Invest and Trade Profitably with Jon Johnson

Weekender for 8/16

1. Market Summary

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

Jobless Claims Hit a New Low

– The number of jobless claims fell below one million for the first time in 20 weeks, but the news failed to really energize stocks.
– The NASDAQ led higher and then faded for much of the move. NASDAQ stocks bounced, but struggled to hold. While recovery stocks continue to test, they look like they are prepared for a new upside move.
– NYSE indices remained weak from the premarket, and the S&P 500 tried the old high again and failed.
– The PHLX Semiconductor Sector (SOX) and the Russell 2000 Index (RUT) may have to lead the way. Did a down Friday provide entries?

This market is clearly having some difficulty coaxing the S&P 500 to a new high. On Thursday, the S&P 500 came within seven points of the all-time high. Yet, it failed to move through. The more it puts forth these weak attempts, the less likely it is to break through the high.

The other indices, outside of the NASDAQ, were lower. The NASDAQ’s 30-point gain was decent, but it was 80 points off its intraday high. It then dropped rather hard from 1 p.m. ET to the start of the last hour. It definitely looked better early in the session, as this was when a lot of good names were bouncing off their respective supports. Then, they just lost the bids and faded to lackluster moves. All of this was quite underwhelming.

The NYSE stocks struggled from the get-go. While futures were lower, they were modestly so. The number of jobless claims fell below one million (963,000), but were expected to hold over the million mark (1.15 million expected). That broke a 20-week-long string of claims over one million. The number of continuing claims dropped as well (15.486 million vs. 16.099 million prior). While this is nice, it is hardly a signal that all is well.

Technical Analysis:

NASDAQ: We saw higher futures and more buying as the market opened. Then, there was a rally to a mid-morning by the time that the European exchanges closed. After a normal test was followed by a rally into the afternoon, the bids died. After just surpassing the morning high, the NASDAQ faded to 11,050 points. It then rebounded.

That bounce was short-lived, however. Just before the start of the penultimate hour of trading, the NASDAQ rolled over. Stocks sold to the last hour, bounced modestly and then slid sideways to close. While the index held its gains, it gave up almost 80 points off of the high. A large part of the problem was that many good moves from Facebook, Amazon, NVIDIA and so on, not only lost bids, but were mostly scuttled.

NOTE: The figures and information above are from the 8/13 report.

Watch the Investment House Video For This Week Here!

NOTE: The video is from the 8/12 report.

2. Targets Hit

Here is one completed trade from Investment House Daily, offering insights into our trading strategy and the target that we have hit this week:

Cummins Inc. (NYSE:CMI): This is a boring old industrial stock that makes engines. CMI rallied in July and broke over the June high on strong volume. Then, it tested. Remember, we always like to play the first test of a breakout move. CMI then faded from that higher high to the 10-day exponential moving average (EMA) to start August and slid laterally in a tight range. We put it on the report and waited for the new break higher.

That came on Aug. 5, when CMI displayed a good price and a rise in volume. We moved in with September $195 call options for $8.41 when the stock was trading at $198.34. CMI did not bolt higher, as this is really not its style. Instead, it edged up the 10-day EMA and bolted higher on Monday. It even surged through $210 and passed our initial target.

However, we stayed with the plan and sold half of the options for $16.90. As a result, we banked a solid 100% gain. CMI is now testing laterally. Currently, it is waiting for the 10-day EMA to catch up. When it does, we anticipate another run higher.

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Here is one completed trade from Technical Traders Alert, offering insights into our trading strategy and the target that we have hit this week:

Best Buy Co. Inc. (NYSE:BBY): Sometimes slow can be quite sexy. If that is the case, BBY was sexy as hell. BBY gapped higher on earnings on July 22. Actually, it experienced a breakaway gap and cleared resistance on huge volume. In general, we like to play a breakaway gap after the stock moves laterally. BBY did just that, as it moved laterally in a tight range for five sessions.

On July 30, it made its move and broke upside on rising volume. That was the entry signal we were looking for. So, we moved in and bought September $100 call options for $5.95 when the stock was trading at $99.96. Then, the “fun” started. BBY moved up the 10-day EMA in a slow and steady move (slow being the operative word here). It moved slowly until Thursday, when it sped up, gapped upside and rallied on its best volume in a week.

Since that move touched our initial target, we sold half of the options for $10.70 and banked a 79.8% gain.

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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:

Twitter Inc. (NYSE:TWTR): TWTR broke out in mid-July and rallied for about eight sessions. It then tested for another eight sessions and came back to the 20-day EMA in early August. After a great test of the breakout, we put it on the report. We were looking to play a new break higher after this breakout test. On Aug. 6, TWTR posted a good upside break. So, we moved in and bought the stock for $37.68.

TWTR rallied during the next session and then faded to the 10-day EMA. That occurred on Friday — another down Friday for stocks. As Monday was another upside session for stocks, TWTR gapped upside and rallied from there. It then hit a point that was near the July peak and started to stall.

So, we sold the position for $38.91 and banked a 3.2% gain. This turned out to be a good move. Indeed, TWTR reversed during that session and fell back to the 10-day EMA. It is now trying to move higher again. If it does, we might very well set up a new play for a bounce back up to near $40.

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.

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3. Pick of the Week

WING (Wingstop, Inc.–$153.47; -2.23)

EARNINGS: 11/04/2020

STATUS: WING generated a strong breakout on earnings in late July. Indeed, WING gapped higher, rallied hard and cleared the mid-June to late-July trading range. We also saw a strong move into last Thursday that was followed by a doji on Friday.

WING has since faded back, tested to the 20-day EMA, held over the highs in the prior range and bounced up off of the Wednesday test lower. This pattern featured good volume, as WING moved up off of the test of that near support. We want to move in as WING clears the 10-day EMA ($157.10). This is a great setup for a stock that continues to produce. A move to the target will produce a 60% gain on the options.

VOLUME: 641.6K  Avg Volume: 650K

ENTRY POINT: $157.21 Volume=850K Target=$177.44 Stop=$150.58

POSITION: WING DEC 18 2020 155.00 Calls — (56 delta)

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4. Covered Call Options Play

Sunrun Inc. (NASDAQ:RUN) Sunrun Inc. is currently trading at $46.73. The Oct. 17 $47 Calls (RUN20201017C00047000) are trading at $5.30. That provides a return of about 14% if RUN is above $47 by the expiration.

Learn more about our Covered Call Tables here!

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