Invest and Trade Profitably with Jon Johnson

Weekender for 8/23

1. Market Summary

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

NASDAQ Well Out In Front

– Low to high action is positive, but not many stocks are making that move.
– The NASDAQ broke to a new high — and held the move.
– The fact that the NASDAQ is well out in front as cloud stocks rebound is helping Facebook, Amazon, Apple, Google and Netflix carry the load.
– Recovery stocks are still in a recovery position. Thus, they need to make a move before the patterns start breaking down.
– A narrower and narrower market increases the risk of a correction, but we will play those that are making moves until either other stocks enter or the upside fails.

Historic. Amazing. The NASDAQ hitting another new high? No! The NASDAQ is holding the gains on the session. The NASDAQ 100 and the NASDAQ led the charge, after the market digested some weak jobless claims (1.106 million vs. 971 thousand prior) along with slower Philly Fed figures (17.2 vs. 21 expected and 24 in July) on Thursday. Was it really a charge? Well, the NASDAQ was running with its 1% gain. The rest of the indices took something that looked like a leisurely stroll before sitting down halfway through.

As for the small-caps, the mid-caps and the important PHLX Semiconductor Sector (SOX), they didn’t even get up. Instead, they slid back down the hill. The market’s breadth continues to narrow, as if it was not already extremely narrow. Maybe it should be called market thinness, as it is paper thin.

Narrow leadership has shown up at various times throughout history. In the 1990s, I recall that there was a time when there was only Dell, Microsoft, Intel, Costco and others of that cadre. Some are still in existence, while others are long gone. Before that, it was the “Nifty 50s.” These never just continue. Ultimately, they have to correct and reset the dial to allow more stocks to get back into the market. The key, as always, is the time when this scenario becomes a reality. How much more upside is there in these stocks before they crack?

Technical Analysis:

NASDAQ and NASDAQ 100: New highs posted lower opens to higher closes and did so on a nice surge in volume. While people are only buying a few names, they are buying the heck out of them.

S&P 500: It is still toiling away below the prior high, even though it got a taste of what it is like to smell new high air. In general, this index has been chronically weak.

NOTE: The figures and information above are from the 8/20 report.

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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:

Tesla Inc. (NASDAQ:TSLA): As we were looking for our next entry, we began tracking TSLA’s consolidation after it surged to a new high in mid-July. The stock worked along the 20-day exponential moving average (EMA) for four weeks into mid-August and dipped below the 20-day EMA on Aug. 11.

After the market closed, TSLA announced a 5:1 stock split. Now, there have been darn few splits in recent years and even fewer that involved any really big names. Thus, no one was really sure if the news would be treated with a shrug, or if it would get the royal treatment that stock splits got back in the late 1990s and early 2000s.

TSLA gapped higher on Aug. 12, cleared some resistance and triggered our entry. We decided to play the stock and see if it would relive the glory days. So, we picked up October $1,550 call options for $204.45 when the stock was at $1551.43.

As the stock was experiencing high volatility levels, it would eventually have to move. It did. TSLA was up for the next four sessions and then started to back off just a bit on Wednesday. So, we sold part of the option position during that session for $404.40. This allowed us to bank a 97% gain.

On Thursday, TSLA shot higher. However, we left the options to work. At the end of that session, the closing price was $510. As a result, we decided to see how long TSLA’s batteries will last on this move. When they start to slow, we will take more of the gains.

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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:

Lululemon Athletica Inc. (NASDAQ:LULU): This play started way back on June 16, when it looked as if LULU, after producing a nice spring higher in May, followed by a one-and-a-half-week flag test, was set for another nice sprint higher. Accordingly, as LULU jumped higher off of the 20-day EMA on June 16, we initiated the play by buying September $310 call options for $30 when the stock was at $311.24.

Then, we settled back to let LULU perform its rally routine. It didn’t. LULU faded for a couple of weeks to test that first dip, but then gapped upside again. It was now ready to run, but it didn’t. Instead, it slid laterally for another couple of weeks. After that, LULU began a slow, slow move up to the 10-day EMA. In early August, it finally moved past the June high. However, there was no celebration. There was just another slow move higher up the 10-day EMA.

Finally, on Aug. 13, LULU touched the target. While we were eager to sell, LULU was starting to climb a bit better. Therefore, we sold half of the position for $48.80 and banked a 62% gain.

LULU continued higher into this week and continued to move up the 10-day EMA. However, the volume was really off. On Tuesday, LULU gapped to a doji. On Wednesday, it did the same on even lower volume. Since we had September options, we decided to go ahead and bank the gains this week versus allowing them to lose their value after the options expire this weekend.

So, with the Wednesday doji, we sold the rest of the position for $53.05 and banked a gain of 76%. Of course, LULU jumped $5.58 on Thursday. It looks as if its workout will continue.

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Here are two completed trades from the Success Trading Group, offering insights into our trading strategy and the targets that we have hit this week:

Freeport-McMoRan Inc. (NYSE:FCX): It looked as if FCX was on the way to a strong move after breaking higher at the beginning of April. It tested beautifully along the 10-day EMA and started higher on Aug. 10. The breakout, the test and then a new bounce all looked great. So, we moved in and bought the stock for $14.32. Then, there was another test.

FCX moved laterally and lower through the prior Friday. This week, it renewed the upside, gapped higher on Monday and continued its rise right into Wednesday. After it hit our initial target, we sold the position for $15.11 and banked a 5.5% gain. While we remained a bit longer in the play than we would have liked, this was still a solid gain.

Nike Inc. (NYSE:NKE): NKE set up a nice cup base along the 50-day moving average (MA) and broke higher during the first week of August. The stock tested and then broke higher on Aug. 10. So, we moved in and bought stock for $105.36.

This was a solid session higher. Indeed, NKE continued higher, albeit at a slower pace, after that move. After NKE worked its way up the 10-day EMA into this week, it gapped upside and hit our target on Thursday. As a result, we sold the stock for $108.95 and banked a 3.4% 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.

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3. Pick of the Week

GOOG (Alphabet–$1547.53; -11.07)

EARNINGS: 10/29/2020

STATUS: GOOG rallied to a new high in early July, but immediately faded. When it tried again a week later, it made the move…only to give it up three sessions later. GOOG then formed a short four-week base over the 50-day MA and moved 100 to 150 points below July’s new high. It then tested the old high last week and held just below it.

On Tuesday, GOOG broke higher on a very solid shot of volume that jumped back above the average volume. The stock then tried to add to the move on Wednesday, and it did. However, the stock could not hold the gains. As a result, it faded to a modest loss on lower average volume.

As GOOG looks very good, it is possible that this was just a letdown from the Federal Open Market Committee minutes. We are watching for a new move back up through the entry. A move to the target will give us a 75% gain on the options.

VOLUME: 1.66M  Avg Volume: 1.66M

ENTRY POINT: $1,553.44 Volume=2.2M Target=$1,699.74 Stop=$1,503.11

POSITION: GOOG NOV 20 2020 $1560.00 Calls — (52 delta)

To see the chart for GOOG, click here!

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4. Covered Call Options Play

Canadian Solar Inc. (NASDAQ:CSIQ) Canadian Solar Inc. is currently trading at $25.69. The Oct. 17 $26 Calls (CSIQ20201017C00026000) are trading at $1.85. That provides a return of about 10% if CSIQ is above $26 by the expiration.

Learn more about our Covered Call Tables here!

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