1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
Recovery Trading Continues
– Recovery trading continues along with the PHLX Semiconductor Sector (SOX), but the overall moves are modest at best.
– Airlines lead the way, but banks are solid as well.
– Bonds tank and yields jump as the recovery notion takes hold.
– Recovery is in the wind, but so is the jobs report. Since the Automatic Data Processing, Inc. report was positive and the number of jobless claims disappointed, the jobs report served as the tie-breaker.
– With the indices sitting on top of solid rallies and remaining just below resistance, Friday may not have been a banner-buying day.
Some leaders have faded, but at the same time that there was a fade in tech-sector leaders, software experienced another fade session. Coupa Software Inc. (COUP) put in its third-straight decline, but it still experienced a very orderly fade to the 20-day exponential moving average (EMA). Twilio Inc. slipped through the 10-day EMA after a week of slow, slow upside alongside that near support. HubSpot Inc. (HUBS) is in a nice one-two-three fade and effortlessly stayed over the 10-day EMA on Thursday. Workday Inc. (WDAY) still looks good at the 10-day EMA during its week-long test. These leaders are showing a consolidation as the recovery stocks rise. Thus, we have a case of pretty good action all around. Meanwhile, the recent leaders have tested as the recovery stocks rebounded from their own tests and the tech stocks led higher.
Thus, recovery trading continues, but it is neither exclusive nor a zero-sum game. However, it looked as if that could be the case a couple of weeks back when the NASDAQ was very volatile for the two sessions that the recovery stocks came to life. Since then, we saw the recovery stocks test the breaks higher. As they did, the tech stocks rallied to higher highs in some sectors, e.g. software. Now, we have seen the tech stocks fade somewhat, as the recovery trade stocks have posted good gains.
Does the fact that the NASDAQ hit a new high this week matter? Not really. As long as the excellent improvement in patterns throughout the market holds, the prognosis for the upside remains solid. If they moved on Friday, great. If not, they will end up being well-rested for an attempt next week. The good news is that the patterns are not breaking down yet. As long as they hold up, we will continue to look for a new breakout. We will also look for new entries in stocks such as COUP, HUBS and WDAY, especially when they break back upside.
Okay, the indices are sitting on top of some pretty solid moves higher into Wednesday. There was also a big jobs report on Friday. Regardless of it beat or missed and regardless of it was well-received or not, Friday wasn’t the best day to enter a lot of new upside. A large part of the reason for this was the position of the indices.
Some stocks have already tested, but the majority have rallied. If the report ended up being positive, chasing them would be riskier than we would like. If stocks fade, we will protect our positions. Then, we will watch for leaders to bottom and turn — with the idea that we will enter next week, unless the setup is just too good. If so, we will issue an alert and tell you what we are going to do with those stocks.
NOTE: The figures and information above are from the 6/4 report.
NOTE: The videos are from the 6/3 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:
We played recovery trades and leader trades to bank a lot of gains during the week.
Restoration Hardware Holdings, Inc. (NYSE:RH): RH was in recovery mode as it was “restoring” its stock’s health, so to speak. First, it broke over the 200-day simple moving average (SMA) during the second half of May. After we saw it test, we were ready to enter as it continued the break and came off of the 200-day SMA. On May 28, it made the move.
We entered and bought July $190.00 calls for $22.50. RH continued the restoration work on its pattern and surged higher until late May. On June 2, it gapped sharply higher and produced a big volume. This enabled it to blow through our target. We then sold some of the July calls for $51.00 and banked a 125% gain. We still have half of the position left, as we want to see just how far RH can push this move for us.
Crowdstrike Holdings Inc. (NASDAQ:CRWD): On June 4, we closed out the options on a play that started in mid-April and banked the last of our gains. As CRWD was breaking higher in April, we bought both stock and options on April 16. The options were June $62.50 calls, and we purchased them for $6.80 when the stock was at $63.56.
We took gains along the way for sure, but partial profit-taking can lead to big results. This is because banking partial profits locks in gains and lets you keep a cool head regarding the trade. This will allow you to “let a winner run.”
CRWD did run. In fact, it moved higher and higher. On June 3, we saw CRWD throw a doji on the candlestick chart. The fact that it gapped higher to that doji possibly indicated a fade after a run. After we waited for the stock to confirm our hypothesis, it moved lower on June 4. So, we sold the rest of the June options for $30.80 and banked a 350% gain.
JPMorgan Chase & Co. (NYSE:JPM): As this was a pure recovery trade, it is good that JPM recovered, albeit not all in a straight line. We saw it break the 50-day EMA on May 27. Thus, when it moved up again on May 28, we moved in and bought July $100 calls for $6.50.
JPM dipped to test that move during the next two sessions — not exactly the plan — but it held its support and started to bounce. It saw a nice rally this week and gapped higher on Friday. It even kissed the bottom side of the 200-day SMA. Since that was both the target and the plan, we sold our options for $15.20 and banked a 130% gain.
Spirit Airlines Inc. (NYSE:SAVE): Airlines spent May taxiing at the lows of the three-month base (forgive the hackneyed cliché). At the end of May, SAVE started to take off (again, forgive me). On June 3, SAVE broke over the 50-day EMA. That was our entry signal. So, we moved in and bought stock for $15.04 and September $15.00 calls for $4.00.
SAVE continued higher on the week and gapped higher to our initial target on Thursday. We sold half of the stock for $20.65 and banked a 37% gain. We also sold half of the options for $7.70 and banked a 90% gain. On Friday, SAVE gapped sharply higher again. So, we sold another half of the options for $11.20 and banked a 180% gain.
Simon Property Group Inc. (NYSE: SPG): Here, we have a recovering economy, recovering stocks and cooped-up consumers who are itching (perhaps literally in some cases) to, well, consume. That spells shopping malls, and SPG is the country’s largest mall owner. On June 3, SPG broke over the 50-day EMA after a 2.5-month lateral range on the March selloff. After we saw it do this, we put it on the report. When SPG continued its move on June 4, we were there and bought some July $70.00 call options for $7.60.
Meanwhile, the recovery trading continued and jobs surged back. Stores in the states that were reopening had begun to sell to eager consumers. On Friday, SPG gapped higher and rallied to the lower gap point from the March 12 gap lower. That was our initial target.
So, we sold half the options for $22.45 and banked a 195% gain. Now, we will see if it can climb to ~$104 (it sold around $92), fill the gap and make us another shopping bag full of money on that move. Hmmm. I might go to the mall next weekend…
Terex Corp. (NYSE:TEX): Here is another recovery trade. TEX was “turning the corner” (as we like to say) in its five-month base, i.e. coming up off of the lows. It made a key move by breaking over the 50-day EMA in late May and then faded to test that break. This was a perfect setup. On June 2, it broke higher, and we bought stock for $17.19 and October $17.00 call options for $2.75.
After TEX moved higher into Thursday, it then gapped higher due to the jobs report. As a result, we sold half of the stock for $21.10 and banked a gain of 22%. We also sold half of the options for $5.20 and banked a gain of 89%.
We also banked the Wix.com (NASDAQ:WIX) options that we purchased on May 21 for $19.00. We sold them on June 2 for $34.60 and managed to earn a solid 82% gain.
Here are several completed trades from Technical Traders Alert, offering insights into our trading strategy and the targets that we have hit this week:
Citigroup Inc. (NYSE:C): A bank is a good place to do a recovery trade. C broke over the 50-day EMA in late May and came back to test it. That was when we put C on the report. After it started higher, we entered on June 2 by buying stock for $50.96 and August $50.00 calls for $4.45.
As this was a great week for banks, C moved up nicely and then made a push due to the big jobs report gap on Friday. As a result, it gapped up to our initial target near the 200-day SMA. At the time, the stock was at $61.47 (a 20% gain) and the options were bidding at $12.40 (a 178% gain). So, we locked in some profits. Now we will see if C can push higher and make us some more.
Trade Desk Inc. (NASDAQ:TTD): While it took a bit to get this engine warmed up, we feel that it is just getting started now. We moved in on May 22, as TTD had started up off of a 20-day EMA test, and bought July $310.00 calls for $33.05. TTD then found itself caught up in the two-day tech selling to end the month of May. While it hit the 50-day EMA intraday, TTD then rebounded with a huge surge. After that set the low, TTD moved higher from there into this week.
Then, Wednesday saw a huge breakout on huge volume. We banked half of the gains by selling half of the options for $55.50. This generated a 67% profit. We will let half of the options run because we anticipate that TTD will surge off of the breakout test.
Match Group Inc. (NASDAQ:MTCH): We entered MTCH on May 18 as the stock came off of a nice 50-day EMA test. Incidentally, it had made this test as part of its excellent rally off of the mid-March low. As MTCH bounced, we bought July $80.00 calls for $6.80 when the stock was at $82.69.
MTCH wasn’t flashy — which is kind of ironic, given its business of match-making — but it was steady. (Maybe we were going for the longer-lasting relationship.) Anyway, MTCH moved up steadily into this past week and hit our target on June 1. Thus, we sold half of the options for $13.30 and banked a 95% gain.
Quest Diagnostics Inc. (NYSE:DGX): This stock was slow but steady — and ended up winning. While it may not have provided you with an adrenaline rush, hitting the sell button and banking a wad of cash is quite gratifying. We bought DGX after it broke higher off of a nice three-week test back to the 20-day EMA on May 14. At this time, we picked up July $110.00 call options for $5.80.
DGX then worked steadily up the 10-day EMA into Wednesday, where it gapped higher and then started to reverse. After a nice run, a gap that starts to sell signals the presence of a near-term pullback. As DGX was at our target anyway, we sold the options for $10.90 and banked an 87% gain.
During the course of the week, we also banked the rest of the WORK options that we purchased on May 7 for $4. As we sold them for $9.80, we managed to generate a 145% gain. After we sold some stock for $38.88, we banked a 29% gain. We also banked the rest of the COUP options that we purchased on April 27. As we sold them for $60.20 (and had purchased for $15.30), we banked a 290% gain.
Here are several completed trades from the Success Trading Group, offering insights into our trading strategy and the targets that we have hit this week:
Schrodinger Inc. (NASDAQ:SDGR): We went back to the well on SDGR, as it is a new issue that tends to move in big chunks. We saw a big break higher on May 29 after a test backwards from a new high. On June 1, SDGR continued the move. Thus, we bought stock for $68.76.
SDGR surged during that session. So, we cashed out the same day, sold the stock for $71.00 and banked a 3.26% gain. SDGR has since come back to test the 20-day EMA, and you can bet we will be looking at it again this coming week.
Peloton Interactive Inc. (NASDAQ:PTON): Even with the “recovery trading” slaughter of more traditional stocks due to the virus shutdown, PTON has built a core of followers — which one would suppose are building their core (all that exercise, right?).
Anyway, from the safety of our sweat-free comfy chairs and computer screens, we saw PTON break higher off of the 20-day EMA on June 1. We entered by buying stock for $45.51 and let it work. During the next session, PTON surged again. So, we sold the position for $47.31 and banked a 4.2% gain. This was a nice turn with no sweat.
In addition, we closed our Chewy Inc. (NYSE: CHWY) play that we bought for $45.55. As we sold the stock for $47.25 on June 1, we obtained a 3.7% gain. We also sold the Stitch Fix Inc. (NASDAQ: SFIX) play that we purchased for $24.71 on May 28. As we sold our shares for $ 25.27, we banked a 4.55% 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
WDAY (Workday, Inc.–$181.71; +2.88): Software
STATUS: WDAY gapped upside off of the 200-day SMA and made a solid break higher in its four-month base. Then, a big-volume breakout was followed by a four-session test. This setup was a long time in the making and remains a solid pattern. We are looking to play a break upside on some volume for a run at the prior high near $200. A move to that target will give us a solid 60% gain on the options.
VOLUME: 1.891M Avg Volume: 2.464M
ENTRY POINT: $182.22 Volume=2.5M Target=$199.94 Stop=$176.48
POSITION: WDAY SEP 18 2020 185.00 Calls — (52 delta)
4. Covered Call Options Play
Denny`s Corp. (NASDAQ:DENN) — Denny`s Corp. is currently trading at $13.47. The July 18 $15 Calls (DENN20200718C00015000) are trading at $1.05. That provides a return of about 22% if DENN is above $15 by the expiration.