Invest and Trade Profitably with Jon Johnson

Weekender for 6/12

1. Market Summary

Stocks Open Lower

– Stocks open lower, try to rebound upside and then fold.
– The afternoon selloff takes indices below the lateral consolidation.
– The Fed ignores facts of the U.S. citizen’s net worth. Gasoline national average hits $5/gallon for the first time.
– Consumer Price Index (CPI) and Michigan sentiment were released on Friday. Market rescue? Likely not.
– Shipping loads and container prices suddenly drop.

What was it we were discussing about the longer a lateral move takes to make its break, the more likely it does break … lower? While the indices still looked fine in their consolidation, there were indications, e.g. DJ20 diving lower and the S&P 400 tossing back a nice upside break.

These are smaller indices, however, so perhaps they are not really a leading indicator for the overall market. Well, this was not the case this time. The indices followed them down, but it was not right off. There was a weaker open for sure, but saw a rally into 10:30 ET. That flipped, came back to the opening levels and again started to recover into early afternoon.

At that point, however, the bottom opened up and stocks plunged lower. Every index but the Russell 2000 (RUT) broke below its respective seven-session lateral consolidation. They didn’t even wait for the CPI much more or the core that everyone is enamored with because … it does not include food and energy, the two components that are killing the consumer. Not that rents and health care are good. But hey, you can buy a used car cheaper.

NOTE: The figures and information above are from the 6/9 report. There were no videos this week.

2. Targets Hit

At some point, the market psyche will shift as it prices in a more serious bear market. That may change sooner than later, as the market factors in the rate of change versus just a “technical” recession.

What does that mean?

As with interest rates, it is not necessarily the actual percent rate, but how fast the rate changes, the delta, that matters. If rates are at 1% for years and then move up to 3% quickly, that will stymie activity. Similarly, the economy may still be positive in terms of gross domestic product (GDP) growth, but it is falling rapidly as inflation continues to rise rapidly, much faster than wages. Indeed, wages have been negative for 14 consecutive months.

Consumer credit revolving debt has exploded higher over the past seven months, exploding the myth that the consumer is “well-positioned” and has “trillions to spend” to support the economy. The end game: the market starts factoring in a more serious recession with a more serious bear market. When that happens, even the leaders thus far start to fail, e.g. oil stocks.

That being the case, we opted to bank some gains in our energy positions over the week. A highlight was W&T Offshore, Inc. (NYSE: WTI). We sold the stock for $7.82 after we bought the position for $5.33 to produce a 46.7% gain. We sold our July $5.00 call options for $2.81 after we bought them for $1.00, banking over 180%.

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Though it won’t last forever — it never does — energy continued its returns this week. As those stocks moved higher with good runs, we took some gains off of the table. Below are a few of those trades:

United States Oil ETF (NYSEARCA: USO): 141% gain in the options.

Valero Energy Corporation (NYSE: VLO): 52.8% gain in the options.

Exxon Mobil Corp. (NYSE: XOM): 85% in the options.

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There were no new trades in the Rapid Profits Stock Trader this week.

Now is a good time to become a member of Rapid Profits Stock Trader. 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. Covered Call Options Play

Harmonic Lightwaves Inc. (NASDAQ: HLIT) — Harmonic Lightwaves Inc. is currently trading at $9.67. The July 15 $10 Calls (HLIT20220715C00010000) are trading at $0.20. That provides a return of about 8% if HLIT is above $10 by the expiration.

Learn more about our Covered Call Tables here!

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