Weekender for 5/9
1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
Stocks Fall From the Open
– Stocks fall from the open, recover and repeat the cycle with a big, last-hour short covering surge.
– Since Friday was jobs report Friday, shorts had to cover some stocks in the event of a strong report after a week of selling.
– The initial jobless claims figures were solid and foretold a strong jobs report. So, we decided to see how the market liked or disliked it.
After roughly a week of selling on the Nasdaq and PHLX Semiconductor Sector (SOX) and a rather calm pullback on the NYSE indices, stocks were close to flat ahead of the open. It looked as if they might present a calm session ahead of Friday’s April jobs report.
Then, the market opened. Stocks fell at the open, coughed up the premarket calm and fell yet again. For much of the first hour of trading, the indices sold after holding out for the possibility of a bounce. Okay, the DJ30 was never in danger all week. The other indices, however, opened and then dropped. It looked like more of the same from earlier in the week: attempts at upside proved futile.
After that additional drop, however, stocks held a support level and bounced. For the S&P 500, this was the 20-day exponential moving average (EMA), for the Nasdaq, this was the 50-day simple moving average (SMA) and for the SOX, this was the 78% Fibonacci retracement. Meanwhile, the S&P 400 tapped the 20-day EMA again.
NOTE: The figures and information above are from the 5/6 report.
Watch the Investment House Videos For This Week Here!
NOTE: The videos are from the 5/5 report.
2. Targets Hit
Here are three completed trades from Investment House Daily, offering insights into our trading strategy and the targets that we have hit this week:
Exxon Mobil Corporation (NYSE: XOM): It was easy to see that the oil stocks were setting up for new moves higher, given their March and April patterns. The big names were the stronger members of the group, even though we expected to see smaller names form up as well.
We were watching XOM as it formed up its pattern along the 50-day moving average (MA) in a shallow cup base that formed to consolidate the nice February to mid-March rally. We put the play on the report on April 14 as it looked like it was bouncing from the 50-day MA, but we did not enter until April 28. This was when XOM made a clear break higher and cleared the interim highs in the pullback — that is always a good signal to enter.
We bought July $57.50 call options for $2.60 when the stock was trading at $58.25. XOM continued higher during the next session, tested the 10-day EMA during the following one and then powered higher from there. On Friday, XOM reached the March highs. This was both the top of the prior rally and our initial target. So, we stuck to the plan and sold half of the position for $4.66. This allowed us to bank a 79% gain.
We also banked gains this week on the following positions:
Pfizer Inc. (NYSE: PFE): 101% gain in the options
Freeport-McMoRan Inc. (NYSE: FCX): 13.5% gain in the stock, 50% gain in the options
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Here are two completed trades from Technical Trader Alert, offering insights into our trading strategy and the targets that we have hit this week:
Etsy Inc. (NASDAQ: ETSY): We saw the obvious rollover setup for ETSY when the stock formed a large rounded or “umbrella” top from January to May. Yes, there was a lot of back and forth in the pattern, and yes, we do play some moves inside that pattern. However, you also need to keep an eye on the bigger picture, not just the day-to-day movement.
Thus, when ETSY fell below the 50-day MA again during the second half of April, we watched to see how it would test that breach. Would it rebound on through and proceed back to the top of the range, or, after four months of struggling in the range, would it break?
We saw it crack on April 30 and put it on the report for the weekend. Then, ETSY continued lower, and we entered with June $195 put options for $17.80.
ETSY continued lower and gapped below the 200-day SMA and the January low. Since that move hit our target, we sold the options for $32.35 and banked an 81% gain.
We also banked a gain in the following play:
Schnitzer Steel Industries, Inc. (NASDAQ: SCHN): 65% gain in the options
3. Pick of the Week
MRO (Marathon Oil — $11.70, +0.37)
EARNINGS: 05/05/2021
STATUS: Double-bottom-with-handle pattern. After a five-week rally from the start of February to early March, MRO backed off to the 50-day MA and 61% Fibonacci retracement. Then, it formed a double-bottom pattern at that support. It rallied into last week, matched the “hump” in the pattern on the high and then faded back to the 20-day EMA into Tuesday. This formed the handle.
On Wednesday, MRO started upside, but the volume was weak. Even so, if MRO can continue higher through the entry point and energy can remain solid, we are ready to move in. A rally to the target will give us a gain of 16% in the stock and a near 100% gain in the options.
Volume: 13.013M Avg. Volume: 22.147M
ENTRY POINT: $12.01 Volume=30M Target=$13.98 Stop=$11.36
POSITION: MRO JUL 16 2021 $12.00 Calls (53 delta) &/or Stock
To see the chart for MRO, click here!
4. Covered Call Options Play
Rada Electronic Industries Ltd. (NASDAQ: RADA) — Rada Electronic Industries Ltd. is currently trading at $12.35. The May 21 $12.50 Calls (RADA20210521C00012500) are trading at $0.40. That provides a return of about 7% if RADA is above $12.50 by the expiration.
