Invest and Trade Profitably with Jon Johnson

Weekender for 4/5

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

It’s the Economy!

– Jobless claims flipped futures negative, but stocks managed to recover and make gains.
– Worries about the small business Paycheck Protection Program (PPP) may prevent it from going operational, but Treasury Secretary Mnuchin is adamant that it will.
– Market upside helps to better form the bottom.
– The price of oil surged by 5% due to possible production cuts.
– Well-known names are already setting upside patterns. Everyone is looking for the test.
– The jobs report will be bad but the market worked past bad jobless claims.

As I discussed before, the market, in fact, did give the upside the old college try. Indeed, a weaker Wednesday volume and a lethargic Chicago Board Options Exchange’s CBOE Volatility Index (VIX) allowed stocks to bounce back and reclaim some of Wednesday’s losses.

It was not all upside. Overnight futures rose by 300 Dow points. Then, the weekly jobless claims report exploded expectations with 6.6 million new claims on top of the 3.3 million we saw during the prior week. 10 million new claims in two weeks is impressively bad.

Futures dumped on that data and moved over 300 Dow points from the morning high. Even so, when the opening bell rang, U.S. stocks caught a bid and rallied in the first hour. After they survived a dip into midafternoon, stocks rallied during the last two hours and closed at session highs. Again, the fact that the stocks gave an attempt to extend the rally the old college try was something that I discussed in Wednesday night’s report.

Technical Analysis:

The action in the stock indices over the past few sessions has almost been identical as large-cap stocks moved in roughly the same percentages. The same was true with regards to the small caps and mid caps. All of them moved up to or near the 20-day exponential moving average (EMA), worked laterally and then fell away on Wednesday. On Thursday, we saw a bounce back to the 10-day EMA, which allowed the indices to recover roughly one-third to one-half of the Wednesday drop. As noted, this is a good course of bottom-building action as it stretches out the process.

S&P 500, NASDAQ, DJ30: All of these saw the same course of action that allowed them to rise back to the 10-day EMA. While the S&P 500 and the DJ30 rose on slightly higher volume, the NASDAQ rose on slightly lower volume. Nevertheless, all of these indices traded down from their recent levels.

NOTE: The figures and information above are from the 4/2 report.

Watch the Investment House Videos For This Week Here!

NOTE: The videos are from the 4/1 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:

Alphabet Inc. (NASDAQ:GOOG): While we saw GOOG fade during the selling, it started holding over some support at $1,050 in mid-March. After it worked laterally, it reached down to $1,000 — a psychologically important level — on March 23. GOOG then reversed with a nice doji that had a tail on the candlestick pattern. That pattern often means that a selling episode is giving way to a reversal in direction.

After we put it on the report, sure enough, GOOG gapped upside during the next session. We entered the play by buying May $1,110 call options for $73.10. While GOOG was volatile, it managed to work its way higher over the next five sessions. Then, it gapped upside on March 31 and tapped at the 20-day EMA. While we saw the overall market make the same move, it was far more sluggish. So, we opted to sell the options for $104 and bank a gain of 42%.

NVIDIA Inc. (NASDAQ: NVDA): In mid-March, we saw NVDA, another one of the big names, sell to the support — for NVDA, the support was the 200-day simple moving average (SMA) — and then move laterally for several sessions. That had us looking for a relief bounce from that selloff. After we put NVDA on the report, it exploded higher during the next session with a big gap.

We opted to go ahead and chase the move, given the fact that bear market rallies can be very strong. We entered by buying May $240.00 call options for $23.80. While NVDA remained as volatile as all the other stocks were at the time, it continued to trend higher into March 31. During that session, NVDA surged and then started to fade. So, we sold the options for $40.00 and banked a gain of 68%.

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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:

Docusign Inc. (NASDAQ:DOCU): This is a stock that held up very well during the selling. Indeed, it set up a very nice inverted head-and-shoulders pattern because it used the selling to set up its next move. Before that pattern was apparent, we saw DOCU testing the 200-day SMA in mid-March. On March 18, it jumped off of the 200-day SMA and we put it on the report.

During the next session, DOCU continued the move. So, we stepped in and bought the April $80.00 options for $9.80. Then, DOCU moved up through the 50-day moving average (MA) and tested that move during the week of March 23. On March 31, DOCU surged. Since that move took DOCU to our target, we sold the options for $15.00 and banked a 53% gain.

Microsoft Corp. (NASDAQ:MSFT): We went back to MSFT because it was still a stock that was working in this market. While we have played small moves, MSFT soon began to set up a really nice long-term pattern as it continued to move in this volatile market. That is the sign of a quality stock.

We saw MSFT break through the 200-day SMA and then test it on March 27. We put a play on the report over the weekend, just before MSFT broke higher on Monday, March 30. We then bought May $150.00 call options for $13.65. This was a nice move because the stock neared its high that day. During the next session, MSFT surged up to the 50-day SMA. As we watched, we saw the stock start to falter at that level. Since we had a solid gain in less than a full session, we opted to sell the options for $20.65 and bank the 51% gain.

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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:

EQT Corporation (NYSE:EQT)

As we have made money on EQT before, when we saw it break the downtrend and then consolidate that move at the 50-day MA, we prepared to move in when EQT broke higher once more. That break started on Thursday, April 2, when EQT gapped up from the 50-day MA. That was the move we were looking for.

At that moment, however, President Trump announced that Russia and Saudi Arabia had struck a deal to cut oil production. Since EQT is a gas utility, that news caused it to fade. We saw it show resilience, however, and when it moved back up, we moved in by buying stock for $7.72. EQT then moved up to near the target by the time that the market closed. On Friday, EQT opened higher and then bounced around quite a bit. As a result, we opted to sell the stock for $7.99 and bank a 3.5% gain.

Schrodinger Inc. (NASDAQ:SDGR)

Although this stock was a new issue in February, we saw SDGR consolidating after a good run in mid-March. Then, the fact that it was working laterally along the 10-day EMA and starting to move higher on March 30 was our signal to get ready. On March 31, SDGR jumped up off of the 10-day EMA. We then entered the play by buying stock for $44.15.

SDGR surged during the session and moved to just over $46 on the high. As we then saw the stock start to waffle, we sold our position for $46.09 and banked a 4.39% gain. It was a good thing that we did as SDGR faded that gain during the session. Currently, it is back to consolidating its gains.

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

MSFT (Microsoft–$157.71; -2.51)

EARNINGS: 04/29/2020

STATUS: We recently completed two short but solid trades on MSFT options. Specifically, the one that we did on Tuesday when the stock surged to the 50-day SMA gave us a nice gain. Why did we do another MSFT trade? We did so because MSFT can form an inverted head-and-shoulders pattern with a rally to $175 — or at least make a good show of it because that kind of rally would take it to the neckline. Nevertheless, this is the kind of move we are playing for because if the indices want to break higher from this short consolidation, MSFT will provide us with a good vehicle for us to make good money. If that occurs, we will move in because a run to the target will give us a 60% gain on the call options.

VOLUME: 77.927M Avg Volume: 64.828M

ENTRY POINT: $153.89 Volume=85M Target=$164.32 Stop=$157.09

POSITION: MSFT MAY 15 2020 150.00 Call — (53 delta)

To see the chart for MSFT, click here!

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4. Covered Call Options Play

Renewable Energy Group Inc. (NASDAQ:REGI) — Renewable Energy Group Inc. is currently trading at $19.42. The May 16 $20.00 Calls (REGI20200516C00020000) are trading at $2.45. That provides a return of about 19% if REGI is above $20.00 by the expiration.

Learn more about our Covered Call Tables here!

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