Invest and Trade Profitably with Jon Johnson

Weekender for 9/13

1. Market Summary

Leadership definitely ragged in many quarters, leaving the market with few potential drivers

– The bounce continues in the morning session but rolls over to stronger losses.
– GOP failure to pass stimulus-light bill adds to selling impetus.
– Indices again at the 50-day moving average (MA), along with the mega-cap techs, are unable to hold the bounce attempt.
– Leadership definitely ragged in many quarters, leaving the market with few potential drivers.

The stock market continues to work through the decision-making process of continuing the rally that was extended and it needed this test of breaking the 50-day MA’s and moving into a more extended correction. Stocks started higher after a high-to-low premarket move that then caught a strong bid once the morning jobless claims data was released and digested. Stocks rallied to the open and into the first hour, but then faltered.

After the initial move broke, stocks never got back into the upside mode. Things worsened around 2:00 EDT after a Senate attempt to move forward with a smaller CV-19 stimulus package failed.

Democrats used the filibuster rule the Senate made up a few decades back to block the effort. Of course, the Democrats are saying when they are back in power they will remove the rule so that legislation can get to the floor for a vote without requiring the supermajority currently needed. It is a rule that allows the Senate not to work, not to perform the harder more mundane parts of its job, i.e. making those who want to block legislation actually filibuster versus just saying they will. Isn’t it nice to have the power to make up rules so you do not have to do your job? You still get paid, you still can go on TV and huff and puff in faux anger to get the publicity you so desperately crave; you just don’t have to do your job. Ah, government.

But, I digress. News of the failure of the Senate bill where Republicans hold a majority did no favors for the market. Stocks fell sharply starting at 2:00 EDT and never recovered much.

Technical Analysis: 

Indices moved back to the 50-day MA. The action left Nasdaq, SP500, DJ30 back at the 50-day MA after Friday, and Tuesday tests of that level and the Wednesday bounce. Nasdaq threatened to break the 50-day MA, but a last hour lift managed to close Nasdaq just over that support.

NOTE: The figures and information above are from the 9/9 report.

Watch the Investment House Video For This Week Here!

NOTE: The video is from the 9/9 report.

2. Targets Hit

We’ve had several completed trades this week in Investment House Daily; below is one such trade:

Workhorse Group Inc. (NASDAQ: WKHS): In this volatile market, you look for stocks that show they are stronger than most, a workhorse so to say. WKHS certainly set up a nice pattern in July and August following its big surge in late June into early July. As WKHS formed a very tight range in late August, we put it on the report, ready to move in as it broke higher from what was the end of the basing process. Almost.

We bought stock for $16.91 and October $16.00 strike call options for $3.30. WKHS continued higher in the next session until it dropped back. It put in a 1-2-3 test of the 20-day MA, then started higher the last day of August and rallied into September. It was not up every session, but when it moved it moved big, hitting our target on 9/10. It started to back off from the new high, and with that move we sold the position, selling stock for $22.48 and a 32% gain, selling the options for $7.90 and a solid 79% gain.

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We’ve had several completed trades this week in Technical Traders Alert; below is one such trade:

Caterpillar Inc. (NYSE: CAT): Sometimes you go back to the basics, the less sexy stocks, and you just have to let them work. CAT fits that billing. Way back in late July we saw CAT form a small cup-with-handle base. It broke higher on 7/22 after a 10-day exponential moving average (EMA) test and we bought some September $135.00 strike call options for $8.99 when the stock was at $137.46. CAT crept higher up the 10-day EMA for a week — not huge, not bad. Then it gapped lower to support on 7/31. At least it landed on its feet because CAT jumped back up and cleared the prior high. From there it was a matter of moving up, then testing the 20-day EMA, moving up, testing the 20-day EMA. Less sexy as I said.

As the techs faltered, however, CAT strengthened, moving up to the 10-day EMA and rising above it, using it as support. This week CAT made a break higher. Looked great, but then, as with many stocks, it faded off that move. With the options running lower on time, we decided that was time to sell and we closed the position, selling the options for $15.00, banking the 66% gain.

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We’ve had several completed trades in Success Trading Group; below is one such trade:

Stitch Fix, Inc. (NASDAQ: SFIX): Retail was turning into a market leader over the summer and it was not just retail stores — many aspects of the consumer-focused business were looking better. SFIX had come back to test the 200-day simple moving average (SMA) and bounced. After clearing the 50-day MA on the recovery it started to move laterally, setting up something of a short cup-with-handle off the July peak. We saw it setting up, and on 8/25 when it bounced up from the 50-day MA, we moved in.

We bought stock at $25.85. Nice move, held the gain on the day. Two sessions later, SFIX decided it had to visit the 50-day MA again. It held, moving laterally for three sessions. September came and with it a good move for SFIX. Nice surge clearing the late August highs. Back in business. Then, another lateral move. Trying the patience. Finally, the day after Labor Day SFIX showed what it could do, surging to near the early July peak. That was the breakout we were looking for. We sold our position at $28.44, banking 10%. In retrospect, 10 days in the play was not bad for the gain, but typically we are in and out faster than that for sure.

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3. Pick of the Week

Z (Zillow–$83.88, -1.56)

EARNINGS: 11/05/2020

STATUS: Renewing the position on Z as it caught itself Friday after selling below the 20-day EMA, rebounding to hold the 20-day EMA by the close. Z made us good money on its early August gap breakout followed by a move up the 10-day EMA through Wednesday. Z sold with the market, but it did not sell off — after a good move, it tested the 20-day EMA and the 38% Fibonacci retracement, rather normal action. Indeed, as it tested, volume backed off from the Wednesday gap to a new high — no heavy selling, just a test. We want Z to show us a new break higher, and when it moves through our entry point, we enter. Looking for a run at 100, and that move gains 17%-ish on the stock, 70%-ish on the options.

Volume: 3.315M Avg Volume: 3.832 million

ENTRY POINT: $85.48 Volume= Five million Target=$99.94 Stop=$80.98

POSITION: Z Nov. 20, 2020 $85.00 Calls – (53 delta) &/or Stock

To see the chart for Z, click here!

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4. Covered Call Options Play

Pan American Silver Inc. (NASDAQ: PAAS) — Pan American Silver is currently trading at $35.25. The Oct. 16 $36 Calls (PAAS201016C00036000) are trading at $2.36. That provides a return of about 9% if PAAS is above $36 by the expiration.

Learn more about our Covered Call Tables here!

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