Monday, November 04, 2019

Weekender 11/3

1. Market Summary

A New Day, A New Fed Rate Cut

– Stocks were sluggish the day after the Federal Open Market Committee (FOMC) meeting and recovered decently.
– Trade worries and a weak Chicago Purchasing Management Index (PMI) trumped more solid earnings.
– The S&P 500 bumped the 2018 trend line when the indices slid laterally after the three-week move.
– Volume jumped as indices showed some churn below the old highs.
– The leaders in the chip, machinery and financial sectors underwent very nice pullbacks.
– With regards to the Friday jobs report, the General Motors strike took most of the blame for any shortfalls.

A post-FOMC hangover, concerns about the Fed’s support of the market, renewed trade worries, an abysmal Chicago PMI report and pre-jobs report jitters were all blamed for Thursday's lethargy. Could it have been caused by the fact that, at least in some small part, the indices had rallied three weeks into earnings and the FOMC meeting and now needed a breather? Just maybe? Of course.

Stocks started lower outside of the NASDAQ as that index rose thanks to early gains in the share prices of Apple and Facebook following their earnings results. As soon as the session started, however, stocks started to slide. Even the NASDAQ was not immune. At 9:45 ET, when the Chicago PMI showed a plunge in manufacturing activity (43.2 vs. 48.2 expected vs. the previous value of 47.1), the selling continued to increase over the following 45 minutes. Stocks hit a session low at that point.

That is, they hit a low, but did not surge back upward. After a 40-minute bounce, they sold again, holding just over the earlier low. Then, they wandered in a range until the last half hour saw a couple of buying spurts. That took some of the sting off the downside.

Chart Analysis:

S&P 500: It sold to near the 10-day exponential moving average (EMA) for the second session and rebounded to close the session. Nordstrom, Inc. (JWN) remains near the 2018 trend line which held all prior moves to that level in check. While this was not a positive Thursday, it was not a bad recovery after a second shakeout.

NASDAQ: It tested lower toward the 10-day and rebounded to close lower in the recent post-Monday gap range. Indeed, it closed just below its all-time highs.

NOTE: The figures and information above are from the 10/31 report.

Watch the Investment House Videos For This Week Here!

NOTE: The videos were from 10/30 report. This time, there were only two videos.

2. Targets Hit

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

Cirrus Logic, Inc. (NASDAQ:CRUS): We always keep an eye on semiconductor stocks, particularly when the PHLX Semiconductor Sector (SOX) is setting up for a move higher. CRUS was in such a trading range and even putting in a higher low there. Since this is usually something that happens right before a breakout, we put a play on CRUS in mid-October. On Oct. 21, it made the break higher. Thus, we picked up some stock for $57.59 and some Nov. $55.00 call options for $4.50.

CRUS then faded for one more test of the 20-day moving average (MA) and put in a higher low in the range again. That was the last such low. CRUS moved up from there starting on Monday, edged upside through Wednesday and finally gapped higher and surged from $58.50 to just over $69.00 on Thursday. Since this was a big move and we had November options, it was a no-brainer.

We sold the stock for $68.04 and banked an 18.15% gain. We also sold the November options for $12.00 and banked a 166% gain.

Facebook Inc. (NASDAQ:FB): We picked up FB on Oct. 15 as we were looking for a run into its earnings after the markets closed on Oct. 30. At the time, the stock was breaking upside through the 50-day MA and looked very good. As a result, we bought November $185.00 call options for $8.00 on the move. Initially, the stock looked great as it had a solid upside volume. While FB then continued higher, it dropped to the 50-day MA on the fourth day. It bounced and then crashed the 50-day MA on Oct. 22. Given that FB held the upper gap point from earlier in the month, we left it to work.

FB then rebounded for a week. This took it up near the time of the earnings reports. By this point, FB was showing a very nice inverted head and shoulders pattern at the bottom of a sell-off from July. This is a very reliable upside pattern. With the coming of earnings, however, even a good pattern can end up being sold.

We sold half our position for $8.90 just before earnings were released and banked a very modest 11%. We held the rest, however, based upon the pattern. FB beat earnings expectations and then gapped higher on Thursday. Then, the stock ran quickly over $197.00 and started to falter.

We sold the remaining half of the options for $13.00 and banked a gain of 62%. While this course of action was a bit sloppy, it finally got us to where we needed to be.

Stericycle Inc. (NASDAQ:SRCL): In general, a choppy market requires some patience, but not too much. SRCL was breaking higher at the end of September and came off a nice doji test of the 50-day MA. On Oct. 1, we picked up some stock for $51.38 and some Nov. $50.00 calls for $4.00.

While SRCL immediately fell back to test the 200-day simple moving average (SMA) on the lows, it held and rebounded each session. It then found its footing and gapped upside. SRCL broke to a higher recovery level on Oct. 20 and then tested back to the 10-day EMA. It then stayed there for a week. On the following Thursday, it got the upside gap and rally we were looking for. Thus, it hit our target as it rallied over $59.00 on the high.

Since it then started to falter, we sold the stock for $58.38 and a 13% gain. Concurrently, we sold the November options for $8.50 and banked a 112% gain.

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3. Pick of the Week

PANW (Palo Alto Networks--$226.98; +2.38; optionable): Security software

EARNINGS: 12/04/2019

STATUS: This stock looks to be starting to work on a handle to a six-month double bottom with a handle base. Although a big base can yield big moves, we may need a couple more sessions to complete the handle. However, since an opportunity may be getting close, we want to be ready when PANW makes a break higher. A move to the target will give us a gain of around 75% on the options.

VOLUME: 621.623K Avg Volume: 1.113M

BUY POINT: $227.97 Volume=1.4M Target=$245.97 Stop=$221.96

POSITION: PANW JAN 17 2020 230.00c - (50 delta)

To see the PANW chart, click here!

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4. Covered Call Options Play

Funko Inc. (NASDAQ:FNKO) -- Funko Inc. is currently trading at $18.00. The Dec. 21 $17.50 Calls (FNKO20191221C00017500) are trading at $1.40. That provides a return of about 12% if FNKO is above $17.50 by the expiration.

Learn more about our Covered Call Tables here!

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