1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
Stocks Start Significantly Lower
– Stocks start significantly lower, but move up off of the lows.
– Indices hold their support and are in position to bounce.
– The Automatic Data Processing (ADP) jobs report was strong, but just reopening the economy did that. The policies that the Biden administration has proposed will not continue to create jobs.
– The May jobs report reaction was instructive. It determined whether there would be a bounce from the support or a fade to test the bottom of the range.
For two weeks, the stock indices have moved upside, some more so than others. Even with the upside, however, several sessions sported high to low action. They did not close negative for most of those, but there was high to low action. That is, the indices opened higher and then closed below the highs.
On Thursday, stocks started the premarket session significantly lower and moved up, some more so than others. For instance, the DJ30 moved back up to basically flat and the S&P 500 recovered 25 points to close off just 15 points.
The Nasdaq and PHLX Semiconductor Sector (SOX) closed over 1% lower, but they also rose off of their session lows (the Nasdaq rose 66 points form the low). Overall, Thursday was a down day. Even so, stocks rose off of the intraday lows — there was buying, short covering or otherwise.
NOTE: The figures and information above are from the 6/3 report.
NOTE: The video is from the 6/2 report.
2. Targets Hit
Here are several completed trades from Investment House Daily, offering insights into our trading strategy and the targets that we have hit this week:
Olympic Steel, Inc. (NASDAQ: ZEUS): Steel remains as solid as steel. Since the economy reopening and we need to build things, we have to have steel. Since we have played ZEUS, U.S. Steel (NYSE:X), Companhia Siderurgica Nacional (NYSE: SID) and company many times, we were watching for new setups to make us more money.
In late May, ZEUS was starting to rise from a test of the early May breakout, and that put us on the path to a new entry. On May 24, ZEUS broke higher. This was the entry signal. We bought stock for $34.50 and July $35 call options for $2.97 — we love the pricing in these stocks when compared to the hugely inflated pricing of the tech stocks.
ZEUS took another day to get its full footing, but after that, the stock rallied nicely into this past week. ZEUS hit our target with a gap higher on Wednesday. However, we also noted that it gapped and then immediately stalled. In general, that trajectory can signal a pullback after a good rally to a higher high. Thus, we sold the stock for $39.99 and banked a 15.9% gain. We also sold our options for $6.50 and banked a 118% gain.
We also took gain this past week on the following positions:
American Airlines Group Inc. (NASDAQ:AAL): 77% gain in the call options.
Marathon Oil Corporation (NYSE: MRO): 70% gain in the call options.
Polaris Inc. (NYSE: PII): 58% gain in the put options.
Tellurian Inc. (NASDAQ: TELL): We took the rest of the 109% gain in the stock.
Here is one completed trade from Technical Trader Alert, offering insights into our trading strategy and the target that we have hit this week:
Community Health Systems Inc. (NYSE: CYH): This certainly was an easy setup. With so many investors focusing on tech, semiconductors, industrials and the like, it was almost too easy to overlook health care. We always scan all sectors, however, and that is how we uncover some easy winners in areas others may not see at first.
CYH is a stock we watch and play. After a good move to start the month of May, it consolidated in a great two-week flag pattern — you don’t need to know what that is, but after a break higher, it is a very good pattern to allow a stock to take a breather and reset for a new move higher. The goal is to catch it as it starts that next move.
We saw CYH make that break higher on May 27, and we were ready because we already had it on the report. We entered with July $13 call options that were being sold for $2.40. CYH stepped higher into this week by posting a strong move on Tuesday. It then moved laterally and started back upside on Friday.
We used that move to bank half of the gains from the options by selling them for $3.60. This generated a 50% gain on the first half of the position.
Here are two completed trades from the Success Trading Group, offering insights into our trading strategy and the targets that we have hit this week:
Marathon Oil Corporation (NYSE: MRO): Smaller energy stocks finally started to move after the big names, including such as Exxon Mobile (NYSE: XOM) and Chevron (NYSE: CVX) initiated arally. We saw some top-notch stocks start to move higher in mid-May. Since they were showing great upside volume, this served as an indication that there was a lot of money on the buy side part of the equation.
The fact that MRO cleared its resistance on May 17 served as our entry signal. We picked up the stock for $12.23. During the next session, MRO rallied again and then reversed into the negatives.
That started a week of testing when the stock just made the break and then dropped. We looked at other energy stocks, and they were also sluggish after that break higher. However, all of them were holding near their support. Thus, we left MRO to work for us.
MRO held its support and started to creep higher. As June started, it found new money — energy stocks were the beneficiary of the new money for the new month. MRO jumped higher on June 1 and hit our target. We then sold the position for $12.92 and banked a 5.64% gain.
Oil States International, Inc. (NYSE: OIS): This was a similar play to MRO, but it took a bit longer than we wanted. Even so, we managed to turn our May 10 entry at $6.73 into a 4.75% gain when we sold the stock for $7.05 on June 2.
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
AAP (Advance Auto Parts — $191.33, -3.31)
STATUS: AAP and other auto parts stocks have performed well, but over the past several weeks, they have turned toward something that looks like the top of their trajectory. AAP fell from its high to the 50-day moving average (MA) — which was nothing unusual after a good run. Then, it fell through the 50-day MA, and the recovery the past week has proved itself to be less than spectacular.
Indeed, AAP is forming a bear flag with a modest rise up to the former support. It then actually broke through it on Tuesday and continued higher with a gap on Wednesday. It then reversed and closed below the 50-day MA.
The break of support followed by a failed rebound to test the former support is a very good downside entry, and as AAP breaks lower, we want to move in. A drop to the target will give us a 60% gain in the put options.
VOLUME: 1.605M Avg Volume: 849.679K
ENTRY POINT: $190.07 Volume=1.2M Target=$180.05 Stop=$193.55
POSITION: AAP JUL 16 2021 $190.00 Puts — (-42 delta)
4. Covered Call Options Play
Netgear Inc. (NASDAQ: NTGR) — Netgear Inc. is currently trading at $38.26. The June 18 $39 Calls (NTGR20210618C00039000) are trading at $0.30. That provides a return of about 9% if NTGR is above $39 by the expiration.