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Jon Johnson is the Editor of The Daily at InvestmentHouse.com
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1) MARKET SUMMARY:
Excerpted from Thursday's paid content of "The Daily" by Jon Johnson at InvestmentHouse.com. To get his latest information and his daily content, click here now to receive a two-week trial and save $30/month. (You won't find this offer on the Investment House website. It is exclusively for The Weekender subscribers!)
Tariff Drama Returns.
Market Summary (continued from above)
Stocks appeared to have overreacted to the Federal Open Market Committee (FOMC) decision, at least in the minds of investors. Futures swung modestly higher in a relief move which had reacted to the Wednesday afternoon selling. Then, stocks caught a bid when the market opened on Thursday and improved through the first half of the day. NASDAQ topped the Wednesday intraday high and stocks such as the Lam Research Corporation (LRCX), Applied Materials Inc. (AMAT), Alphabet Inc.(GOOG), Facebook (FB) and Twitter (TWTR) put in solid moves by moving past their Wednesday highs as well. Certainly, it looked as if the market had reassessed the FOMC half-measure move, found it palatable and allowed the bids to return.
This fact remained true even when earnings were not all that great to start the day. Indeed, there were lots of top-line misses such as Verizon (VZ), Clorox Co. (CLX), Dunkin Brands Group Inc. (DNKN) and Qualcomm (QCOM). This seemed like a return to the trend that we saw back in the financial crisis "recovery" days. It is also a leading indicator of trouble ahead as profits necessarily get squeezed when there are top-line misses. Since profits (P) equals investment (I) equals growth (G), if P starts to decline, G declines. Then, stock prices and the economy follow suit. Nonetheless, investors overlooked that and decided a 25 basis point cut was better than a poke in the eye with a sharp stick and bought stocks.
Then the other shoe dropped. President Trump announced a new 10% tariff on the remaining $300 billion of Chinese imports. Stocks dropped as if they had been shot. The DJ30 dropped 560+ points in just over one hour and the NASDAQ dropped 230 points.
DJ30: You know, when I said earlier in the week and over the previous weekend that the Dow was at a point where it needed to make that break from its three-week consolidation or trouble might ensue, I really didn’t believe it would break down. However, it did. Now, it is just over the 50-day simple moving average (SMA) and selling on its big volume. As with the NASDAQ, it will have a chance to bounce here, but the quality of the bounce will reveal everything. While I am not expecting it to be all that great, then again I did not think that the Thursday bounce would be as good as it was BT (before Trump).
S&P 400: The S&P 500 gapped lower, experienced a modest bounce and then slammed down through the 50-day exponential moving average (EMA) and close to the 1,920 50-day EMA and support.
NASDAQ: NASDAQ flipped from an excellent recovery off the Wednesday Fed-induced selling by rallying 135+ points. Then, the monkey hammered. By the time that the market closed, it had given up that early July break to the new all-time highs. Those new highs had been hit and held for three weeks or so. Then, two hard days and it, along with much more, were all gone. Those are the kind of reversals that you have to take seriously. Since the NASDAQ is just over the 50-day EMA by 65 points, it will try again there, and with the two main issues decided for the moment, perhaps the bids will resume if the Jobs Report is just right. This means that the report cannot be either too strong or somewhat disappointing with more weakness than has been believed. In this market, that will be a Fed positive, and a Fed positive is the best upside impetus in the current market.
NOTE: The figures and information above are from the 8/1 report.
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NOTE: The videos are from the 8/1 report.
Here are two trades from "The Daily," offering insights into our trading strategy and the targets that we have hit this week:
Bear flag. NFLX broke hard on earnings with a breakaway gap through the 200-day SMA that marked the bottom of NFLX's six-month trading range. Although it has a huge volume on the gap below the resistance, a breakaway gap exists to the downside. As you know, breakaway gaps tend to run in the direction of the gap.
Of course, NFLX rebounded to test the 200-day SMA. On Monday, it had just waffled to below that resistance. If NFLX breaks hard through the buy point and on some volume, we want to play it lower. A move to the target will give us around 95% on the put options.
TRV (NYSE: The Travelers Companies Inc.)
Bear flag. TRV put in a steady trend higher off the December 2018 low. It then entered a period of nice action with periodic tests of the 50-day MA. On this last test, TRV broke below the 50-day MA on strong volume. Then, it rebounded to test and moved up over the 50-day MA before reversing when the market closed.
It is now consolidating again in a tight lateral range while it waits for the 10-day EMA to catch up and start the next move upward.
If TRV breaks lower from here, we want to play a move to the next lower support. That move will gain us around 80% on the options.
Targets Hit This Week:
Apple, Inc. (NASDAQ:AAPL): We picked up AAPL after an earnings move on 7/3 by buying August $200.00 call options for $9.65. The idea was to see if we could get a pre-earnings run and then wait to see what Apple's earnings looked like. Then, we would decide if we wanted to ride some shares through. Initally, AAPL remained slow-going for some time. Then, it experienced a slow move to the upside and trended higher up the 10-day EMA. This meant that, right before earnings, we had a modest gain built into the position as AAPL's share price had moved up ahead of its earnings report. We also already knew that AAPL had popped on its April results and then immediately suffered a sell-off. Thus, we opted to sell the position for $11.20 and banked a very modest 16% gain. Well, AAPL did get a pop and jumped in the first few minutes of trading. The options then traded up to near $19.00 and immediately dropped. While we could have made a handsome profit, we were straight on the calls and did not have a spread going forward, we decided this one was too risky for the anticipated move that the options were showing. As it turned out, this would have been a good play. However, the odds were not in our favor as much.
Pinterest Inc. (NYSE:PINS): This was one of our favorite plays. After all of the fluff from the early initial public offering (IPO) trade is out, then the share price will settle into a base. When the base hits the buy point, the share price can fly. We moved in on 7/24 as PINS broke higher over the 50-day EMA on its base As this was a very logical buy point, we bought stock for $27.96 and some September $27.00 call options for $2.65. PINS then consolidated for a couple of sessions after the break and moved higher on 7/31. It tested on 8/1, ahead of its earnings report. Our play was to ride through earnings on this one, and it paid off as PINS shares beat and jumped. We sold half the stock for $33.40 and banked a 19% gain. We then sold the options for $6.70 and banked over 150%.
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2) IH ALERTS
NASDAQ:AMZN Amazon (Amazon.com--$1866.78; -31.75; optionable)
STATUS: AMZN has been down for four sessions and it may try a relief move. However, we want to be ready if the big tech companies continue to get sold. On Wednesday, AMZN broke below the 50-day SMA on a big volume. After reaching a lower moving average convergence/divergence (MACD) and a lower volume peak in early July, AMZN may just want to go down and test the 200-day SMA. We want to play that move. The question is whether AMZN will do so from here or after a bounce. We are ready to enter at least a partial position if AMZN's share price continues to decline. If it bounces a bit first, that is good, too. We will then play it off a failed test of the 50-day MA. A move to the target from the Wednesday close will give us around 50% on the put options.
VOLUME:4.325M Avg Volume: 3.251M
BUY POINT: $1,864.64 Volume=3.8M Target=$1,715.55 Stop=$1,894.57
POSITION: AMZN OCT 18 2019 1,865.00P -- (-46 delta)
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3) SUCCESS TRADING GROUP
-- by the MarketFN STG Team
NYSE:CHWY (Chewy, Inc.)
Our Success Trading Group members scored another winning trade this week when we closed out a position in Chewy, Inc. (NYSE:CHWY). We are watching other several stocks and are looking forward to trading next week.
Our Success Trading Group closed seven years with zero losses on our Main Trade Table. In fact, we closed 100% winning trades for the calendar years 2016, 2015, 2013, 2012, 2011, 2010 and 2009. We still have one open position from 2017 (all others were winners) and one trade that we opened in 2014 but was closed as a losing trade.
All of these trades are posted on our Main Trade Table for your review during your free membership trial period.
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4) COVERED CALL PLAY
NASDAQ:VG -- Vonage Holdings Corp. is currently trading at $12.07. The August 17 $12.00 Calls (VG20190817C00012000) are trading at $0.75. That provides a return of about 7% if VG is above $12.00 by the time of the expiration.
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The foregoing is commentary for informational purposes only. All statements and expressions are the opinions of Online Investment Services, LP., or Split Ventures, Ltd. This information is not meant to be a solicitation or recommendation to buy, sell, or hold securities. We are not licensed or registered in the securities industry. The information presented herein and on the related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolios of writers for this issue may, in some instances, include securities mentioned herein and on the related web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors. No one associated herewith receives compensation in any manner from any of the companies that are discussed in this newsletter or on the related websites.
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