Invest and Trade Profitably with Jon Johnson

Weekender for 9/27

1. Market Summary

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

News of no stimulus talks stalls Thursday’s gains, but the market action is constructive.

– Stocks post low, to high, to not so high actions that just missed being really positive.
– Stocks were cruising until a report that there are no ongoing stimulus talks between Secretary Mnuchin and Speaker Pelosi’s Democrats. After the lack of stimulus talks were blamed for the afternoon selloff, the Democrats unveiled a $2.4 trillion plan that will be voted on next week.
– Despite the high to low action, the action — in the long term — was indeed a bit constructive.
– Volatility is not moving as of late, and the put-call ratio recently hit 1.0 on an upside session. Those are divergences I like to see.

After the Wednesday gap lower and selloff, futures were down on Thursday. When the number of jobless claims was worse than expected, futures went from modestly weak to fairly serious. The NASDAQ was already the downside leader (at around 100 points lower), but after the data was revealed, it dropped to near 150 points down. This was not great. Ten minutes into the session, however, bids hit and stocks jumped upside until 10:00 a.m. EST.  A test and a steady move higher into the afternoon session had the indices flip positive. This is a good example of a nice low to high action.

Then, politics got in the way. A report came out that Secretary Mnuchin and Speaker Pelosi’s Democrats were not talking about stimulus at all. This is hardly surprising, given everything we heard over the past two weeks, but there is always hope. Apparently, the market held out some hope that a deal was quietly in the works. It wasn’t.

Stocks peaked around 1:30 p.m. EST and sold hard into the last hour. However, a modest bounce managed to close the indices higher. Even so, this higher point was just a shadow of the earlier recovery gains.

Technical Analysis:

NASDAQ: This index once again tested to 10,500 points on the low, just as it did on Monday. Then, it moved up off of that level to close. The volume was also as strong as it was during Wednesday’s selling trade. While it was no rebirth to the upside, it was a session that put in the work, held its support and found bids again at that support. In short, the NASDAQ is going through the process of continuing to show some new buying interest in tech stocks when they move lower.

S&P 500:  The S&P 500 sold to a lower selloff low and then rebounded. Not long afterwards, the index faded to a very modest advance. As the rubber-band movement held, the S&P 500 closed over the 61% Fibonacci retracement of the June to September move. This is because it is likely trying to set a D point on an ABCD consolidation off of the September peak. The key word here is “trying.” As I said, the action was constructive. It was not a reversal upside.

NOTE: The figures and information above are from the 9/24 report.

Watch the Investment House Videos For This Week Here!

NOTE: The videos are from the 9/23 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:

Nike Inc. (NYSE: NKE): Earnings were scheduled for the fourth week of September, and we wanted to play a move on earnings. As NKE was trading in a tight and flat consolidation to end August, we were ready to enter when it made its break. When it broke higher to start September, we entered the play by buying October $115 call options for $5.60 when the stock was trading at $114.59.

The stock had a nice break higher, and then we saw the September slump in tech. While it did not hammer NKE, the stock did fade to the 20-day exponential moving average (EMA) that week. As it bounced nicely intraday, however, buyers were there to stop the selling.

NKE rallied to the middle of the month and then tested. Then, it faded all the way to the 20-day EMA on Monday. As the stock showed a nice doji, it was able to rebound on Tuesday.

Since earnings were due after the close, we were flat, at best, because no run had been built into the stock. However, since NKE was selling a lot of goods online and online sales were being rewarded in the company’s earnings, we let the options run through the announcement.

After NKE blew out results on Wednesday, the stock gapped to almost $130. As a result, we took advantage of the jump in volatility to sell just over half our position for $14.30 and bank a 155% gain.

Zoom Video Communications Inc. (NASDAQ: ZM): ZM continues to impress with its moves and its earnings. In early September, it exploded higher on its earnings results and rose to over $475. It then tested substantially over the next four sessions — right at the start of the September selling.

After it came back to the 10-day EMA, it started to show a doji on the candlestick chart. This suggested that the selling was about to end. We put it on the report, and when ZM bounced on Sept. 14, we bought November call options for $50.50. ZM bounced, made a quick intraday 10-day EMA test on Sept. 17 and then started to run.

It zoomed well. By Sept. 23, Zoom surpassed $500 intraday before starting to falter. On Thursday, ZM opened lower and then rallied right back up. Then, however, it started to falter again. The fact that the stock had more than a week of upside followed by five sessions of movement straight upward for over 130 points before starting to falter meant that it was time to take profits. We sold the options for $114.50 and banked a 97% gain.

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Here is one completed trade from Technical Traders Alert, offering insights into our trading strategy and the target that we have hit this week:

Zillow Group Inc. Class C (NASDAQ: Z): Z is a stealth leader that rose steadily ahead of September. Indeed, when the September selling hit, Z simply used it as a time to test another good rally from August.

It dipped to the 20-day EMA by the end of the first week, held and then started upside. As it made that test, we put it on the report that weekend because we wanted to capture Z as it rebounded and continued the move. While we had to wait three sessions, Z started higher on Sept. 10. We bought November $85 call options for $10.44.

Z then proceeded to put in a steady, solid move up the 10-day EMA. It paused, made a quick test of the 10-day EMA Monday and then jumped higher on Tuesday. At this point, it hit our initial target.

When it did, we sold half of our position for $16.95 and banked a 62% gain. On Friday, Z rallied again and moved to a new high at $100.

Receive a risk-free trial to Technical Trader and save 50% by clicking here now!

Here is one completed trade from the Success Trading Group, offering insights into our trading strategy and the target that we have hit this week:

Stitch Fix Inc. (NASDAQ: SFIX): SFIX was one of the retail stocks that felt a bit of the September selling, but not much. It had already put in a base ahead of September and was indeed ready for the upswing when the selling started. Actually, SFIX used the selling as a time to test a strong move on the first day of the month.

At the end of the first week of the month, SFIX broke higher, but wildly surged and purged all in one session. Then, it gapped upside during the next session. It tested that break higher during the middle of the month, and when it closed at the 10-day EMA on Friday, Sept. 11, we put a play on the list that weekend. On Sept. 14, SFIX broke higher, and we entered by buying stock for $28.89.

SFIX rallied during the next session, but then reversed midday to close flat. This was followed by a Wednesday-to-Friday test of the 10-day EMA once again. This Monday, SFIX moved higher with a solid advance to the recent highs. On Tuesday, it gapped upside and took off on a rally right before earnings and after the close.

We didn’t get it at the session high, but we were not far off. In the end, we sold our position for $30.46 and banked a solid 5.4% gain.

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

HUBS (HubSpot–$284.68, +10.81): Cloud software

EARNINGS: 11/04/2020

STATUS: Double bottom. This was a cloud stock that broke higher in early August and continued higher into early September. It faded during the early September selling and dropped to the 50-day EMA on Sept. 4. It then bounced and set the first low in the current double bottom.

After the stock rebounded, it then faded to the 50-day EMA again on Thursday. On Monday, HUBS tapped the 50-day EMA and then reversed back upside with a strong move. That set the second low.

It is worth noting that the double test of the 50-day EMA was also a double test of the 61% Fibonacci retracement of the August run. As this was one of the cloud software stocks that used the selling to set up a nice base, we are looking for a continued break higher to enter. A move to the target will give us a 60% gain on the options.

VOLUME: 473.923K  Avg Volume: 565.326K

ENTRY POINT: $284.89 Volume=750K Target=$314.96 Stop=$275.19

POSITION: HUBS NOV 20 2020 290.00 Calls — (57 delta)

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4. Covered Call Options Play

Enphase Energy Inc. (NASDAQ:ENPH) Enphase Energy Inc. is currently trading at $69.41. The Nov. 21 $70 Calls (ENPH20201121C00070000) are trading at $9.65. That provides a return of about 18% if ENPH is above $70 by the expiration.

Learn more about our Covered Call Tables here!

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