still, 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
QRVO (Qorvo Inc.–$182.50, +10.24)
STATUS: As there was lots of selling in growth and chips, QRVO felt some selling as well. However, it did so inside its three-month trading range, which is roughly using the 50-day moving average (MA) as support. We really like how QRVO held up last week in the selling — it sold, of course, but it put in a higher low at $170 and then surged on Friday. We want to play a breakout from the range for a run at the next round number, which is $200. That move will give us a solid 60% gain on the options.
Volume: 1.009 million Avg.Volume: 1.482 million
ENTRY POINT: $184.56 Volume=1.9 million Target=$199.98 Stop=$189.77
POSITION: QRVO MAY 21 2021 $185.00 Calls — (49 delta)
4. Covered Call Options Play
Shoals Technologies Group Inc. (NASDAQ: SHLS) — Shoals Technologies Group Inc. is currently trading at $34.78. The April 16 $35 Calls (SHLS20210416C00035000) are trading at $1.90. That provides a return of about 8% if SHLS is above $35 by the expiration.