1. Market Summary
Excerpted from Thursday’s paid content of the Investment House Daily by Jon Johnson.
Some Good, Some Bad and Little in Between
– We saw good low to high action, but not much overall index change. While the indices remained quiet, leaders started to move to the upside.
– The economic data dump show some good, some bad and little in between.
– Florida and Texas have extended their reopening phases and have recommended extra caution to get the virus jump under control.
– Leaders made positive moves after tests.
Though the indices were unspectacular, market leaders showed very good action after short pullbacks to test their latest moves. Banks received bids ahead of the release of the Fed’s stress tests as well. These tests showed that some banks could be stressed by the pandemic. As a result, the Fed put some restrictions on bank dividends and halted any buybacks. After a good session, the news regarding these restrictions had the banks giving back some of the session’s gains.
The indices showed upside, and a pretty even upside across the board, as they moved from that low to close at a high and produced 1% gains. The patterns, however, showed very little change.
After falling from their week-plus lateral consolidations with the Wednesday selling, the NYSE indices bounced. The move did not alter the pattern, but it did give credence to the notion that Wednesday’s action was just a shakeout that cleared the decks for a move higher. While that is the theory, the indices will still have to make the move. On Thursday, they held at their support and started to bounce. This was a start.
NASDAQ: The NASDAQ opened lower, faded to tap at the 20-day exponential moving average (EMA) on the low and then reversed upside to close near the high. While the move featured good low to high action, the volume was not so great. In other words, while big names such as Apple, Amazon and Netflix helped the index push higher, their volume was uninspiring.
NOTE: The figures and information above are from the 6/25 report.
NOTE: The videos are from the 6/24 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:
Etsy Inc. (NASDAQ:ETSY): We entered ETSY on May 29 as it started to rally off of a test of the 20-day EMA following ETSY’s prior six-week run upside. Then, the stock spent a week testing and started to rebound into the end of the month. When we saw it break higher, we bought July $80 call options for $7.10 and stock for $80.61. At first, the going was slow as ETSY could not continue higher with the bounce. It then faded back to the 20-day EMA to start June and spent a week there.
It turns out that it just needed another couple weeks of rest because ETSY soon broke higher, even if it began to move in spurts. After a big jump on June 15, the stock slid higher and participated in another big move from June 19 into June 22. After that, ETSY paused and worked laterally. As it bounced on Wednesday, we decided to bank our gains by selling the stock for $98.86 in order to obtain a 22% gain. We also sold the options for $19.60 and banked a 175% gain.
Schrodinger Inc. (NASDAQ:SDGR): This stock has been a staple for us because it continues to lead higher. This time, we were looking for a new entry on SDGR as it tested the run to a new high at the end of May. However, the stock ended up fading in a three-week flag pattern from that high into mid-June. It finally started to find its footing at the $60 level. On June 17, it broke higher and then faded off of the high.
We then put it on the report as we viewed the fade as an opportunity. During the next session, SDGR started upside. Thus, we moved in and bought September $70 options for $13.10 and stock for $70.83. Thankfully, SDGR stepped right up during the move as the stock rallied off of the test. On June 24, SDGR hit our initial target. At this point, we sold half of the options for $20.20 and banked a 54% gain.
Zoom Video Communications Inc. (NASDAQ:ZM): ZM, for all of its notoriety due to the lockdown, somewhat slipped off of the front-page headlines of stock-market-related publications. The problem is that ZM had started to consolidate after a huge run. As a result, it ended up being forgotten. When that happens, a stock can recover, reset and make new moves. Enter ZM.
It consolidated during the second half of April and nearly all of May. Then, there was a breakout, which we saw when we began to look for an entry. As the initial move was too strong to chase, however, we waited for a test. One would start during the first week of June. After we put ZM on the report, it broke higher on June 10.
As we were ready, we moved in with August $210 call options for $29.10 when the stock was at $215.49. ZM did not zoom, but it did trend nicely higher up the 10-day EMA (as a good breakout stock should). On June 25, ZM touched our target. So, we sold our options position for $52.50 and banked an 80% gain. We are letting the remaining position work in order to see if we can get some more “zoom” going.
We also took some other gains when we closed the rest of the Fastly Inc. (NYSE:FSLY) position for a 62% stock and 255% option gain. We also banked the rest of the 65% gain in the Livongo Health Inc. (NASDAQ:LVGO) call options.
Here are two completed trades from Technical Traders Alert, offering insights into our trading strategy and the targets that we have hit this week:
Amazon.com, Inc. (NASDAQ:AMZN): This play involved a big name and a slow move, but it worked. It began when we saw that AMZN was in a five-week consolidation that lasted until mid-May. After a 20-day EMA test, AMZN started higher and looked ready to move. We put it on the report and entered an upside play on May 21. This was where we bought some August $2,500 call options for $172.50. While this was a lot of money, this play was not bad at all since it involved a $2,500 strike price.
However, AMZN was not done consolidating as it came back to the 20-day EMA one more time in late May. After that, it started a slow move higher up the 10-day EMA. While it looked as if it was launching straight up during the second week of June, it slid back as of the middle of the month. From there, however, the stock experienced a steady rise and moved to a new high this past week. This was a nice run as it bumped (but did not clear) $2,800. It also hit our target. So, we sold the position for $305 and banked a 75% gain.
Square Inc. (NYSE: SQ): This stock is a quiet leader that we quietly watch for opportunities. In early June, SQ moved to a new high. It then started a tight and lateral move on very low volume. This told us that it was not being sold. Instead, the bids pulled back while the stock was still idling. When SQ came back to the 20-day EMA in the middle of the month, we put it on the report.
On June 16, the fact that SQ broke upside served as our entry signal. So, we bought August $95 call options for $9.40. This play was an easy one as SQ stepped right up to the 10-day EMA into this past week and hit our initial target on Monday. So, we sold half the position for $14.25 and banked a 51% gain. Now, SQ is working in another tight, lateral move, and we anticipate another break higher from this consolidation.
We closed out some other plays during the week as the market rallied right before the quarter ended. For instance, we sold the rest of the Trade Desk Inc. (NASDAQ:TTD) options for a 178% gain. We also sold the Shopify Inc. (NYSE:SHOP) options for a 48% gain, the rest of the Datadog Inc. (NASDAQ:DDOG) options for an 83% gain and the rest of the Coupa Software Inc. (NASDAQ:COUP) position for a 46% gain.
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:
Cloudflare Inc. (NYSE:NET): NET is one of the leaders of the cloud software market. Thus, we are always watching for opportunities to make new plays. After a breakout in mid-June and a subsequent move to a new high, NET tested this past week and came back to the 10-day EMA on Wednesday during a four-session test. We saw this pattern, liked it and were ready to move in.
On Thursday, NET bounced, and we bought stock for $35.47. Then, NET bounced around and surged higher. Since we loved this trajectory, we let NET run. Then, it sold back from that intraday high and did not rebound. In retrospect, we should have banked some gains at this time. During the next session, though, NET bounced up early. At this point, we sold the position for $36.85 and banked a 3.89% gain over a relatively quick period of time.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
COUP (Coupa Software–$274.23; +16.32)
STATUS: COUP broke higher from a five-week range in mid-June. Then, it rallied nicely into the prior Friday. This week, COUP worked laterally in a very tight range on very low volume and waited for the 10-day EMA to catch up to the move. When it tested a bit lower on Wednesday, it came close to the 10-day EMA.
On Thursday, COUP was up as it had broken higher from the range on rising and above-average volume. Indeed, this was its best trading period in over a week. We want to move in as COUP continues the break because a rally to the target will give us a 60% gain on the options.
VOLUME: 2.105M Avg Volume: 1.998M
ENTRY POINT: $274.38 Volume=2.2M Target=$299.97 Stop=$268.48
POSITION: COUP AUG 21 2020 270.00 Calls — (57 delta)
4. Covered Call Options Play
Planet Fitness Inc. (NYSE:PLNT) — Planet Fitness Inc. is currently trading at $64.87. The Aug. 22 $65 Calls (PLNT20200822C00065000) are trading at $7. That provides a return of about 13% if PLNT is above $65 by the expiration.