Invest and Trade Profitably with Jon Johnson

Weekender for 5/24

1. Market Summary

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

One Step Forward, Half a Step Back

– We are back to the old pattern of a break higher one day, a step back the next day.
– It’s all a matter of perspective. A headline said that the NASDAQ was down two of three sessions, but failed to mention that it was up four of the last six.
– The NASDAQ takes a step back, but its internals are consistent with its move higher.
– There are still plenty of quality stocks and setups forming up.
– Shutdowns and the wrong kind of stimulus keep the number of jobless claims high.

We are back in “the pattern:” a solid day higher and then a fade on the next day. At the same time, the fade does not cover all of the prior moves. On Monday, the Dow was up 900 points. On Tuesday, it was down 300 points. On Wednesday, it was up 370 points. On Thursday, it was down 102 points. See the pattern? While all of this is frustrating for those who were accustomed to trade higher each session, it is not a bad course of action at all. The indices are still trending higher and breaking to higher recovery highs (especially the NASDAQ, S&P 500 and the PHLX Semiconductor Sector (SOX)). The market’s leadership is doing the same. While there was some back and forth inside each trend, they are all trending upside this week after range-trading.

Humorously, I happened to look up at the televisions in the office, which are tuned to various financial and news stations. Recently, I saw a headline which stated that the “NASDAQ is down two of three sessions.” It sure was, but it was also up four of six sessions in a rally off of a 20-day exponential moving average (EMA) test. Indeed, it had also moved to higher recovery highs along the way. As with so many “statistics” you see today in this absurd area we still call “news reporting,” it is all about when you take the sample. That headline — while true — was as misleading as noting that a track athlete had lost two of his last three meets — but the one he won was the one at the Olympics. While he lost the majority of his races, he is also an Olympic champion. There is a slight difference between the two.

Yes, the indices — the large-cap ones — were lower on Thursday. Meanwhile, the S&P 400 and the Russell 2000 Index (RUT) added another upside day, though it was slim. They have been up five of six sessions, but they are still not breaking to a new recovery high. It is all about context.

Technical Analysis:

S&P 500: It broke to that higher recovery high on Wednesday, opened lower on Thursday and tested that high. However, it faded. All of this was very lackluster — as all the moves have been.

NASDAQ: It was sluggish all session. It did crack to a new recovery high intraday, but could not hang on as the big names started to fade. Thus, we saw a lower volume and a relatively narrow breadth. This was a good move to a higher recovery high as the up-down, up-down pattern has resumed.

NOTE: The figures and information above are from the 5/21 report.

Watch the Investment House Videos For This Week Here!

NOTE: The videos are from the 5/20 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:

Spotify Technology SA (NYSE:SPOT): SPOT gapped higher on earnings in late April. It then started to test the gap right after the move and came back to the 10-day EMA to start the month of May. It held nicely at that near support, so we put the play on to catch the continued breakout run. On May 6, SPOT broke higher. That was our entry signal.

We moved in with July $150.00 call options for $10.05. SPOT moved smartly higher into May 12 and then tested in a one-two-three pullback into May 14. It tapped the 20-day EMA intraday and then reversed upside to close in the black. From there, it was all positive. SPOT rallied during the next session and held the gain. On May 18, SPOT hit our initial target. Thus, we sold part of the position for $16.50 and banked a gain of 84%.

Then, SPOT got down to business. It surged 14 points during the next session and then added another 14 during the next one. On Thursday, SPOT surged to $196.75 and then started to falter. Since we figured that it could not get much better than this on this leg, we sold the rest of the calls for $44.10 and banked a 338% gain.

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Here is one completed trade from Technical Traders Alert, offering insights into our trading strategy and the target that we have hit this week:

Walmart Inc. (NYSE:WMT): This is a virus-winning stock because it was one of the few that was anointed as “essential.” Thus, WMT was essentially printing money in the back room. However, we saw that the stock was moving in a flat line along the 50-day EMA. Thus, we wanted to play a renewed break higher. On May 12, WMT started higher. So, we moved in with June $125.00 calls for a rally toward the prior high from April. We bought the calls for $4.85 when the stock was at $125.31.

WMT faded back some of that move and then rallied the next day. Then, it faded again. Since it was still holding its support, we let it work. The good news was that it finally started making upside moves stick on Friday and Monday. On Tuesday, WMT gapped higher on earnings that we knew would be strong. Actually, it gapped up to kiss the April high and started stalling. Since that was the move we were looking to play, we sold the calls for $7.80 and banked a gain of 60%.

Receive a risk-free trial to Technical Trader and save 50% by clicking here now!

Here is one completed trade from the Success Trading Group, offering insights into our trading strategy and the target that we have hit this week:

Schrodinger Inc. (NASDAQ:SDGR): We like SDGR because it had already made us money on another trade that we enacted when we saw it test a mid-May break higher. More recently, SDGR moved to a new high on a breakout from a two-month base and then faded to test the 10-day EMA.

After it started higher, it broke to a new high on May 19 and cleared its base. As a result, we moved in and bought stock for $61.22. Then, SDGR enjoyed a strong session and surged higher. So, we opted to close the position for $64.46. This allowed us to bank a 5.28% 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.

To receive a risk-free trial and save 50%, click here now!

3. Pick of the Week

BYND (Beyond Meat–$130.03; -4.13)

EARNINGS: 08/04/2020

STATUS: BYND tested during the past four sessions after a nice gap and rally that occurred during the first week of May. BYND gapped over the 200-day simple moving average (SMA) on May 6 and rallied into the early part of last week. This was a nice earnings run. It is now testing near the 10-day EMA at $126 on lighter volume. While we saw strong volume on the breakout and rally, we also noticed the presence of light trading as the stock was consolidating on some profit-taking.

We want to be ready to step in as BYND finishes the test and then starts upside again. That is, we want to see the stock hold the break higher over the entry point in order to move in. A rally to the target will give us a gain of 15% on the stock and 65% on the options.

VOLUME: 8.032M Avg Volume: 9.6M

ENTRY POINT: $137.03 Volume=14M Target=$159.78 Stop=$129.36

POSITION: BYND AUG 21 2020 140.00 Calls — (53 delta) &/or Stock

To see the chart for BYND, click here!

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4. Covered Call Options Play

Tempur Sealy International Inc. (NYSE:TPX) Tempur Sealy International Inc. is currently trading at $59.03. The July 18 $60 Calls (TPX20200718C00060000) are trading at $5.30. That provides a return of about 12% if TPX is above $60.00 by the expiration.

Learn more about our Covered Call Tables here!

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