Invest and Trade Profitably with Jon Johnson

Weekender for 9/19

1. Market Summary

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

Better Data Turn Futures Higher

– Better data turn futures higher, but stocks trade up and down before closing with mixed gains.
– Wednesday’s 50-day moving average (MA) bounce was not wholly convincing, and the Thursday move did not help. Stocks are still in position to move, but will they?
– The Nasdaq big names, chips and software are solid. Other stocks are breaking lower at the same time.

The market is trying to move higher off of the 50-day MA test. Futures were mixed, and after retail sales were positive, futures started to run nicely higher. Stocks then opened and bombed lower into 9:40 a.m. CST.  A recovery up to the last hour was impressive, as it turned the DJ30 from -200 into positive figures. There was another drop in the last hour, but it was much less than the initial bomb lower. Thus, by the time that trading ended, we saw a mixed market.

The 50-day MA bounce is still not convincing. On Wednesday, even with the S&P 500 testing near the 50-day MA yet again and starting to bounce once more, we were watching as to whether the buying would improve off of the Wednesday levels to lend support to the bounce. It didn’t really happen.

While this was a very mixed market, it was also very flat. That does not mean that  the move failed. It could just be taking a breather after an initial move. That theory would hold more water if that initial move was a barnburner and not as problematic as what happened on Wednesday. However, it can still happen, and the indices left themselves in a position to do so. Now, will they?

P.S. I will be hosting a free teleforum for my subscribers on Sept. 23 called “Will the Seasonable Pattern Repeat Itself in Q4?” Click here to sign up.

NOTE: The figures and information above are from the 9/16 report.

Watch the Investment House Videos For This Week Here!

NOTE: The videos are from the 9/15 report.

2. Targets Hit

Here are two completed trades from Investment House Daily, offering insights into our trading strategy and the targets that we have hit this week:

We are looking at the downside more and more, as there are more and more good setups that direction.

Yum! Brands, Inc. (NYSE: YUM): We saw a good move in YUM, but we also saw the move run out of momentum in August. Indeed, volume completely dried up when the stock put in new highs in the middle of the month.  Moreover, moving average convergence divergence (MACD) peaked and put in lower highs even as the stock price put in those highs.

Both of these metrics show that the number of buyers had dried up. The stock isn’t bad. Instead, the problem is that the current move higher has run out of gas. With the 50-day exponential moving average (EMA) below and some unfilled gaps remaining from the move higher, YUM presented us with an opportunity.

YUM gapped lower through its near support in late August, and we put it on the report. The goal was to pick up downside positions as YUM continued to sell.  It did, and on Aug. 30, we bought October $130 put options for $2.95.

YUM stayed in a range for a couple of sessions and then broke lower toward the 50-day MA. Over the following one-and-a-half weeks, YUM slowly moved lower. On Sept. 16,  YUM touched the initial target at the upper gap point of one of those gaps. As a result, we sold half of the position for $4.30 and banked a 45% gain.

We also took a gain in another downside play this week:

Nike Inc. (NYSE: NKE): 60% gain in the put options.

3. Pick of the Week

CLF (Cliffs Natural Resources — $23.02, +0.94)

EARNINGS: 10/21/2021

STATUS: CLF reached a higher high during the second week of August, but it then peaked out at that point.  After it fell to the 50-day MA, it bounced to a lower high at resistance at $25 and then just trickled off into September.

On Monday, CLF broke below the 50-day MA and the prior price points. It then sold a bit more on Tuesday.  On Wednesday, it experienced a rebound and tested the 50-day MA on the high. Since the volume faded significantly, it is clear that the bounce is weak.

If CLF rolls back over and holds the move, we are ready to a move near the 200-day simple moving average (SMA) and the July low. That move will give us a 55% gain in the options.

VOLUME: 16.368M  Avg Volume: 22.669M

ENTRY POINT: $22.39 Volume=30M Target=$19.05 Stop=$23.45

POSITION: CLF NOV 19 2021 23.00 P – (-43 delta)

To see the chart for CLF, click here!

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4. Covered Call Options Play

Ramaco Resources Inc. (NASDAQ: METC) — Ramaco Resources Inc. is currently trading at $11.37. The Oct. 15 $12.50 Calls (METC20211015C00012500) are trading at $0.50. That provides a return of about 17% if METC is above $12.50 by the expiration.

Learn more about our Covered Call Tables here!

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