1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
Small-Caps and Mid-Caps Post Another Solid Session
– Small-caps and mid-caps post another solid session to lead stocks. The Nasdaq and the PHLX Semiconductor Sector (SOX) had the momentum but could not make the moves.
– The economic data dump appeared to be market-friendly, as stocks rose after the figures regarding gross domestic product (GDP) and durables appeared.
– GDP rose by 6.4%, core durables rose by 2.5% and home prices surged. Yet, we need $1 trillion in infrastructure (the Republican proposal) and a $6 trillion Biden budget. Break out the bananas for the heads of the banana republic!
– We only thought that Modern Monetary Theory (MMT) was insane. This did not scratch the surface.
Thursday looked like it was going to be another session where the indices were going to make some headway and put some dents into the resistance that they have struggled against for the past two to three weeks. Futures were up on the DJ30, and after the morning data dump regarding GDP, durable goods and jobless claims, the S&P 500 joined the DJ30 upside. Meanwhile, the Nasdaq was chopping off big chunks of downside as the opening bell neared. It looked like the Nasdaq and SOX were going to finally overcome that January 2021 peak.
As they say in sports, however, you still have to play the game. Sure enough, stocks coughed and sputtered at the opening bell and dropped right back down in the first 20 minutes of trading. In this market, however, volatility is second nature.
This was not necessarily the volatility as measured by the Chicago Board Options Exchange’s CBOE Volatility Index (VIX), but the day-to-day and intraday volatility that the VIX does not pick up that well. Stocks roared back, faded and rebounded back to the morning recovery high. Then, they fell into the close during the afternoon session.
NOTE: The figures and information above are from the 5/27 report.
NOTE: The videos are from the 5/27 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:
Tellurian Inc. (NASDAQ: TELL): Despite the seemingly growing public disdain for fossil fuels in some parts of the country, investors still love them. TELL develops low-cost liquefied natural gas projects that aim to provide low-cost, cleaner-burning natural gas. It also provided us with an excellent opportunity to take a low-priced stock and turn it into double-digit-percentage gains in two weeks.
TELL trended lower in a channel after it peaked a move in January. In late April and early May, we spotted a telltale sign that an upside move could be imminent. Specifically, after a regular move up and down from the upper trend line to the lower trend line in the channel, TELL held the midpoint of the channel and started to work laterally.
If you draw these channel lines on a piece of paper, this action leaps out at you. As a result, the stock should go onto your upside watchlist.
After we put TELL on the list, we saw it stirring and building some volume in mid-May. Then, TELL broke higher from the channel. That was our entry signal. So, we bought the stock for $2.39.
TELL stepped right upside and hit our initial target. As a result, we sold half of the stock for $2.98 and banked a 24.9% gain. Then, we let the other half run. TELL continued to rise over $3.
On May 27, TELL gapped higher to near $4. While we let it work for another session, the stock stalled again on Friday. So, we banked another half of the gains by selling a quarter of the stock for $3.95. This produced a 65% gain.
Here is one completed trade from Technical Trader Alert, offering insights into our trading strategy and the target that we have hit this week:
Goldman Sachs Group Inc. (NYSE: GS): We saw GS setting up a seven-week cup-with-handle base after rallying to a new high in March. We put it on the report, and when it started breaking higher and showed that it was holding that move, we entered the play.
On May 5, we purchased July $350 call options for $17.45. GS stepped nicely higher on the breakout to our initial target. Thus, on May 7, we sold half of the position for $28.50 and banked a nice 63% gain.
Now, when a stock sets up this kind of nice pattern and makes a breakout move, it will rally, test for a few days and then rally back upside. GS did that, as it rallied again during the next session. Then, it fell back down to the breakout point. It stopped at the 20-day exponential moving average (EMA) and rebounded right back up.
Then, it was as if the financial sector lost interest, or at least lost investors. GS didn’t get sold, but it did not advance past the prior highs. After two separate tries, it sagged back each time. Since Friday marked the end of the month, stocks were higher. However, GS was just flat and was holding near the highs from May.
The fact that it was not participating in the upside on an upside day was not great. It had formed a three-week lateral wedge, and such a pattern is problematic — it can break lower just as easily as it can break higher.
We decided to go ahead and sell the other half of the options for $26.30 and bank a 50% gain. We did this with the idea that, if GS could break higher from this current three-week wedge again, we would enter and participate in the new upside momentum.
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:
BioCryst Pharmaceuticals, Inc. (NASDAQ: BCRX): Since this stock made us money on a surge in April, we were watching it again for another surge, particularly after a nice two-week test from mid-May brought BCRX back to the 10-day EMA.
In general, a stock that is trending higher will rise and fall off of the 10-day or 20-day EMA and will use those lines as support to launch a series of rallies. After four or five such moves, it will test back toward the 50-day moving average (MA). If all remains well, it will restart the sequence.
This past week, BCRX showed us the culmination of that action: a nice, low-volume fade toward the 20-day EMA, its second test of that level since leaping off of the 50-day MA in early May, a gap lower on Wednesday, a move close to the 20-day EMA level and then reversing for a modest gain.
Since the stock was set, so were we. On Thursday, BCRX started higher. This was our signal to move in. We bought the stock for $14.30 on Thursday morning. In the early afternoon, BCRX hit our initial target. We then sold the stock for $14.89 and banked a 4.1% 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.
3. Pick of the Week
MSFT (Microsoft–$251.49, -0.22)
STATUS: MSFT bounced higher off of a second bottom last week after a gap lower from earnings in late April. It then faded, bounced and tested a week later. At this time, it put in that second low. After a break higher cleared the 50-day MAs, the stock then threw a couple of dojis.
Right now, it looks as if MSFT is starting to form a handle pattern. While we will let it test, we will also be be ready to enter if MSFT breaks higher without much rest. A move to the target will give us a 50% gain in the options.
VOLUME: 17.772M Avg Volume: 25.779M
ENTRY POINT: $252.96 Volume=30M Target=$261.44 Stop=$250.14
POSITION: MSFT AUG 20, 2021 $250.00 Calls — (56 delta)
4. Covered Call Options Play
Endeavour Silver Corp. (NYSE: EXK) — Endeavour Silver Corp. is currently trading at $7.25. The June 18 $7.50 Calls (EXK20210618C00007500) are trading at $0.40. That provides a return of about 10% if EXK is above $7.50 by the expiration.