Invest and Trade Profitably with Jon Johnson

Weekender for 5/17

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

The Market Limps Along

– Stocks start lower again, reverse to quite decent gains and see quite low volume and breadth.
– The DJ30 and the S&P 400 held at the 50-day exponential moving average (EMA) and the PHLX Semiconductor Sector (SOX) held at the 200-day EMA. The key, however, was the NASDAQ, and it bounced up off of the 20-day EMA.
– The same leaders of this last rally held well and are setting up again. Banks are trying to add some upside life.
– Friday was when many May options expired, and the market had to show that the leaders were going to make good moves. If they were able to do so, we can pick some up. However, I would prefer to see how Monday trades after this week’s action.

On Wednesday, the NASDAQ tested the 20-day EMA on the session low, and it held. While the S&P 500’s second failure at around 2,930 was important, the NASDAQ is the market leader. The manner with which it will respond to the 20-day EMA — a level it used as support during the last two fades of this rally — will be the key.

On Thursday, stocks opened lower and continued a hangover from the trio of negatives that was made up of “rich guys” being down on the market, Chairman Powell being a downer and the potential for a new dust up with the COVID-19 creator. The news on Thursday did not help, with jobless claims beating expectations at 2.98 million versus the 2.7 million that was expected (though New Jersey may have skewed the numbers by a factor of 10 with a fat-finger entry). Moreover, the World Health Organization (WHO), the bastion of truth and clarity with regards to all things viral, said it could be five years before the world gets COVID-19 under control. It will certainly take the WHO that long to regain any credibility. These were not great stories.

An interesting story, and one that perhaps helped during the session, was the reported step undertaken by the Federal Reserve. During the past two trading sessions, the Fed purchased $305 million in exchange-traded funds (ETFs). I never thought that I would see the day that the U.S. Federal Reserve bought equities. It seemed to help stocks during the day — even banking stocks showed life.

Technical Analysis:

Even with the bounce, not a lot changed for the NYSE indices.

S&P 500: It went down early, recovered to positive figures and saw a nice move after 2.5 days lower.

NASDAQ: It gapped lower, saw a slight undercut of the 20-day EMA and then produced a rebound off of that support. This trajectory is very similar to the prior two times where the NASDAQ tested. While volume was lower, it still remained average.

NOTE: The figures and information above are from the 5/14 report.

Watch the Investment House Videos For This Week Here!

NOTE: The videos are from the 5/13 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): Here, we chose to play a breakout and then let a trend that formed off of that breakout produce big profits. I used to hate it when my mentors would tell me to “let your winners run.” Sure, that sounds great, but how do you know that they will run? Well, you learn about patterns, trends and economics — at some point, it becomes clear. CRWD is the way.

We saw it break serious resistance in late March as CRWD recovered from the selloff. As we were watching that movement, we moved in and bought some stock for $56.55 and some May $55.00 call options for $6.90. CRWD worked higher into the end of March and then tested for half of April. It trended higher into the middle of the month and hit our initial target. We then sold half the stock for $65.55 and banked a 15.9% gain. We also sold half of the options for $11.30 and banked a 63% gain.

Then, we sat back and let the trend work. CRWD kept working higher through April and then tested late in the month. It held near the support at the 20-day EMA and started back upside in May. Thus, we decided to let CRWD work up the 10-day EMA into expiration week.

CRWD bounced up and faded. Then, it moved up and faded. On Friday, it bounced up again. So, we sold the remaining options for $23.40 and banked a gain of 239%. We are letting the stock run, and it is up about 40% at this point.

Lululemon Athletica Inc. (NASDAQ:LULU): Retailers, at least those that are not all online, were somewhat scorned in the selloff and during the following lockdown. LULU, however, is a retail powerhouse and has a strong online purchasing dimension alongside its storefronts. We watched LULU work laterally along the 200-day simple moving average (SMA) as it recovered off of the selling and tested a good break higher. Then, we decided that we wanted to get in on the next leg higher. On April 27, LULU started a solid move.

We bought June $220.00 call options for $19.70 when the stock was at $221.88. LULU then moved higher into April 29. It then stalled, however, and tested back to the 20-day EMA to start the month of May. LULU held and started a nice and steady rally into this past week. We saw great moves into Monday, and then LULU gapped higher on Tuesday. Although it rallied some more, it then started to struggle. The market was up for a week, as was LULU. We decided to cash in our gains by selling the options for $31.50. This produced a solid 59.9% gain.

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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:

FedEx Corporation (NYSE:FDX): With the lockdown, it would seem that shipping companies would perform well because most transactions have moved online. Even so, Amazon somehow managed to look weak.  Indeed, from early April, it set up a head-and-shoulders topping pattern — “the three mountains” in candlestick parlance. On the other hand, FDX broke the 50-day moving average (MA) to start the month of May, tested it on May 5 and broke lower during the next day.

We moved in and bought put options for $9.45. Although FDX tested a bit more, it started to break lower this past Tuesday. Although we saw some nice moves down into Thursday, FDX then rebounded with the late market recovery. On Friday, FDX started lower, but was not selling hard at all. Given the late Thursday recovery, we decided to go ahead and bank the gains. Thus, we sold the options for $13.30 and obtained a 40% gain. This is not as much as we wanted, but it was solid enough.

SPDR Gold Trust (NYSEARCA:GLD): With regards to precious metals and the more staid trades, you often have to let them work. Gold is trending higher as the Fed is announcing program after program and the government is pushing more and more stimulus. Gold makes sense in both the short-term and the long-term. On April 2, GLD gapped upside off of the 50-day MA. As a result, we entered with May $150.00 call options for $6.55 when the stock was at $151.74.

GLD moved nicely into April 6, paused for a couple of days and then gapped higher on April 9. Here, it hit our initial target. So, we stuck to the plan and sold half the position for $10.45 and banked a gain that was just under 60%. After we let the other half run, GLD did move a bit higher into mid-April. After that, it underwent a long slumber.

After GLD formed a pennant using the 20-day EMA, we decided to see if the pennant would resolve upside before the options expired. Although we waited quite a while, GLD moved up nicely during this past week and broke higher from the pennant. On Friday, GLD opened higher with a gap and did not go anywhere. So, we sold the rest of the options for $13.70 and banked a gain of 109%.

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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:

Advanced Micro Devices, Inc. (NASDAQ:AMD): We always like to play AMD because it gives us good solid short-term moves. AMD set up a cup-with-handle base from mid-February through late April. However, it could not make the break higher. Instead, AMD faded to the 50-day EMA at the start of May. Even so, this was not a bad place to buy.

Then, AMD moved laterally into the third week of May and started higher on May 11. After we moved in and bought the stock for $54.85, AMD closed at over $55.50 at the end of the session. On May 12, AMD gapped upside. Then, it started to falter with the rest of the market. Since AMD had given us a good and quick gain, we sold the position for $56.55 and obtained a 3.1% gain.

Cloudflare Inc. (NYSE:NET): A market leader for certain, NET gapped upside last Thursday with a strong move and a new high. On Friday, it gapped lower, but held the 10-day EMA with a doji. We began looking earnestly at NET because it looked as if it was just caught up in some profit taking. On Monday, NET started back upside and held the move. On Tuesday, it started upside again, and we moved in and bought the stock for $28.66.

NET surged up to $30.24 and reached a new all-time high. We loved the action, and it was holding the gain toward the close. We anticipated hanging on to it, but sellers entered the market in the last half hour. Since we had a good gain, we decided to bank it. That is, we sold the stock for $30.10 and banked 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

TEAM (Atlassian Corporation–$176.00; -0.59)

EARNINGS: 07/30/2020

STATUS: A nice breakout in early May took TEAM out of a three-month base that also formed an inverted head-and-shoulders pattern as part of the consolidation. A nice strong break was followed by a rally that lasted until late last week.

TEAM then tested from Friday to Tuesday and showed a pair of doji this week. The 10-day EMA is rising to meet the stock as it has paused its breakout move. While it may take another session or two, we want to be ready for when TEAM breaks back upside. A move to the target will give us a 60% gain on the options.

VOLUME: 1.547M Avg Volume: 1.947M

ENTRY POINT: $180.22 Volume=2.5M Target=$199.98 Stop=$174.31

POSITION: TEAM AUG 21 2020 180.00 Calls — (49 delta)

To see the chart for TEAM, click here!

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4. Covered Call Options Play

First Majestic Silver Corp. (NYSE:AG) First Majestic Silver Corp. is currently trading at $7.90. The June 20 $8 Calls (AG20200620C00008000) are trading at $0.65. That provides a return of about 9% if AG is above $8.00 by the expiration.

Learn more about our Covered Call Tables here!

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