Invest and Trade Profitably with Jon Johnson

Weekender for 8/2

1. Market Summary

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

Inflation or Deflation?

– Stocks pause ahead of the Big Four’s earnings, and after-hours beats send futures higher.
– Q2’s gross domestic product’s (GDP) first iteration is hard to read at -32.9% quarter/quarter.
– Are we going to experience inflation or deflation?
– The PHLX Semiconductor Sector (SOX) and VanEck Vectors Semiconductor Exchange Traded Fund (SMH) break out to new highs.
– We saw big moves higher on earnings, but was a move higher on Friday sold off?

We saw another huge day of news, as the first reading of Q2 GDP was -32.9%, the worst showing in U.S. history. Meanwhile, President Trump mused about postponing the election (due to COVID-19, of course), and more earnings reports were released, both before and after the market closed.

Before and during the session, stocks moved lower overall. Meanwhile, the NYSE indices also closed lower. It would appear that the strain of the news was just too much for the bulls to bear (like that play on words that Doc Holliday did in “Tombstone”).

Even so, stocks posted a low-to-high move through the morning, then stalled for three hours from 1 p.m. ET to the close. The fact that the tech stocks held the line kept the NASDAQ, SOX and NASDAQ 100 positive.

Technical Analysis:

The big names in the NASDAQ throttled earnings and are up after hours. Futures are up as well. Will the move lead to a new breakout after a three-to-four week consolidation? Or, will stocks gap up before big sellers move in and reverse the move?

It did not hurt that the SOX broke out to a new high on the session. Chips are critical for the market because it tends to follow their lead. If chips hold the break, that will bode well for the rest of the market.

NOTE: The figures and information above are from the 7/30 report. Due to technical difficulties, there are no videos this week.

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:

Apple Inc. (NASDAQ:AAPL): AAPL was heading towards its earnings report when it made a test of the 50-day moving average (MA) after three months of riding up the 10-day exponential moving average (EMA). On Friday, it gapped lower, tapped the 50-day MA, rebounded nicely until the market closed and almost finished flat — buyers really stepped in and bought the stock. We then put it on the report.

On the following Monday, AAPL continued the move higher. As we were looking for a run to earnings, we moved in with September $380 call options for $17.65 when the stock was at $379.42. AAPL then moved higher on the week, but it was not much of a move. Part of the problem was that the market was very pensive as a result of the Federal Open Market Committee’s decisions, Chairman Powell’s press conference, whether the new stimulus bill would pass, the congressional hearings on the Big Four (Apple, Amazon, Facebook and Google) and the Big Four’s earnings.

We decided to hold the position through earnings, given the fact that AAPL did great business during the quarter, even amid the lockdown-like atmosphere. Our assumption turned out to be correct, as AAPL reported huge gains on just about every front. After the stock gapped upside on Friday, we sold the options for $35.90 and banked a solid 100% gain.

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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:

Monster Beverage Corp. (NASDAQ:MNST): From early May through early July, MNST set up a pattern that we liked quite a bit — a double bottom that formed as a test of a prior run higher. MNST then rallied during the entire month of May and peaked near $74. It then sold back to the 50-day EMA and the 50% Fibonacci retracement of that rally. Then, the stock bounced and faded back to that level to end the month of June. After it worked laterally for a bit and broke higher in early July, we put it on the report and were ready to move.

On July 6, we entered the play and bought September $70 call options for $4.90. At the time, the stock was trading at $71.26. MNST then jumped higher and faded to test the initial move. Although it held the 20-day EMA, it started back upside in mid-July. From there, it was a steady, albeit rather slow, move up the 10-day EMA.

On Tuesday, July 28, MNST hit our initial target. So, we sold half of the options for $8.15 and banked a 65% gain. As MNST continued higher up the 10-day EMA into the weekend, we will see if it continues this steady move. We plan to let it work as long as it continues to work upside.

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There were no new trades in 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.

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3. Pick of the Week

TWTR (Twitter — $37.16; +0.55)

EARNINGS: 10/22/2020

STATUS: After its last break higher in mid-July took it out of a six-week inverted head-and-shoulders pattern, TWTR rallied into late last week and tested the prior high from February. Over the past four sessions, TWTR has backed off. Instead, it has tested the 10-day EMA and the breakout from the inverted head-and-shoulders pattern.

While we saw lower and lower volume on the test, social media stocks are setting up well. We plan to move in as TWTR breaks higher through our entry point. A rally to the target will give us a 17% gain on the stock and an 100% gain on the options.

VOLUME: 10.7M  Avg Volume: 23M

ENTRY POINT: $37.61 Volume=28M Target=$44.18 Stop=$35.61

POSITION: TWTR OCT 16, 2020 $37.00 Calls — (55 delta) &/or Stock

To see the chart for TWTR, click here!

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4. Covered Call Options Play

Del Taco Restaurants Inc. (NASDAQ:TACO) Del Taco Restaurants Inc. is currently trading at $7.27. The Sept. 19 $7.50 Calls (TACO20200919C00007500) are trading at $0.60. That provides a return of about 13% if TACO is above $7.50 by the expiration.

Learn more about our Covered Call Tables here!

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