Jon Johnson of Investment House Daily states: I have shocking and stunning news, gross domestic product (GDP) turns negative?
No, Meta (FB) had new subscribers. The first read of the Q1 GDP was expected to be lower, but negative?
Amazon.com Inc. (AMZN) misses and issues terrible guidance, while Apple (AAPL) beats but also warns of sharply negative impacts from supply chain disruptions. Was there only a one-day bounce? Earnings are really weaker than anticipated. Some uptrend sectors are starting to move back higher. Rebounds from some wrecked growth stocks will provide new downside opportunities.
Meta scored a few more subscribers, even as revenues miss, guidance drops, and stocks surge. How do you describe an oversold, overly negative market? This was what we had during all of Wednesday and Thursday's responses. We saw crazy upside gains in stocks, as shorts ended up being squeezed.
Targets Hit
Here is one completed trade from Investment House Daily, offering insights into our trading strategy and the target that we have hit this week.
Hormel Foods Corp. (HRL): Food is good in this market. With warnings of food shortages to come, food stocks have scored good gains. HRL is safe enough, even if it does sell SPAM (it took me a while, but I finally had that "ah-ha" moment when I equated SPAM [the meat] with the spam in my email box). Thus, when we saw HRL testing the ten-day exponential moving average (EMA) after a nice break higher from late February to early March, we were very interested and put it on the list.
On March 11, HRL moved higher off of the ten-day EMA. It looked good. We bought June $50 call options for $3.00. HRL moved up and then splattered, falling to the 50-day EMA over the next week. Since it held with a doji and bounced higher, we left it to work. HRL did work. Some stocks move faster, and some don’t. After that nice February-to-March sprint, we thought that perhaps HRL had turned over a new leaf and would rally faster, given the food shortages. It didn’t. HRL slow-walked up the ten-day EMA, day after day after day.
Normally, if we get a 20-session rise, we end up banking gains that are well over 100%. With regard to HRL, while it was very solid and steady, it was too steady. Volatility dropped, and this worked to counter some of the steady advance. During the third week of April, HRL picked up its advance and looked as if it would put in another run like the one in early March. It started to do so before dropping to the ten-day EMA. During the next session, it was all over the place. So, we opted to just take the gains by issuing an alert to sell the options for $4.10. This allowed us to bank a 36% gain.
While this is not what we normally gain on this kind of advance, in a market that is up one day and down for two or three days, we will take that for an upside play. Here is one completed trade from Technical Traders Alert, offering insights into our trading strategy and the target that we hit this week:
Broadcom, Inc. (AVGO): Growth stocks may be trending lower, but the buyers have not thrown in the towel. That keeps things volatile. Thus, you have to be willing to ride through some volatility to let a move work—but you also have to take what is there. With chips under pressure, they were a logical choice to look for some downside opportunity.
AVGO broke the 50-day moving average (MA) and was testing that break in the form of a bear flag pattern. We were watching for that rebound test to fail. Indeed, AVGO moved up to the 50-day MA, tapped it, and started to fall back again. Perfect.
On April 14, we issued the alert to buy June $595.00 put options for $30.50. AVGO sold hard during that session. Everything was perfect until the next session when AVGO bounced. It was up again during the next session and moved to the 50-day MA. During the next session, AVGO gapped over the 50-day MA, but it reversed. It then sold back below the 50-day MA and accelerated lower into this week with a sharp Tuesday drop. On Wednesday, AVGO was lower again, but it tapped the 200-day simple moving average (SMA) and held. It then worked laterally during the day.
When we saw that, we figured that the near-term move lower would not get any better. So, we issued the alert to sell the options for $41.40. This banked us a 35.7% gain. It was a hard-fought gain, and sure enough, AVGO bounced upside to end the week. It looks to be stalling at the ten-day EMA, however, and that has presented us with another downside opportunity.
Kosmos Energy Ltd. (KOS): After being on fire as the war in Ukraine started and intensified, which further added to already strong runs, oil stocks burned out and needed to cool a bit. KOS peaked in early April and started to slide. The stock even made it to the 50-day MA late in the month.
That is always a point of interest: a solid uptrend runs out of steam, tests the 50-day MA, and buyers will either come in and drive it back up, or they won’t. If they do, we can make money. KOS showed a nice doji with a tail on the candlestick chart on April 25. That was a "get ready" indication that a bounce could be coming quickly. During the next session, KOS bounced. So, we issued an alert to buy the stock for $6.72.
During the next session, KOS rallied and moved toward the ten-day and 20-day EMAs. On Thursday, KOS tested, surged, and hit our initial target. We issued an alert to sell half of the position for $7.17 in order to bank a solid 6.7% gain. Given that the stock was just starting to come off a 50-day MA test, and was showing solid upside potential, we want to see if the rest of the position can continue the move up toward the recent highs near $8.
Covered Call Options Play
Ranger Oil Corp. (ROCC): Ranger Oil Corp. is currently trading at $33.49. The May 17 $35 calls (ROCC20220517C00035000) are trading at $1.75. That provides a return of about 11% if ROCC is above $35 by the expiration.
Learn more about Jon Johnson at InvestmentHouse.com.
