Invest and Trade Profitably with Jon Johnson

Weekender for 8/8

1. Market Summary

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

The Big-Name Nasdaq Moves Higher Again

– The big-name Nasdaq moves higher again, but the small-cap and mid-cap stocks lead.
– The PHLX Semiconductor Sector (SOX) takes a break from leading, the Nasdaq and the S&P 500 are at new highs and the small-caps and mid-caps bounce on short covering.
– There was some short covering ahead of the jobs report, just in case it is stronger than expected. Most believe that the Automatic Data Processing, Inc. (ADP) report was an inaccurate representation of the jobs situation.
– Sentiment is starting to turn bullish again, as Goldman Sachs ups its target and record numbers of retail investors hit the market. Bond yields have also run right back up.

Ahead of the Friday jobs report, the downtrodden stocks were bid, the leaders were sold modestly and the large-cap indices did the same.

More specifically, the Russell 2000 and the S&P 400, which represent the small-cap and mid-cap stocks, led higher after lagging for many months. Both indices posted market-leading moves on the session, but, in terms of the bigger picture, they are still in the lateral consolidations of the past week. They are also still well below the prior highs. In short, they took the lead on the session, but they are still clearly lagging.

The SOX was the clear leader over the past week, as it posted a six-session surge to a new high. While it then faded modestly after gapping upside again, it was due for a break.

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NOTE: The figures and information above are from the 8/5 report.

Watch the Investment House Video For This Week Here!

NOTE: The video is from the 8/4 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:

ZoomInfo Technologies Inc. (NASDAQ: ZI): ZoomInfo peaked in early February after a very good 2020. It had been a new issue in June of that year, and it was able to ride the lockdown wave. After that run, however, it needed a vacation in the form of a base to consolidate the gains.

ZI formed a five-month downward channel. In June, it rebounded and broke over the upper channel line. Was it ready to leave the trend lower?  Perhaps, but it needed to prove it.

ZI consolidated for four weeks just over the trendline. While it was still a modest trend lower, but it was now at a higher level.  It came back to the 50-day exponential moving average (EMA) in mid-July, held there and then started higher. That was the test of the break that we were looking for.

We moved in by buying stock for $53.68 and October $50 call options for $6.80. ZI moved up nicely off of the 50-day EMA with a good break, but then it slowed to a steady rise. There was nothing wrong with that.

Things got interesting, however, as ZM exploded higher with a gap on Aug. 3. It burst higher, but it then started to stall. So, we sold half of our position for $13.50 and banked a very solid 98.5% gain.

We let the rest of the position work, but during that same day, ZI faded from a high of $63.66 to a close of $56.50. While this was not great, the stock had held some of the gap.

During the next session, however, ZI surged back upside. It did the same on Thursday, when it moved to a new all-time high due to a seven-point gain.

As a result, we sold half of the stock for $66.70 and banked a 24.25% gain. We also sold another half of the options position for $17.90. This produced a 163% gain.  We will let the rest run to see how far it can rally.

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

Paylocity Holding Corp. (NASDAQ: PCTY): After a stellar 2020, PCTY ran out of gas later that year. However, it did not crack and roll over. Instead, it started working in a big, lateral trading range. While we were involved in many plays during that long, nine-month range, the one we are discussing today is the most recent. It was also the one that did what we thought it would do, i.e. break PCTY out of its trading range.

In mid-July PCTY, was coming off of a run from May that much of the Nasdaq had made. It rallied back up to 200 — still below the top of the range — and  then faded back to the 200-day moving average (MA) and the 50-day EMA. That put PCTY near the mid-level in the range.

Now, a confluence of positives began to merge. First, PCTY had been in the range for a long time. Often, a stock will make four to five rotations in a range and then make a break — up or down.  PCTY had definitely put in the time.

Second, the hold at its key support near the middle of the range. Often, when a stock is ready to break from a range, it will come back to test a key level. Then, it will use that as the launch pad for the move.  That move can be upside if the stock is testing from the top of the range. It can also be downside if the stock has climbed up from the range bottom.  This move one was of the upside nature.

Third, over the last three months of the range, PCTY formed an inverted head-and-shoulders pattern. This test to the 200-day simple moving average (SMA) looked to be the bottom of that right shoulder.

Thus, we put PCTY the report. When it broke higher on July 20, we were ready. We entered the play through buying September $195 call options for $12.65. PCTY continued higher off of that big upside session. However, it needed a test and came back to the 20-day EMA in late July. From there, it bounced. On July 30, it hit our initial target. As a result, we sold half of  the position, per the plan, for $18.26. Thus, we banked a 44% gain.

We let the other half of the position work. After a test to start August, PCTY started back up with a big surge on Wednesday. On Thursday, PCTY jumped again. With earnings going to be posted after the market closed at the end of the day, we sold another half of the options for $27.20. This time we banked a 115% gain.

PCTY beat earnings expectations nicely. On Friday, the stock gapped higher. With the stock up near $244 and close to a 20% gain on the session, we sold the rest of the position for $44.50. This enabled us to bank a 251% gain.

During the course of the week, we also banked gains in the following positions:

Albemarle Corporation (NYSE: ALB): 219.8% gain the options.

Atlassian Corporation PLC (NASDAQ: TEAM):  309% gain in the options.

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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:

Snap Inc. (NYSE: SNAP): SNAP gapped higher after its earnings report, even clearing all of its prior highs during its five-month base on the gap. The stock then gapped and rallied further during that session. All the elements of a breakaway gap were present.

What do we know about breakaway gaps?

They tend to rally in the direction of the gap. We particularly love it when they take a few days off and work laterally. This is because that usually leads to a very good entry.

SNAP set up very well and formed a seven-session pennant while holding the upper gap level. That is the key, because a refusal to go back into the gap is a testament to the gap’s strength. It also indicates a refusal by holders of the stock to sell.

On Aug. 3, SNAP showed a doji that reached lower. Then, it snapped back. We used that move to enter the play. This is because it is usually the signal that the pullback/consolidation is over.  We bought stock for $75.41.

SNAP shot higher on Aug. 4.  On Thursday, it surged again and hit the level that we had set as the initial target. Since the pattern was strong, we left it to work. The next session was Jobs Report Friday, and jobs were strong. However, the tech stocks were lukewarm to that strength. As SNAP popped up again, however, we opted to sell the stock for $78.41. This allowed us to bank a 3.98% gain.

Kroger Co. (NYSE: KR): We also cashed in our KR play this week. We bought KR on July 26 for $40.40.  On Aug. 3, KR surged upside through the upper trendline in its channel. We then sold the position for $42.66 and banked a 5.59% gain. KR is setting up very well again, as it tests that move. So, we anticipate another entry sometime during this coming week.

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

QCOM (Qualcomm — $148.22, +0.27)

EARNINGS: 10/27/2021

STATUS: We have been looking at QCOM again, because it tested the gap higher on the prior Thursday. This occurred when the stock jumped over its base resistance on its earnings move. Then, there was a nice four-session fade back to the upper gap point. Soon after, the stock showed a pair of doji over the 10-day EMA.

This is an excellent setup. The entry signal will be a new break higher through the entry point. As the target is near the upper gap point from the early February downside gap, that move will give us a solid 75% gain in the options.

VOLUME: 5.556M  Avg Volume: 7.44M

ENTRY POINT: $149.24 Volume=9M Target=$158.48 Stop=$146.22

POSITION: QCOM OCT 15 2021 $150.00 Calls — (49 delta)

To see the chart for QCOM, click here!

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4. Covered Call Options Play

Chuy`s Holdings Inc. (NASDAQ: CHUY)Chuy`s Holdings Inc. is currently trading at $32.03. The Aug. 20 $32.50 Calls (CHUY20210820C00032500) are trading at $0.65. That provides a return of about 8% if CHUY is above $32.50 by the expiration.

Learn more about our Covered Call Tables here!

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