1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
Smoking Hot Consumer Price Data Fuels Stock Upside
– Smoking hot consumer price data fuel stock upside.
– The S&P 500 punches out a new high, thanks to some big tech names.
– Weak volume and weak breadth belie the upside. That is, we saw a break to a new high, but it was almost an “excuse me” move, as the moves remained mediocre.
– Some important breakdowns in machinery have called the upside move into question. So, the indices still have to show their next hand after moving up to near the prior highs.
With the surge in the Consumer Price Index (CPI), the stock action was fairly solid. Even so, the S&P 500, DJ30 and S&P 400 were still underwhelming. Sure, the S&P 500 punched a new high and managed to hold it, even though it backed off of the high. However, the new high meant no new upside power.
The surging CPI was apparently not a problem, at least for the session. This upside came even with May consumer prices spiking above expectations on both the overall and the core. Year-over-year levels hit 5% (a high since August 2008) and 3.8% (a high since January 1992), respectively. Used car prices continued to surge (a 7.3% gain on top of a 10% gain in April), making up a large part of the CPI gain.
Okay, one item is not that big of a problem. The problem is in owners’ equivalent rents, which make up 40% of the overall CPI. That is a critical pricing level for consumers, and it is gobbling up more and more of many people’s incomes.
NOTE: The figures and information above are from the 6/10 report.
NOTE: The video is from the 6/9 report.
2. Targets Hit
Here are two completed trades from Investment House Daily, offering insights into our trading strategy and the targets that we have hit this week:
BioCryst Pharmaceuticals, Inc. (NASDAQ: BCRX): For a while, biotech stocks were somewhat forgotten. In the post-COVID-19 world, it seemed like investors wanted to look at something more positive in terms of economic growth, returning to travel, etc. While that happened, some of these stocks had set up nicely, and we were watching. We always are.
BCRX broke higher in mid-May and approached the peak of a two-month base that it formed along the 50-day moving average (MA). BCRX made it up to the peak of the base and then faded in a very tight, narrow, week-long flag pattern. It then came back to the converging 10-day and 20-day exponential moving averages (EMAs).
We put BCRX on the report as it started to test the 10-day EMA. On May 27, BCRX broke higher, which gave us the signal to enter the play. We bought stock for $14.28 and September $14 call options for $2.85. BCRX rallied into early June and then started to level off and consolidate the breakout.
This week, BCRX broke higher, even if it was just for one day, touching our initial target on June 7. We sold the stock for $16.92 and banked an 18.5% gain. We also sold the options for $4.50 and banked a solid 57% gain.
We also took a gain in the following position:
Patterson-UTI Energy, Inc. (NASDAQ: PTEN): 18.8% gain in the stock, 42% gain in the options.
Here are two completed trades from Technical Trader Alert, offering insights into our trading strategy and the targets that we have hit this week:
Stitch Fix Inc. (NASDAQ: SFIX): SFIX was one of the market’s darlings into early 2021, but as the new year started, many of the favorites in retail, tech and other growth stocks hit a wall — a wall of too much success. Since they needed to form a base, that is exactly what SFIX did.
The stock peaked and sold through the spring and into early May, punching out new lows as it did. The last couple of lower-price bottoms, however, were accompanied by higher lows in moving average convergence/divergence (MACD), which was an indication that momentum was turning.
Indeed, SFIX did come up off of the lows. After a slow move, it made it to the 200-day simple moving average (SMA) in late May. After it made a move over the 200-day SMA on May 26, we put it on the report.
During the next session, SFIX continued the move. That was our signal to enter. We bought July $50 call options for $8.60 when the stock was trading at $53.95. SFIX paused for two sessions, surged, paused for two sessions and surged again. That was the day before earnings, and SFIX was bumping our initial target.
So, we opted to sell half of the position for $12.25 and bank a 42% gain. This means that we rode half of the position into earnings. The results were favorable, and SFIX gapped higher to open at $66.72.
We waited a bit for the initial profit-taking to work through. After it did, SFIX rallied to $69.20. Once it started to back off from that level, we knew that the move for the day was likely over. So, we sold more of the options for $19 and banked a 120% gain.
We also banked a gain this week in the following position:
Nutanix Inc. (NASDAQ: NTNX): 69% gain in the options.
Here are three completed trades from the Success Trading Group, offering insights into our trading strategy and the targets that we have hit this week:
Plug Power Inc. (NASDAQ: PLUG): PLUG is a “turning the corner” stock. After a peak in January, PLUG lost power and trended lower into early May. During this time, it basically gave up all of its rally from late 2020 to January 2021.
It finally started showing life with a higher MACD low when the stock price put in a lower low. It moved up through the down trendline and edged up to the 200-day SMA. This is a very important level of resistance for a stock that has lost its mojo and is trying to get it back.
PLUG bumped the 200-day SMA for a week. Then, on June 7, it broke through that resistance.
Well, that was the entry signal we were waiting for, and we bought stock for $32.75. PLUG continued higher during that session to the close, but we felt that there was more to go. During the next session, PLUG gapped higher, rallied and then started to stall.
While we felt that PLUG had more to go, it had reached our initial target. So, we sold the position for $34.24 and banked a 4.55% gain. This was a solid return for an overnight play.
Well, PLUG faded all the way back to the 200-day MA by the end of the week. As a result, we will watch for a new break higher from the test of its break over the resistance. If it can show a good bounce, we can run the play again.
This week, we also banked gains in the following positions:
Cisco Systems Inc. (NASDAQ: CSCO): 4.28% gain.
Snap Inc. (NYSE: SNAP): 3.1% 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
GS (Goldman Sachs — $382.78, -1.92)
STATUS: A consistent performer, GS gapped upside to start June and cleared a three-week pennant when it made its second move out from the base that had formed from March through April. After a nice break higher, it had a sweet one-two-three pullback to the 10-day EMA and showed a nice doji-with-tail pattern on Wednesday.
Okay, GS is set to move up again, and as it makes the move through the entry point we are ready to move in. A rally to the initial target at the round number of $400 will give us a 45% gain in the options.
VOLUME: 1.605M Avg Volume: 849.679K
ENTRY POINT: $384.75 Volume=3M Target=$399.98 Stop=$379.89
POSITION: GS AUG 20 2021 $385 Calls — (52 delta)
4. Covered Call Options Play
Daqo New Energy Corp. (NYSE: DQ) — Daqo New Energy Corp. is currently trading at $67.45. The July 16 $70 Calls (DQ20210716C00070000) are trading at $5.50. That provides a return of about 13% if DQ is above $70 by the expiration.