Our earnings strategy trade on CMG has increased from $4.60 a contract to $11.40 a contract in one week. An investment of $920 would have grown to $2,280. I have just given my elite students another great earnings trade!

The markets

In a nutshell, investors were caught short again today. As I always say, the stock market is designed to cause the maximum pain to the maximum number of people. Anyone who was leaning short – looking for the market to go down – would not have been feeling good by the end of the day. We saw all of the major indexes go up; the Dow Jones Transports were up the most – 1.67%, followed closely by the Russell 2000 (the smaller cap growth stocks) – up 1.27%. The other major indexes were up around 0.8%. The Nasdaq , S&P 500 and the Dow Jones showed strength. Gold was up slightly and the bonds were down.

The S&P 500 and the Nasdaq

The chart I have been keying off for some time is the S&P 500, it accounts for 72% of the US stock market. On the daily chart I have been closely watching the 49 EMA (Exponential Moving Average). We closed below that on Wednesday, but then yesterday we re-captured that and rose above the 49 EMA, which is now at 2342. The SPX is currently at 2355. Many people were expecting the market to again go down overnight, but it has taken them by surprise and gone up. There is some hope in the US that health care reform and tax reform may go ahead and that did spark the market up to a certain extent.

The sector, which rose the most, was financials. Technology was also up, 0.91%, but financials led the way. Technology is the biggest sector in the US market, followed by the financials. You need financials, and ideally also technology, to be moving up in order for the overall market to move up. The Advance Decline Line was up strongly today, around that positive 2,000 mark. It showed a lot more advancing stock than declining stock. Again, another tell-tale sign that the market would be up. Another index to look at is the UVXY. It was moving down for most of the day. If you line up the S&P 500 and the UVXY, you can see the UVXY moving steadily down and the S&P 500 moving steadily up – an important inverse relationship. The UVXY was down more than 5% – another indication that you were going to have a good day. Financials really led the way on the markets. American Express with earnings was up 5.92%. Visa was up 1.56%, but all the major financial players, like Goldman Sachs, were up today.

The Nasdaq, which has been keeping the S&P 500 up, broke above its 20 SMA (Simple Moving Average). The Nasdaq is showing strength and getting close to all-time highs. Whether or not it breaks the resistance zone is something we will be keying off, along of course with the S&P 500 breaking back above its 49 EMA.

CMG goes from strength to strength

One of trade we have on is CMG (Chipotle Mexican Grill). It has done extremely well. It’s an earning trade. We entered the position with call options when CMG was at 453, it’s now at 478 so moving up very strongly. We picked up some options for the April week 4 contract, at $4.60. They are now worth $11.40. So if you had picked up two contracts when I spoke about this just one week ago your $920 investment would now be worth $2280 one week later. That trade is fantastic. We have a powerful earnings strategy that we use, and we have another earnings trade that the elite students got into two days ago. That one is also doing well.

With CMG, we have a significant profit and we believe it could even move higher, but we want to take the risk off the table. I teach my elite students how to lock in their profits, but still stay in the position. This is a distinct advantage over people who just buy shares. We don’t own shares or stock. We control shares through the use of options. And we are able to lock in profits, take risk off the table and still stay in the trade. It is a powerful technique and something that I teach my students.

CMG was attractive from the onset. Why? It does its own thing, irrespective of what the market does. CMG also had a bull-flag pattern on the daily chart and that was one of the reasons we first got into it. That bull-flag pattern broke to the upside. CMG also had earnings coming up. We were looking for it to continue its uptrend into earnings. Another thing I like about CMG is that it does have high-short interest of around 18.2%. That means a large percentage of its float is short sellers. This gives us another advantage. I’m always attracted to interest above 10%. As the stock moves higher, people who are short in that stock get nervous. They have to buy to cover their position and that causes a short-covering rally and what causes a stock to move higher – consistent buying. This stock is working out spectacularly.

The French elections loom

The French election is coming up. The first round is happening Sunday and we will know the results by Monday. The French election is making the markets a little nervous and the results of the first round could impact the market. Watch out for that and also keep your eye on the Nasdaq. Will it break above all-time highs?

For the elite students

For my elite students tonight, I have some bullish and bearish positions coming up. It’s good to keep your portfolio balanced in these times. The market is at an inflection point and could move either way. There are a lot of geo-political tensions happening around the world, coupled with French election.