Invest and Trade Profitably with Jon Johnson

Weekender for 9/25

1. Market Summary

Stocks Try To Pull An Opposite Day

  • Stocks try to pull an opposite day, fail miserably.
  • Stocks rally late session then dive hard in the last 10 minutes.
  • Central banks are getting on the same page in rate hikes.
  • Japan defends the yen but won’t raise rates.
  • Soft recession now gaining speed — and it will not be shallow as the conventional wisdom believes.
  • Consumer-related areas now showing signs of recession realization.
  • Growth, discretionary sectors hammered, also on recession realization.
  • Consumer credit bubble will show up this holiday season.
  • The Chicago Board Options Exchange’s CBOE Volatility Index (VIX) is down on a down day
  • Friday was likely to show some short covering bounces as indices extended, internals are VERY extreme, Microsoft and Alphabet up on the day, sectors testing support.

No opposite day for the market, but it took a late, sharp drop to make the close a bit uglier. Futures were up modestly with DJ30 up by 110 points and the Nasdaq just barely positive. From there, stocks plunged into the European close, trading laterally hours in negative territory. Then, bids returned, and stocks rallied starting at 2:00ET. That move turned DJ30 positive by 200+ points, but in the last 10 minutes, stocks plunged, flipping the DJ30 to -107. The Nasdaq dropped 137 points from -16 to close at -153.

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NOTE: The figures and information above are from the 9/22 report.

Watch the Investment House Videos For This Week Here!

NOTE: The videos are from the 9/21 report.

2. Targets Hit

ProShares UltraShort QQQ (NYSEARCA: QID): The Ultrashort QQQ set up a nice inverted head-and-shoulders pattern from mid-July to near mid-September as NASDAQ 100 topped the latest move higher into August.

We like playing QID in Investment House Daily as the options are liquid and their pricing is better than QQQ.  On Sept. 13, we saw NASDAQ 100 fade, breaking down from the head and shoulders. That pushed QID higher — it is the inverse of the QQQ. During the next session, we sent the entry signal as QID tested the move — entering on a relief bounce form a big selloff.

The alert was to buy January 2023 $25 call options with QID at $22.92. Looking at a longer play overall, but willing to bank interim gain on good moves. Those options were asking for $2.79. QID bounced higher for two sessions as the Nasdaq sold, paused this past Monday and then started a four-session run into Friday.

After an ugly open on Friday that saw the DJ30 undercut the June low and the S&P 500 come close, things started to firm up. Strong push lower, fourth leg of selling since the August peak, Friday after a down week (and likely some short covering later session); a good time to bank some gains.

We issued the alert to sell a third of the position with the options bidding at $4.17. That produced a solid 49+% gain and leaves us with plenty of position to work with as the market continues selling toward 2023.

We also banked gains in the following positions:

Apple Inc. (NASDAQ: AAPL): 25% gain in the options.

Nordic American Tanker Ltd. (NYSE: NAT): 27.5% gain in the stock.

ProShares UltraShort S&P500 (NYSEARCA: SDS):  50% gain in the options.

Visa Inc. (NYSE: V): 73% gain in the options.

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Technical Trader Alert

Dave & Buster’s Entertainment Inc. (NASDAQ: PLAY): With inflation, we reasoned that there would be a realization that the consumer discretionary sector would be hit. We saw PLAY fall away from a four-week range at resistance, breaking through the 200-day simple moving average (SMA) on a big one-day dive. We waited for PLAY to test the move, as we wanted to confirm it was not just a quick drop that reversed.

PLAY worked laterally below the 200-day and 50-day SMAs into the third week of September. It bumped at the 50-day SMA for several sessions. On Sept. 19, PLAY rallied to test that level but then reversed. That was our entry signal. We issued the alert to buy December $35 put options for $3.30.

PLAY finished that session with a tombstone doji below resistance, a very good entry signal. Turns out it was indeed a good signal. PLAY sold the following four sessions into Friday, Sept. 23.

The market was selling hard for a fourth session in its fourth leg. DJ30 touched the June low and the S&P 500 was close. It was also Friday of a selling week; after four downside sessions, some short covering ahead of the weekend could take place. Banking a half position in that situation was not a bad idea. Accordingly, we sent an alert to sell half the options that were bidding for $5.00. This produced a very solid 50% gain for the week, with still a good position to work for us.

We also banked gain on the following positions:

ProShares UltraShort Dow30 (NYSEARCA: DXD): 36% gain in the options.

Lam Research Corporation (NASDAQ: LRCX): 71% gain in the options.

Mastercard Inc. (NYSE: MA): 83% gain in the options.

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3. Covered Call Options Play

Vipshop Holdings Ltd. (NASDAQ: VIPS) — Vipshop Holdings Ltd. is currently trading at $9.46. The Oct. 21 $100 Calls (VIPS20221021C00010000) are trading at $0.45. That provides a return of about 12% if VIPS is above $10 by the expiration.

Learn more about our Covered Call Tables here!

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