1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
The Market Needs a Stimulus Agreement
– Leaders bounce off of a big-tech-led weak opening, but take hits as Apple once again becomes the target of state attorney generals.
– Weaker jobless claims break a string of lower numbers and trump Treasury Secretary Mnuchin’s announcement regarding a Republican/White House stimulus agreement.
– The Fed tried to save the session, given that the big tech names were selling, but at this point, its modest commentary was insufficient.
– With the presence of emerging headwinds, the market needs a stimulus agreement and something from the Fed.
After a round of earnings from Microsoft, Chipotle Mexican Grill and Tesla (and quite good earnings at that), the market started lower. However, things weren’t all bad. Indeed, futures were positive heading into the weekly jobless claims report. Then, Treasury Secretary Mnuchin appeared on CNBC and announced that the White House and Republican members of Congress had reached a stimulus deal that did not include the marquee element. This element would ideally take the form of eliminating the payroll tax. Nonetheless, all of this news was still good for some market resilience.
Jobless claims disappointed. Indeed, the report featured the first rise in 16 weeks (1.416 million vs. 1.3 million expected, 1.307 million prior), with 31 million Americans receiving unemployment benefits. That stalled the modest upside, and by the time that the market opened, futures were modestly lower. This remained true even when Microsoft sported a heftier loss to start the trading session. After a lower open, however, many of the leading stocks from the tech sector turned positive with some nice moves. The large-cap tech stocks lagged, but the other leaders in this sector, as well as leaders such as Lululemon Athletica, rallied as well. Bids looked solid.
Then the rug was yanked. State attorney generals are looking into Apple, again. The market hates that. Huge companies such as Amazon, Walmart, Home Depot, Target, Tractor Supply Company and others were given a pass during the lockdown because they were considered to be “essential.” At the same time, these companies certainly used that opportunity to improve and streamline their systems. They also put more miles between themselves and the companies that were forced into lockdown.
NASDAQ: The NASDAQ started off flat, edged higher and then slumped to the 20-day exponential moving average (EMA) on the low. While its volume moved higher, as there was selling in some big names, the 20-day EMA has triggered rebounds since early May. As the NASDAQ may be extended at this point, this level may not be sufficient for history to repeat itself at this time. While the NASDAQ did put in a higher high, it came back quite quickly as the overall market, including the NASDAQ, was having a hard time rallying on all of the good news. Now, the news is not so good. Thus, this will be an important test of its support.
S&P 500: The S&P 500 faded to the 10-day EMA on low levels of trading. There was no dumping. Instead, there was just no interest. While the index still has good patterns, the S&P 500 is continuing to struggle between 3,200 and 3,300 points. Since this is around what the June high was, this is not a reassuring course of action.
NOTE: The figures and information above are from the 7/23 report.
NOTE: The videos are from the 7/22 report.
2. Targets Hit
There were no new trades in the Investment House Daily this week.
Here are two completed trades from Technical Traders Alert, offering insights into our trading strategy and the targets that we have hit this week:
Lam Research Corporation (NASDAQ:LRCX): Semiconductor stocks have continued to flirt with really solid moves. However, even though they featured good patterns, and the PHLX Semiconductor Sector (SOX) tried to reach a new high, they were just not making great moves. Or, at least, most of them were not.
LRCX is a stock we always watch, mainly because it often puts together powerful runs. Accordingly, after it broke higher over its resistance during the second half of June, we began watching for an entry point. LRCX tested that break higher, as is often the case, and came back to the 20-day EMA. We put the play on the report during that test, and LRCX broke higher with a solid move on June 20.
Since that was our entry signal, we moved in with September $315 call options when the stock was at $320.81. Initially, this was a strong move that looked good. LRCX did continue higher, but it was a slow move that mimicked the trajectory of the semiconductor sector. So much for a big, fast and powerful run.
LRCX worked its way up the 10-day EMA. Generally, it was up a day and then down a day in a steady move. This was not a bad course of action, as it soon began to blast off. When tech stocks jumped on Monday, LRCX posted a solid move and hit our initial target. After riding a slow and steady move for 20 days, we were ready to take our gains. We sold the options for $48.90 and banked a gain that was just under 43%. While this figure is not huge, the gains are not bad at all.
Pan American Silver Corp. (NASDAQ:PAAS): Yes, we were interested in precious metals. Of all the silver stocks, PAAS is our favorite and is always on our metals watchlist. With all precious metals forming up, we were watching PAAS form a short cup-with-handle pattern from late May to early July. We then put it on the report after a solid break higher on June 30 was followed by a test. After a tight, lateral, four-day-session move to form the handle, PAAS broke higher on July 8.
Since that was our entry signal, we bought stock for $32.49 and October $32 call options for $4.50. PAAS then did what metals do — it worked a bit higher, tested the 10-day EMA and then moved up again. Early this past week, PAAS hit our initial target. So, we sold half of the stock for $35.62 and banked a 9.6% gain. We also sold half of the options for $6.20 and banked a 34% gain.
While these gains are not exciting, precious metals are not exciting either. The gains are, however, very steady, and we anticipate that the remaining position will continue to work higher up the 10-day EMA.
Here is a completed trade from the Success Trading Group, offering insights into our trading strategy and the target that we have hit this week:
Kroger Co. (NYSE:KR): Sexy is as sexy does. That is what I tell myself when looking at stocks like Kroger. While groceries are useful, they are totally not sexy. Or, perhaps they are — my wife got hit on at our local grocery the other day. Ah, life with COVID-19. She said that it was just because she was in her car and did not have her mask on — anyone without a mask is sexy, she said. For me, it is the other way around — please put on the mask…
Anyway, KR was building higher off of the 50-day moving average (MA) in a decent enough uptrend. Not only had the stock come back to the 50-day MA with a test during the first two weeks of July, but with all of the lockdown problems, it likely would put in a good move higher off of the 50-day. On July 14, the fact that KR bounced gave us an entry signal. So, we moved in and bought stock for $34.20 as it bounced higher.
KR was then “out of stock,” so to speak, for the next three sessions, as it continued to work laterally. Finally, KR surged this week. On July 21, it ripped higher and moved over $35.50. We let it surge, and when the move started to falter, we sold the stock for $35.42 and banked a 3.57% 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
CAT (Caterpillar — $138.56; +0.19)
STATUS: You cannot ignore a solid pattern just because it appears in a recovery stock. For instance, CAT may be able to deliver a nice move higher off of an one-two-three test of the Tuesday and Wednesday rally off of CAT’s support.
Indeed, a nice low-volume pullback to the 10-day EMA has CAT in a position to make a new, strong break higher. When CAT shows that move, we want to step in for a run at the November-December-January consolidation, as that move will produce a 60% gain on the options.
VOLUME: 13.62M Avg Volume: 3.646M
ENTRY POINT: $135.89 Volume=5M Target=$145.98 Stop=$132.54
POSITION: CAT SEPT 18 2020 135.00 Calls — (51 delta)
4. Covered Call Options Play
Celsius Holdings Inc. (NASDAQ:CELH) — Celsius Holdings Inc. is currently trading at $14.55. The Sept. 19 $15 Calls (CELH20200919C00015000) are trading at $1.50. That provides a return of about 16% if CELH is above $15 by the expiration.