1. Market Summary
Excerpted from Thursday’s paid content of Investment House Daily by Jon Johnson.
The European Central Bank is Ready to Taper
– Overall, the mild selling continues. However, the chips post a modest gain.
– The European Central Bank (ECB) is ready to taper, it just doesn’t call it that.
– Stocks have been bouncing up and down day-to-day in much of the market, while the big names remain the steadier hands. Bond yields dropped after a big 30-year auction bid.
– President Biden issued edicts on handling the virus, and here, he gets testy and somewhat threatening.
– There are still many good names that are continuing to set up for moves higher.
Stocks struggled a bit more as the week progressed, but the action was again orderly overall. It was also rather tame. If this is selling…
On the day, some of the better performing indices were the small-cap and mid-cap stocks. Okay, most of the indices were just fine, as they further tested their supports.
The ECB is due to start the process formerly known as tapering. On Thursday, its fearless leader announced that, due to inflation levels, it was going to start reducing its stimulus purchases. In the United States, they call this tapering, but the ECB does not want anything to do with that moniker. You can call it reducing, you can call it removing, but just don’t call it tapering. No amount was mentioned in the announcements, but we were assured that it will be at a “moderately lower pace.” Well, that makes all the difference.
P.S. Las Vegas Money Show, September 12-14, Bally’s Hotel & Resort: Join me and many other speakers. For more information, go to Johnson.MoneyShow.com. A special registration code of 053412 is embedded in the link to help my readers secure early bird pricing and a seat at the event.
NOTE: The figures and information above are from the 9/9 report.
NOTE: The video is from the 9/8 report.
2. Targets Hit
Here are several completed trades from Investment House Daily, offering insights into our trading strategy and the targets that we have hit this week:
MaxLinear, Inc. (NYSE: MXL): MXL posted a breakout on earnings late July, which was when it broke from a consolidation and moved up from the 50-day exponential moving average (EMA). We did not play the earnings, but we did opt to play the first test. After all, a break higher from a consolidation formed in an uptrend tends to reset the uptrend for rallies up the 20-day EMA.
By mid-August — yes, patience and a list of potential plays helps — MXL was testing and coming back to the 20-day EMA. If the trend held, MXL would rally off of the 20-day EMA after the test. Indeed, MXL would do this four or so times, if all things remained constant.
On Aug. 23, MXL broke higher from the 20-day EMA. As we had the stock on the report, we were ready. We bought October $50 call options for $3.87.
MXL moved up over the 10-day EMA and then proceeded to climb steadily up that support and then moved past the early August breakout high to a new high. This past week, MXL, after a short test, punched out a new high. In doing so, it punched our initial target. We then played the plan and issued the alert to sell half of the position for $5.70. We then banked a 48% gain.
Tractor Supply Company (NASDAQ: TSCO): We also banked gains in a position in TSCO on Sept. 10, as TSCO extended its rally from the 50-day moving average (MA) and broke out to a new high. We sold half of our options, which we purchased at $9.40, for $13.00. This allowed us to bank a solid 38% gain. With the breakout, we anticipate that TSCO will ramp up the gains further.
Here are several completed trades from Technical Trader Alert, offering insights into our trading strategy and the targets that we have hit this week:
DigitalOcean Holdings Inc. (NYSE: DOCN): This was a new issue in March, and we like to play new issues when they set up a base or a buy point after the first base. In early August, DOCN was testing the 50-day EMA after a good break higher. It then showed a doij after a short pullback to that support.
We put the stock on the report, and on Aug. 10, it broke nicely higher. We started the position by issuing the alert to buy November $55 call options for $9.50. Well, DOCN had one more 50-day moving average (MA) test in it. It faded back to the 50-day MA by the middle month, and then it started a slow rise.
That rise finally turned into the move that we originally envisioned, as DOCN trended higher above the 10-day EMA. DOCN then surged to a new high, and then, on Sept. 7, started to waffle a bit. We issued an alert to sell the options for $17.50 in order to bank an 84% gain.
Costco Wholesale Corporation (NASDAQ: COST): We also took gains in COST, a play we entered as it tested the 20-day EMA and then rallied from there on Aug. 30. As it was a leader that was continuing a rally from the 50-day EMA, it looked as if COST had more life in the move. It did.
After we entered the play on Aug. 30, COST steadily stepped higher up the 10-day EMA into Sept. 9. During that session, it started higher, rallied farther and then started to stall. It was time to bank gains. So, we issued an alert to sell half of the options for $23.50. This produced a 43% gain.
There were no 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.
3. Pick of the Week
TWLO (Twilio — $352.71, -6.86)
STATUS: TWLO spent two weeks testing laterally along the 200-day simple moving average (SMA). While it even broke over it once or twice, it could not continue higher.
After breaking higher on Friday, TWLO gave up immediately. It then broke back below the 200-day SMA on Wednesday. So, we want to play a continued break lower. A move to the target will give us a 65% gain in the put options.
VOLUME: 2.466M Avg Volume: 1.295M
ENTRY POINT: $350.89 Volume=2M Target=$325.68 Stop=$359.22
POSITION: TWLO OCT 15 2021 350.00 P – (-45 delta)
4. Covered Call Options Play
International Game Technology Plc. (NYSE: IGT) — International Game Technology Plc. is currently trading at $21.74. The Oct. 15 $22 Calls (IGT20211015C00022000) are trading at $1.20. That provides a return of about 7% if IGT is above $22 by the expiration.