1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
Picking Up the Pieces
– We had an overall sleepy session, but leaders quietly lead higher.
– While most indices saw consolidation, that is not a bad course of action after what happened on Wednesday.
– The economic data continue to impress, even as headlines focus on new virus cases.
– This Friday was expiration Friday, and we saw whether the leaders could continue to lead. Perhaps other sectors will now start to contribute.
Where Wednesday was disappointing in that the indices could not take advantage of the momentum and punch through the next level of resistance (including new highs for the NASDAQ and the PHLX Semiconductor Sector (SOX), as well as the initial recovery high from early March), Thursday was actually not bad. No, stocks did not surge higher. However, after a problematic session, they gave sellers an opening. After that, the indices simply spent another session consolidating.
Futures were lower, both in the overnight session and heading toward the open, but sellers were not moving in for the kill after a Wednesday session that gave up an attempt at a higher high. Indeed, in the premarket alert, I stated that it looked as if the markets would attempt a rally off of the lower open.
In the regular session, they did just that. Again, it was no surge upside. The day was quiet overall — but the sellers did not jump on the opportunity. This allowed the bids to return and impelled stocks to move higher.
Technically, the indices stayed where they were on Wednesday. The S&P 500, the DJ30 and the SOX were anywhere from flat to slightly lower. This simply shows good consolidating action. The S&P 400 and the Russell 2000 Index (RUT) showed similar action. The latter even sported a doji at the 10- and 20-day exponential moving averages (EMAs).
NASDAQ and the NASDAQ 100: The NASDAQ and the NASDAQ 100 were a bit different. Then again, both showed a lateral slide just below their prior all-time highs from a week ago. At the same time, they are both hovering over the old high.
NOTE: The figures and information above are from the 6/18 report.
NOTE: The videos are from the 6/17 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:
Cloudflare Inc. (NYSE:NET): I would like to say that we picked up NET just as it took off — and we did… for the day. NET gapped higher from a five-week consolidation in early May. It made a quick test of its near support at the 10-day EMA and started back upside on May 12. That is when we moved in and bought stock for $28.62 and August $28 call options for $4.80.
NET surged, faded to another quick 10-day EMA test, surged again and immediately tested. While it was up and down, it ended up going nowhere. It would repeat that same action a couple more times into June. It was a bit trying, but it also looked very ready to move. Finally, it did. This time, the move stuck.
On Monday, NET jumped higher to a new high. It paused on Tuesday and then surged over four points a day later. As that hit our initial target, we sold half the stock for $35.51 and banked a 24% gain. At this time, we also sold half the options for $8.80 and banked an 83% gain.
NET continued higher on Thursday. On Friday, it gapped upside and started to show a doji. Although this was a big move over a short period of time, it was starting to slow down some. We decided to cash in another half of the position by selling half of our remaining stock for $37.97 and banking a 32% gain. We also sold another half of the remaining options for $10.80 and banked an 120% gain. With NET so strong, we are watching to see if it can make it to $40 before the move starts to stall. If it does, we will bank the rest of the options and perhaps the stock as well.
Here are three completed trades from Technical Traders Alert, offering insights into our trading strategy and the targets that we have hit this week:
Datadog Inc. (NASDAQ:DDOG): We went for this company again as we saw it setting up a nice flat consolidation to end May and start June. That consolidation came after a nice May run that included a big upside gap. Once it rested, we knew that the “dog” would be ready to run again. On June 8, DDOG jumped up and started to run. So, we moved in and bought stock for $75.55 and August $75.00 call options for $9.00.
This time, the “dog” was steady and not so gappy. It started a move up the 10-day EMA, kept doggedly at it into this week and hit our initial target on Thursday. Per the plan, we sold half the stock for $86.75 and banked an almost 15% gain. We also sold half the options for $16.70 and banked a solid 85% gain. As DDOG gapped higher on Friday, we will see how it works into next week. After all, it is both near $90 and on a good run. So, it may try its hand at a run toward $100 before it caps off this leg. This would certainly not be a dog of a move.
Docusign Inc. (NASDAQ: DOCU): DOCU has been a continuous winner for us, and we will continue to look for each opportunity that may appear. For instance, we saw DOCU testing a new high to start June and began watching for our chance to enter. On June 5, DOCU showed a big doji that tapped the 20-day EMA on the low and bounced. Then, the Monday after we put the play on the list saw DOCU jump higher through the entry point. Since that was the signal, we moved in and bought Sept. $145 call options for $17.10.
The stock soon lived up to its leadership reputation as it moved to a series of new highs up the 10-day EMA into this week. It surged on Monday and gapped higher on Tuesday. Then, it stalled. After more than a week of upside, this kind of trajectory indicates that a pause or a test is coming. Accordingly, we sold half of the options for $28.80 and banked a 68% gain.
DOCU is indeed working on a new test. It is also moving laterally and holding the gains — all things that we like to see. As we still have half the position, we will likely pick up more positions when DOCU breaks higher from this consolidation.
Shopify Inc. (NYSE: SHOP): This one was almost too easy, but at times, stocks are just that way. SHOP is a market leader that showed its power when it broke higher out of a two-month base in mid-April. However, the stock had already moved well ahead of the breakout and continued into late May. At this point, it sold back after a stellar run and came back to the 20-day EMA. Then, SHOP worked laterally for three weeks.
On June 15, SHOP broke higher with a gap on its volume. After we put it on the report, SHOP hit the buy point on Tuesday. So, we moved in with August $805 call options for $93.30. While these options look pricey, they are not really expensive with regard to SHOP, its $900 stock price and its decent historical volatility level.
This was a good break higher because SHOP marched right up past the all-time high that it reached in May and punched out new highs on Thursday and Friday. When SHOP hit the initial target on Friday, we sold half the options for $142.50 and banked a 50% gain. Beautiful.
Here is one completed trade from the Success Trading Group, offering insights into our trading strategy and the target that we have hit this week:
Fastly Inc. (NYSE:FSLY): We went right back to the well on FSLY. Quite frankly, we wish we had just kept going back all week. The stock broke higher on June 15 after a two-week lateral consolidation that used the stock’s near support at the 10-day EMA. While we saw the move, we felt that it was too far to enter that day.
However, when FSLY was up on June 16, we bought stock for $52.21. Then, FSLY surged higher and started to back off. We then sold the position for $54.11 and banked a 3.6% gain. It turns out that we could have made more if we had chased FSLY on another move on the week. However, the overall market was volatile. In any event, a 3.6% gain in less than a day works very well.
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
ROKU (Roku, Inc.–$127.79; +10.47)
STATUS: ROKU finally came back to life after a six-week rest following a rally off of the March low. You could also call this trajectory a six-month inverted head-and-shoulders pattern. In any event, since early May, ROKU has put in the work to make a new break upside.
On Thursday, ROKU made a move and blew through the 200-day simple moving average (SMA) on its best volume in six weeks. We are ready to move in as ROKU continues higher. A rally to the target will give us a 55% gain on the options.
VOLUME: 19.258M Avg Volume: 11.238M
ENTRY POINT: $128.21 Volume=14M Target=$159.89 Stop=$122.34
POSITION: ROKU SEP 18 2020 130.00 Calls — (56 delta)
4. Covered Call Options Play
Sunrun Inc. (NASDAQ:RUN) — Sunrun Inc. is currently trading at $19.80. The August 22 $20 Calls (RUN20200822C00020000) are trading at $2.05. That provides a return of about 14% if RUN is above $20 by the expiration.