1. Market Summary
Excerpted from Thursday's paid content of "Investment House Daily" by Jon Johnson.
Not A Major Revival, But Not A Terrible One
– There has been no surge by the large-cap indices.
– The good news from earnings and Brexit have been offset by news regarding Housing Starts, the Philly Fed and industrial production.
– The economic data are not that great, but the Fed is still there.
– Repurchase agreement (repo) action has been subscribed at $104.2 billion as the need for them has jumped.
– Small- and mid-caps have rallied nicely as the large-cap indices have paused at the prior highs.
– We have seen a bit of a large-cap test while the small- and mid-cap rally showed good market action.
The economic news was lacking. For instance, the Philly Fed posted 5.6, lower than the 6.0 expected and the 12 that it had posted back in September. Housing starts for September fell 9.4%, crushing the -3.2% that was expected and marking its lowest reading in years. Industrial production slipped to -0.4, more than the 0.3 that was expected and the 0.8 that was reported back in August. Capacity missed at 77.5 and was down from 77.9.
A reported breakthrough in the Brexit talks has been made, but questions are still circulating as to whether Parliament will approve it.
Surely the Fed can help. With the economic data smelling the place up, some sort of action would seem appropriate for a Fed that has a rate-cutting bias. Even so, a story has been circulating that the Fed may be inclined to pause its cuts at the next session. Really? And if so, would it matter?
I would just like to add another note regarding the repurchase agreements. After all, the Fed’s latest overnight repo action, one with a $75 billion limit, was oversubscribed at $104.2 billion. I am so glad the Fed is on the case -- the need for funds has declined dramatically. Not! It has suddenly ramped back up after we were told all was well and after it had stabilized at around $30 billion. Once the new facility was in place in October, all would be fine . . . Sure.
Something is wrong beyond just the structural changes in the system that the Fed is citing as the source of the need for repo operations.
Chart Analysis: In order to look past the gains, you also have to look at the action. The indices basically stalled for a second session after the Tuesday surge. That move left the S&P 500, the NASDAQ and the DJ30 (the large-cap indices) below their September peaks and thus below the all-time highs that they set back in July. The S&P400 and the smaller-cap indices posted solid moves that . . . leave them still well off their prior highs. At least they are now in the upper half of their trading ranges.
It was not the surge that the recent pattern suggested, e.g. big move, pause, big move, pause. It was a move higher and that was about it. One could argue that after a couple of weeks of upside to the penultimate highs for the NASDAQ and DJ30 and the highs for the S&P 500 and the PHLX Semiconductor Sector (SOX), the market needed more to push it. The large-caps, however, were not the center of the action. Instead, the S&P 400 mid-caps rallied 0.85% and moved higher in the range. Unlike the other indices, the S&P 400 did not give back its gains.
NOTE: The figures and information above are from the 10/17 report.
Watch the Investment House Videos For This Week Here!
NOTE: The videos are from the 10/16 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:
Endo International plc (NASDAQ:ENDP): We always watch for stocks that are "turning the corner," i.e. those that have been in long uptrends or downtrends and are breaking out of them. We saw some pharmaceutical companies in this status, one of them being ENDP. It broke over the 50-day moving average moving average in early September, rallied a bit and then spent a month testing the break over that key level. We put it on the report on Oct. 2 as it started to edge up off the 50-day moving average test. On the next day, it made a break and we entered by purchasing stock positions at $3.60.
ENDP continued to move higher into Oct. 7. Nice. Then, it faded during the next week and came back to the 50-day exponential moving average (EMA). It then tested on low volume and held that support. Then, it got interesting. After that second test and a higher low, ENDP shot higher on Oct. 16. While it touched our target, it was so strong that we left it to continue working.
ENDP faded into the close a bit. On Oct. 17, it rallied again to a higher high early on and then started to stall. We locked in a 28% gain because we started to sell at $4.61. While this was not bad, if we had sold just half of our shares, we would have had half to rally to $5.20 during that session and bank another 44%. While we usually do that, given the course of action during the prior session, we did not want to see that early high pushed back. While we are happy enough with the gain, we are disappointed we did not play the stock the way we really should have...
Health Insurance Innovations Inc. (NASDAQ:HIIQ): Now, this is one of the stocks that we played as we should have. We originally entered on Sept. 26 with some stock at $23.85 and November $25.00 calls for $2.80. HIIQ rallied right on up to the initial target on Oct. 3 and we banked half our position for a 9% stock and 28% option gain. While this is a decent gain, we wanted to get our money in the bank. Thus, we left half the position to work.
After that initial rally, HIIQ tested the 10-day EMA and the 20-day EMA on Oct. 8. It rebounded during the intraday period and could have spent more sessions at that level. Then, it shot higher over the course of the week to the 200-day simple moving average (SMA).
After it moved through the SMA, the stock failed. Then, it moved through the SMA again and started to fail again. The 200-day SMA was obviously acting as resistance. We decided to sell the rest, figuring that if it the stock ends up breaking the 200-day MA, we can move in with a new position. We then sold the rest of the stock for $26.85 and a 12% gain. We also sold the options for $4.20 and a 50% gain. In this back and forth market, this strategy worked.
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Here is a completed trade from the Success Trading Group, which offers insights into our trading strategy and the target that we have hit this week:
NASDAQ:FB (Facebook, Inc.)
We saw Facebook improving with a double bottom off the 200-day moving average before approaching the 60-day moving average. On Oct. 15, it broke over the 50-day moving average and we entered with a stock position at $186.92. Then, Facebook rose higher. On Thursday, Oct. 17, it gapped to a doji and hit our initial target at $190.66. Given the doji gap, we opted to go ahead and bank a quick and easy 2% gain.
This is an example of what you'll get by becoming a member of 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
NVDA (Nvidia Corp. -- $185.99; +2.96; optionable)
STATUS: We started looking at NVDA again when it bumped the highs from both the prior week and from early September. Indeed, NVDA broke out of a large triangle in early September and then rallied by testin back to the 50-day moving average (MA) in late September and early October. It then made a move back up from there. While trading was choppy last week, the stock held the 20-day EMA and rebounded into Friday. If NVDA can continue this move, we can move in. A rally to the target will give us a gain of around 45% on the call options.
VOLUME: 11.272M Avg Volume: 8.48M
BUY POINT: $186.58 Volume=1.2M Target=$196.94 Stop=$183.21
POSITION: NVDA DEC 20 2019 185.00C -- (56 delta)
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4. Covered Call Options Play
Akoustis Techs. Inc. (NASDAQ:AKTS) -- Akoustis Techs. Inc. is currently trading at $8.22. The Dec. 21 $7.50 Calls (AKTS20191221C00007500) are trading at $1.10. That provides a return of about 16% if AKTS is above $7.50 by the expiration.
Learn more about our Covered Call Tables here!