1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
Some Recovery Trading
– Recovery trading continued until the last hour.
– The NASDAQ’s leaders bounced nicely, but they also faded in the last hour.
– The announcement regarding President Trump’s Friday press conference on China spooked stocks late in the session. Predictably, U.S.-China tensions remain high for a number of reasons.
– The economic data remain terrible, but the market is looking at the openings that are going well.
– The NASDAQ’s leaders are set up, but they still need to prove that they can keep the NASDAQ trend going.
Initially, Thursday saw a continuation of the recovery trade, and it also saw a recovery in the tech leaders that were hit on Tuesday and Thursday as money flowed to recovery stocks once more. Now, money has begun to flow back into those tech leaders.
That was the case until the afternoon session. At 1:30 p.m. EST, the market hit a high that turned out to be the session’s high. Then, we saw a modest (i.e. normal) test after a good move higher on the session that was followed by a rebound to the final hour. At that point, however, sell programs hit the market after headlines announced that President Trump would hold a news conference regarding China on Friday. It wasn’t just tech that was hit. Rather, all sectors were impacted and the recent moves were sold. This meant that the quite solid tech bounces were pretty much negated. As a result, Wednesday’s recovery in those stocks remained problematic.
The late selling flipped all indices from positive to negative, though the small and mid-cap indices were substantially weaker during the entire session. Even with that turn lower, the indices mostly held their positions. Again, the small and mid-cap indices struggled the most. In the end, they gapped higher and then turned over and closed both down and at session lows. While there were not a lot of positives during the session, the entire week had a level of overall action that can be classified as “not bad.”
All indices started higher with openings that featured gaps. Then, they moved higher from there until the afternoon session. As noted, they tested and rebounded nicely. However, they were then harshly sold after the press conference on China was announced.
S&P 500: It gapped higher, moved up from there and then reversed to the negative late in the session. Here, we saw lower volume and narrower breadth. So, it appears that the S&P 500 is taking a breather after a good break upside.
NASDAQ: It started lower and then reversed upside to a new recovery high that was over 9,500. This was 50 points from filling the gap lower that was produced in mid-February. While the NASDAQ looked very promising, it soon reversed and sold to a loss. However, it is still over the 10-day exponential moving average (EMA) and remains in the trend, albeit on lower volume. While it held the steady rise, the day failed to sustain the Wednesday reversal off of the Tuesday and early Wednesday selling. That remains the next step.
NOTE: The figures and information above are from the 5/28 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:
Docusign Inc. (NASDAQ:DOCU): My barber always wants stock tips from me when he cuts my hair. Interestingly, he still wants cash tips as well. In late March, I told him about DOCU, how it had formed an inverted head-and-shoulders pattern (a very solid accumulation pattern in this market) and that it was ready to break out. Yes, we were still cutting hair in Texas at the time. I saw him again this past week and asked him if he had bought it. He said that he had watched its value rise.
Yes, DOCU has consistently won for us. We played this stock in early April and again later in the month as it tested the breakout from the pattern. We moved in on April 22 as it came up off of its breakout test and bought June $100 call options for $10.40 when the stock was at $102.12.
This was a pretty clean play as DOCU held the 10-day EMA for the entirety of the move. On May 20, DOCU started showing signs that the leg was tiring as it would surge higher and then back off of much of the move. After it did that for three straight sessions, it then gapped upside again. However, it did not move past the prior session’s high. This told us that DOCU was due for a pullback. At that point, we pulled the trigger, sold the options for $33.00 and banked a 217% gain. As DOCU is currently testing, we will see if it gives us another good entry.
Here is one completed trade from Technical Traders Alert, offering insights into our trading strategy and the target that we have hit this week:
Zscaler Inc. (NASDAQ:ZS): ZS is always a favorite because it sets up nicely and delivers good moves. In early May, we saw ZS setting up a break higher off of a three-week consolidation at the 20-day EMA. It had previously formed a base from late February to April and then broke higher in April.
After it made a test that caught our eye, we put it on the report. On May 5, the fact that ZS made the break higher signaled our entry. Thus, we bought June $70.00 calls for $7.40 when the stock price was $71.24. As earnings were scheduled for May 28, our plan was to capture a rally toward their release.
ZS moved up nicely until mid-May, flattened out for a week and then broke higher on the Tuesday after Memorial Day. It then gapped higher and stalled. Given that we were looking at a pre-earnings run play, we sent an alert to sell the calls. As they were sold for $12.70, we produced a gain of 71% on the run. Of course, ZS reported big results and gapped higher by 20%. Oh well, that was not the play this time.
There were no trades in the Success Trading Group this week.
However, 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
WIX (Wix.com — $205.96; -3.79)
STATUS: WIX was down on Tuesday and Wednesday, but then saw a nice intraday tap at the 10-day EMA followed by a rebound. WIX also demonstrated strong volume as it surged up off of that near support tap. After it broke out from a 2.5-month base in early May, the stock paused for two sessions and then surged again.
This test is the one we want to use as an entry point if WIX can continue the Wednesday rebound from the 10-day EMA test. If it can, the momentum on the breakout will remain present. A move to the target will give us a gain of 65% on the options.
VOLUME: 1.34M Avg Volume: 1.073M
ENTRY POINT: $209.81 Volume=1.5M Target=$229.89 Stop=$203.14
POSITION: WIX JUL 17 2020 210.00 Calls — (49 delta)
4. Covered Call Options Play
Celsius Holdings Inc. (NASDAQ:CELH) — Celsius Holdings Inc. is currently trading at $8.69. The July 18 $10 Calls (CELH20200718C00010000) are trading at $0.40. That provides a return of about 30% if CELH is above $10.00 by the expiration.