Weekender for 6/20
1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
Stocks Start Weak, Then Growth Surges
– Stocks start weak, then growth surges and recovery/industrial stocks sell. Growth stocks are leading higher into June options expirations and the start of a seasonally weaker time for stocks.
– It is frightening that the markets are acting as if the Fed has it all figured out.
– The dollar is jumping, gold is falling, bond yields are moving downward and growth stocks are powering upside.
– Did the Fed stealth tighten with the reverse repurchase agreement market?
We saw a fairly wild trading session. After the Federal Open Market Committee (FOMC) decision, the market was still digesting what the Fed had said. The Fed pushed up its interest rate hikes into 2023 and is currently showing that there will be two in that year. Okay, that is “tighter” in a sense, but it still means a year or more of quantitative easing (QE), over $1.5 trillion, at the current levels of purchases. That hardly makes one exclaim “tightening,” and it appears that the market is taking it that way.
Indeed, during the premarket session, we noted that, even with the weaker early morning trading, we would likely see the market turn back up to positive. Okay, that was half right. After a wild day of trading, growth areas were higher and industrial/recovery/old economy stocks were lower.
Growth is higher because it is a low-interest-rate trade. The NASDAQ 100 soared as the big names, chips and software rallied. The crazy comebacks by the S&P 500 and Russell 2000 (RUT) kept them decent. Meanwhile, the DJ30 and the S&P 400 mid-caps were clobbered. Even so, the DJ30 came back from well off of the lows and recovered 197 points to close “just” 210 points lower. It was still 400 points down at the low.
NOTE: The figures and information above are from the 6/17 report.
Watch the Investment House Video For This Week Here!
NOTE: The video is from the 6/16 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:
Microsoft Corporation (NASDAQ: MSFT): The big names in tech led the market into April, and some of the names were setting up for new moves in June. MSFT had formed a short, double-bottom-with-handle base off of the April high. Then, it sold back, bounced, faded to the prior low and then bounced again. That laid out the double bottom.
After a short rally off of the second low, MSFT faded for a week with a modest decline — that was the handle. Then, there was a wrinkle. MSFT was sitting on the 50-day exponential moving average (EMA) after five sessions of forming the handle. This was a perfect launch point for the breakout move.
On June 3, however, MSFT gapped lower below the 50-day EMA to a doji. Was the pattern broken? Not necessarily.
We kept watching, and, during the next session, MSFT gapped back over the 50-day moving average (MA) on solid volume. That action is known as an island reversal, and it can happen after a pullback or a move higher. It is particularly noteworthy when it occurs around important levels, as it did at the 50-day EMA.
We put MSFT on the report, and during the next session, MSFT continued the move. We then bought July $250 call options for $8.20. MSFT continued the move higher off of the island reversal, paused during a session here and there and then put in a solid advance up the 10-day EMA.
After stalling a bit below the April high, MSFT moved through $260 and hit our initial target. We then sold half the position for $13.16 and banked a 60% gain. Currently, we are waiting to see if MSFT can push on through that prior high and ramp up the gains. If not, we will take the rest and wait for the next setup.
We also banked a gain this past week in the following position:
Crocs, Inc. (NASDAQ: CROX): 65% gain in the call options.
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Here are three completed trades from Technical Trader Alert, offering insights into our trading strategy and the targets that we have hit this week:
Ralph Lauren Corp. (NYSE: RL): When the downside is right, the downside is right. RL tumbled in the second half of May, as it had fallen from its all-time high. This was where it had put in a short double-top pattern.
After that initial drop, a stock will rise and test a resistance level, just as a stock will fade to test a support level after a strong break higher. RL did indeed rise, as it moved up to the 50-day EMA to end May and start June. We saw RL bump the 50-day EMA and show a doji on June 1.
A doji after a rise to resistance often signals that the rise is over and that selling is set to resume. With that, we put an RL play on the report. During the next session, RL broke lower. This signaled our entry. We purchased July $125 put options for $6.50.
RL sold during the next two sessions, but it held some minor support at $120 after selling below it intraday. It then proceeded to move laterally for over a week and held just over that $120 level, as the 20-day and 50-day EMAs moved lower toward the price.
During this past week, the pressure on RL reached critical mass again. So, RL broke lower on Thursday with a sharp decline.
On Friday, the stock gapped lower to our initial target level. With that, we sold some of our options for $12.10 and banked an 86% gain. We are hanging on to half of the position to see if the following week will bring more downside in a seasonally weak period. That should really ramp up the gains to well into triple-digit percentages.
We also took gains this past week in the following positions:
Nutanix Inc. (NASDAQ: NTNX): 125% gain the call options.
Zscaler Inc. (NASDAQ: ZS): 48% gain and then an 85% gain in the call options.
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There were no trades in the Success Trading Group this week.
Still, 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.
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3. Pick of the Week
FDX (Federal Express — $294.68, -4.62)
EARNINGS: 06/24/2021
STATUS: FDX featured peaks in early and late May. It then put in a higher high on that second peak and stalled with a breakout that failed on the same day. The stock then underwent a gap and reversal.
At the same time, the moving average convergence/divergence (MACD) put in a low, largely due to the fact that momentum had stalled. After the stock fell to, and through, the 50-day MA on the prior Wednesday, it then formed a bear flag over the past week with a modest rise back to that resistance.
It tried to move higher on Tuesday and started back downside on Wednesday. We are watching for FDX to make a further break lower to signal the entry. There is an upside gap from April 26, and the play will fill that gap. A move to the target will give us a gain of 55% on the options.
VOLUME: 1.665M Avg Volume: 1.998M
ENTRY POINT: $292.96 Volume=2.2M Target=$275.04 Stop=$298.94
POSITION: FDX AUG 20 2021 290.00 Puts — (-42 delta)
To see the chart for FDX, click here!
4. Covered Call Options Play
Marathon Patent Group Inc. (NASDAQ: MARA) — Marathon Patent Group Inc. is currently trading at $30.06. The July 16 $30.50 Calls (MARA20210716C00030500) are trading at $4.15. That provides a return of about 19% if MARA is above $30.50 by the expiration.
