Invest and Trade Profitably with Jon Johnson

Weekender for 7/19

1. Market Summary

Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.

Economic Data Good, Jobless Claims Not Great

– Stocks were strikingly lethargic after getting good news regarding vaccines on Wednesday.
– Economic data are good, but jobless claims are not great.
– Something is needed to catalyze a new move — maybe earnings — as the NYSE indices have a lot to accomplish.
– It will be a tough call to move higher with lockdowns returning. The governor of Texas was considering the imposition of some sort of lockdown on Friday.
– The market may have put in a summer peak, but it can still find new leadership, given the patterns that exist in several sectors. We will have to see if the decent patterns either lead to the emergence of new leaders or the return of the same old leaders.

Futures were down early on as China’s stock market crashed even though it reported 3.2% gross domestic product (GDP) growth — retail sales had dropped harder in more recent history, and the passage of time trumped the dated GDP numbers.

The weakness moved to Western markets and was exacerbated by the data that were both good and not as good as was hoped. June retail sales were great at 7.5%. While they were down from May’s 18.2% figure, the June results beat the 5.2% that was expected. The Philly Fed also beat expectations, but jobless claims did not. They came in at 1.30 million versus the 1.25 million that was anticipated. While this figure was lower than the prior numbers, it was a miss. This market is priced too high for misses.

While moving from a vaccine rally to a state of lethargy, the market struggled to find a reason to rally. On Wednesday, it was all positive as Moderna announced positive results from its vaccine, and Johnson & Johnson stated that it will be ready to conduct late-stage tests in September. Remember, all of this news came on top of other companies that have already entered a later stage of testing.

Technical Analysis:

The S&P 500 has the look of a double top. It also cleared the 78% Fibonacci retracement of the February-to-March selloff and defied the odds to do so. Perhaps it will continue to do so and reach a new high — if the recovery stocks kick in. With the economy closing back up due to the fear of more COVID-19 cases, however, the case for those stocks rising has weakened. We cannot predict what the economy will do because of the decisions that the states will make, the next stimulus and further moves by the Fed.

NOTE: The figures and information above are from the 7/16 report.

Watch the Investment House Videos For This Week Here!

NOTE: The videos are from the 7/15 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:

Peloton Interactive Inc. (NASDAQ:PTON): PTON made us a lot of money during its move after the lockdown in April and May. After a good test of that rally, we were looking for the next opportunity. In early June, an opportunity came as PTON had put in a two-and-a-half week consolidation that brought it back to the 20-day exponential moving average (EMA). Then, it bounced from that test of its near support. On June 1, we moved into a new play by buying some October $45 call options for $8.25 when the stock was trading at $45.37.

It was a nice move up from there. Then, PTON tested the 20-day EMA. Since it was rising, this figure was a higher low. While PTON started to move higher again, this time, it was more like a long, steady climb up a mountain road. In other words, each day featured a series of steps up the 10-day EMA all the way from the end of June to the start of July. Yes, it showed a burst of buying to start July, but it soon settled back down again.

It showed a bit more life on July 8. During the next session, PTON gapped upside. That Friday, it surged to a new high and closed at the session high. As it certainly looked strong, we left it alone. On Monday, PTON gapped higher and then started to roll over. That was our signal to exit. So, we sold the options for $13.20 and banked a 60% gain. While this was a nice gain, it took a long time to form up.

Petmed Express Inc. (NASDAQ:PETS): As the narrow band of leaders started to test, we were watching what we call “recovery stocks” to see if bids were turning up. This was because we felt that we might get some fast pre-earnings runs in these stocks as some enthusiasm returned — even as states were rolling back their reopenings. That is why we look at what the patterns are telling us versus what seems intuitive, or at least intuitive to our minds.

Anyway, we saw PETS at the 50-day EMA in a quite solid two-and-a-half-month base. On July 14, it started up off of the 50-day EMA, and we put it on the report. On Wednesday, PETS continued higher. So, we picked up some stock for $39.39 and September $40 call options for $4.30. As the fact that PETS continued higher that session now added up to three good moves, we were on profit-taking watch by Friday. On Friday, PETS gapped higher, as its earnings are set to be released before the market opens on Monday.

We watched the gap for about a minute and noted that PETS was not adding to it. As a result, we sent out the “target hit” alert, sold the stock for $42.24 and obtained a 7% gain. We also sold the options for $5.50 and a 25% gain. While this was neither a barnburner nor something that was going to pay off the mortgage, it was a great setup that made us money quickly. So, we took it.

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Here are two completed trades from Technical Traders Alert, offering insights into our trading strategy and the targets that we have hit this week:

Roku Inc. (NASDAQ:ROKU): Although it was once a hot stock and on everyone’s play list, ROKU was victimized by its own success. In fact, it rallied so much that it needed to go through a long consolidation period. This is normal, as it just means that we have to be patient and let it go through this process. In June, we saw ROKU start to break higher from a consolidation that formed after the initial rebound off of the March lows. At this point, ROKU was holding the 50-day moving average (MA) and showing good volume. After we saw it make the bounce, we put it on the report.

We moved in on June 19, as it continued a break upside off of the consolidation. At this time, we picked up September $130 call options for $19.35 when the stock was at $129.64. It was still a bit pricey after the consolidation, but the numbers worked out. ROKU continued upside after the entry and looked solid enough. Then, it made a drop back to the 50-day EMA at the end of the month. Fortunately, the fact that the 50-day MA was rising allowed the stock to put in a higher low and rebound sharply to start July.

From there, it was all upside, though some days were more up than others. On Monday, July 13, ROKU surged for a third straight session, gapped higher and then rallied even higher. That pushed it up to our initial target. Although we were letting it work as far as it would go, when we saw it start to falter and fade off of the high, we knew that this eight-session move up from the 50-day MA needed a break. So, we sold half the options for $38.15 and banked a solid 95% gain.

Tesla Inc. (NASDAQ:TSLA): We entered this position on June 8 and decided to play a near-term move. However, we also believed that TSLA was set for one of its extreme moves as it had put in four months of laying the foundations for a speculative binge.

We bought August $950 call options for $116.15 when the stock was at $949.94. We took our initial gains on June 30, as we sold half of our options for $184.70 and obtained a solid 58% gain. As we still believed that TSLA could really run, we kept half the position.

Well, as you know, July was a huge month for TSLA as it started the month strong and just got stronger. It surged during the first week of the month, leveled off and then exploded higher on Friday, July 10. It then gapped higher this past Monday with a huge gap. While that raised our caution light, TSLA then surged again during a huge move that soon started to fade.

By the end of the session, TSLA had reversed a $250 point move. Thankfully, before that reversal occurred, we had sold the rest of the position for $640 and banked an almost 450% gain.

Receive a risk-free trial to Technical Trader and save 50% by clicking here now!

There were no trades from 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.

To receive a risk-free trial and save 50%, click here now!

3. Pick of the Week

SQ (Square Inc. — $121.24; +2.58)

EARNINGS: 08/05/2020

STATUS: Similar to NVIDIA, SQ broke out from a four-month base in early June, spent two weeks testing and then started its rally. It rallied until late June, consolidated to start July and then broke higher through the prior Wednesday.

It has now put in a four-session test of that last leg higher, faded to the 20-day EMA on the Tuesday low and then reversed upside with a big move to the black that featured solid volume on the test and a slingshot rally back upside. If the move back upside continues for this market leader, we want in. A rally to the target will produce a 70% gain on the options.

VOLUME: 16.907M  Avg Volume: 14.578M

ENTRY POINT: $121.87 Volume=20M Target=$140.48 Stop=$115.89

POSITION: SQ SEPT 18 2020 $120 Calls — (59 delta)

To see the chart for SQ, click here!

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4. Covered Call Options Play

Arrowhead Research Corp. (NASDAQ:ARWR) Arrowhead Research Corp. is currently trading at $49.02. The Sept. 20 $50 Calls (ARWR20200919C00050000) are trading at $5.80. That provides a return of about 17% if ARWR is above $50 by the expiration.

Learn more about our Covered Call Tables here!


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