Invest and Trade Profitably with Jon Johnson

Weekender for 5/10

1. Market Summary

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

The Coronavirus Continues to Rage

– Stock indices edge higher and the NASDAQ puts in a new recovery high.
– While internals are a bit better, this is still a molasses-covered move for some, but not all, stocks.
– The number of jobless claims, the number of jobs lost and the number of deaths due to COVID-19 are all still huge.
– Productivity drops but does not tank.
– Again, earnings show lots of beats and lots of misses.
– The futures market has priced in the first negative interest rates in the United States by December.
– China tried to quietly patent the Gilead Sciences drug that may have killed some patients.
– Stocks moved higher, but not powerfully. We used the upside to bank some gains and close some positions. It would appear that we moved a bit early on some of them.
– The move has a lot of nothing to it. However, if it keeps moving, it will make us some money.

Stocks cut to the chase on Thursday, ignored the negative-to-modestly-higher futures and simply gapped upside by roughly 300 Dow points. It was nonetheless a volatile session as stocks sold off of the higher open, rallied to session highs by midday and sold into the last hour. We also saw a rebound late in the session that lasted into afterhours trading.

This produced a lot of movement that produced gains of 1% (or close to that). Meanwhile, the NASDAQ hit a new recovery high and its internals were a nudge better. While some stocks are surging (e.g. Docusign, Coupa Software, Peloton Interactive and the Atlassian Corporation), most are still acting like they are suffering from low testosterone during this move.

This was a bit worrisome, so we booted positions (such as Google) a bit earlier than we probably should have. In any event, stocks held most of the gains on Thursday — for a change.

Technical Analysis:

The indices, particularly NYSE indices like the S&P 500 and the DJ30, have mostly remained in lateral ranges over the past four weeks.

S&P 500: This index is trying to form a cup-with-handle base — an extended handle. If it works, it works. Thus far, it has not broken lower despite experiencing a failure after taking out some resistance. Currently, it is trying to build another break higher.

NASDAQ: After the NASDAQ gapped to a new recovery high, there was much rejoicing. Then, it traded back and forth around the high during the entire session and closed almost exactly where it had opened. This move makes three similar gaps in a row. While it is moving slower than a tortoise, the NASDAQ is making the grind higher.

NOTE: The figures and information above are from the 5/7 report.

Watch the Investment House Video For This Week Here!

NOTE: The video is from the 5/6 report. There was only one video this week.

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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:

Peloton Interactive Inc. (NASDAQ:PTON): Although this was a new issue with earnings due in the near future, we knew that PTON was selling machines and enjoying huge increases in their usage.

After the mid-April break higher, the stock started to test and started to put in the the dip. This led us to search for an entry. Then, the stock tested the 20-day exponential moving average (EMA) just over the 50-day moving average (MA), worked laterally and started edging higher on April 25. We put it on the report that weekend. PTON then moved higher and faded to test again. After it broke higher, we moved in and bought stock for $33.21 and July $31.00 calls for $6.60.

As PTON started March with a nice run at earnings, we sold half of the stock for $38.88 (a 17% gain) and half the options for $10.00 (a 51% gain) on the day that PTON released its earnings report. While we felt that earnings would be big, we had a nice gain on hand and decided to take some of it.

Indeed, earnings were big. PTON gapped higher and sat there at the open. As a result, we went ahead and banked more gains by selling half of the remaining stock for $44.30 (a 33% gain) and half of the remaining options for $14.25 (a 115% gain). We will see if PTON can continue upside.

Workday Inc. (NASDAQ:WDAY): Software was shaping up and forming several good patterns. WDAY was one stock we liked due to the double-bottom-with-handle that it formed by using the March low as the first bottom. With a double bottom, you could argue that WDAY had already tested the March low. The pattern certainly suggested that.

We put the play on the report on April 18 as the stock had started to come off of the low in the handle. WDAY was not done with the handle, however, and it continued to move back and forth. We picked up the play by buying some June $150.00 calls at $14.20 when the stock was at $151.49. The stock then bounced back and forth in a tight range as the end of April neared.

It broke higher to test into April 30. This move tried our patience, but it also held the pattern and support. Finally, WDAY started putting together a series of upside moves. A good opening week took WDAY to our initial target on Friday. At that point, we sold half of the options for $21.20 and banked a gain that was just shy of 50%.

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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:

Coupa Software Inc. (NASDAQ:COUP): We saw COUP gap over the 200-day simple moving average (SMA) and a three-and-a-half month down trend line in mid-April. With this strong move, we decided to wait for a test of the trend break to enter. COUP then rallied for a few more sessions and started to test in the second half of April. After it put in “the dip,” we put the play on the report during the weekend of April 25. On April 27, COUP broke higher.

So, we entered with June $170.00 call options for $15.30 when the stock was at $169.09. COUP gapped higher during the next session and then sold back to the 10-day EMA. After it held, it started the run. After it broke to a new high to start the month of May, it continued higher into Thursday.

Then, it gapped upside, rallied and started to fade. This is a classic indication that a run is going to at least pause after a solid move higher. As a result, we sold part of the position for $34.20 and banked a gain of 120%.

Atlassian Corporation PLC (NASDAQ:TEAM): We bird-dogged TEAM and put it on the watch list when it formed an inverted head-and-shoulders pattern from February into April. While this looked like a great setup, earnings were close at hand. With the S&P 500 bumping resistance and struggling to get through, we did not want to buy into earnings in most cases.

So, we waited. Eventually, TEAM announced that its earnings were not bad. However, the stock did not surge. Instead, it just held the line. Thus, we put the play on the report on May 2. After TEAM put in “the dip” on May 3, its stock shot higher on May 4. This gave us a point of entry.

We moved in with August $160 calls (we chose August since TEAM had announced earnings and we could let the position run) for $17.60 when the stock was at $160.78. We then saw a nice breakout when TEAM rallied into Friday. As a result, we sold half of the options for $30.00 and banked a gain of 70%.

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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:

Match Group Inc. (NASDAQ:MTCH): MTCH broke higher from an inverted head-and-shoulders pattern that it had formed off of the March selling. After a good move higher, it tested. So, we wanted to grab it off of that test for the next leg higher. This plan was both simple and straightforward.

On April 23, MTCH moved up off of the test of the 200-day SMA that it had broken through during the rally. We then bought stocks for $81.50. MTCH continued higher into April 27 and it appeared as if it would ring the bell for us when it eventually gapped higher.

MTCH then ran out of bids as it opened. After testing back to the 200-day SMA over the next two days, the stock did not get any new bids until the start of May. It bounced on May 4 and, with the aid of a pair of gaps, hit our target on May 6. We then sold the position for $85.18 and banked a 4.5% gain.

Peloton Interactive Inc. (NASDAQ:PTON): PTON was too good to pass up heading towards earnings. After all, it was testing the 20- and 50-day exponential moving averages (EMAs) after a nice break higher, earnings were coming and there was a lot of buzz about the stock.

We entered by buying stocks for $33.41 on April 27. After some more lateral movement at the stock’s support, it broke higher and rallied towards earnings. We sold the stock ahead of earnings for $34.63 and banked a 3.5% 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

LSCC (Lattice Semiconductor–$20.80; -1.71)

EARNINGS: 07/28/2020

STATUS: On Wednesday, LSCC broke higher from a 10-week inverted head-and-shoulders pattern with a gap and rally on strong volume. This was a nice earnings breakout that was part of a larger base that had started in January. Now, LSCC is now eyeing a breakout from that base as well.

LSCC sold back on Friday, closed near the 10-day EMA and pretty much just tested for the entire breakout day. Even if LSCC was just caught up in the Friday rush to the weekend selling, it is in a great position to resume the breakout move. If it does, it will be clear that buyers still want this stock. This fact is one of the reasons why we love playing rebounds off of breakout tests.

We plan to enter on a good break higher. A move to the target will give us a 20% gain on the stock and a 100% gain on the options.

VOLUME: 2.558M Avg Volume: 1.892M

ENTRY POINT: $21.16 Volume=2.8M Target=$25.48 Stop=$19.68

POSITION: LSCC JUN 19 2020 20.00 Calls — (64 delta) &/or Stock

To see the chart for LSCC, click here!

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4. Covered Call Options Play

Acadia Healthcare Company Inc. (NASDAQ:ACHC) Acadia Healthcare Company Inc. is currently trading at $24.70. The June 20 $25.00 Calls (ACHC20200620C00025000) are trading at $1.95. That provides a return of about 9% if ACHC is above $25.00 by the expiration.

Learn more about our Covered Call Tables here!

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