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SUBSCRIBER QUESTIONS

Q: Why not use the exponential 20 day MVA versus the exponential 18 day MVA? I hear a lot of services speak about the power of the 20 day MVA, but the first time I have encountered the 18 day MVA is on your site. I have no disagreement on the power of the 50 day simple moving average and the 200 day simple moving average. But, I am curious as to how you decided on the 18 exponential moving average versus others such as the more widely touted 20 day exponential MVA. Thank you.

A: One of the things we always do is watch our indicators of stock market action. Not just what they are saying about the market, but also whether what they are saying is worth anything. What I mean is we look to see if the indicator is helping forecast movements up or down. If we see it is starting to lose its effectiveness, we look to see if anything else is working in its place. While much of analysis does not change because it is driven by human emotion that has remained unchanged since the beginning, what the big money uses to make its moves can and does change. That can happen with moving averages. Sometimes the simple 50 day MVA works better than the exponential 50 day MVA for a particular stock. It used to be that most all technical analysts used the simple 50 day MVA, but with more volatility we started to see the exponential 50 day MVA act as support. Same with the 18 versus 20 day MVA. We started to notice during the last of the big bull run stocks in uptrends would use the 18 day MVA as their support on their trends higher. If we waited for it to test the 20 day MVA to make a move, we would never get in. We still see the 18 day MVA working today as well. We always look at the 20 day and compare simple to exponential on the shorter term MVA's as well. We look to see what is working, and that is what we use.

THE PLAYS:

Reading the Plays: Please note that when we reference the 10, 18, and 50 day moving averages (MVA), those are exponential moving averages (EMA). The 200 day moving average is always simple (SMA). We will note when we reference a particular MVA differently, e.g., a simple 50 day MVA. Please click on the Yahoo and chart links for company and charting information. A "prior high" refers to the high at the start of a base.
For conserving space on listings of stop losses, the symbol (7%) indicates that the stop is 7% below the buy point.

Good movers: Super breakout from ABTL! Has reached beyond our limit for buys on breakouts, so will watch for a pullback. OMX made its move in the test of the breakout with volume rising! TMCS followed through on Tuesday's high volume bounce from the 18 day MVA after resting Wednesday. It cleared the previous March high! OII keeps climbing, but will need a pullback soon. For downside, GE dropped almost a point and a half today after some negative comments on its earnings growth; target on the put is 36.

Stop Advisories: PPDI (32.17), PRIA (24.18)

Stocks/Indexes from Wednesday's report:
SYXI: Still holding the pennant; volume higher and the stock bounced from its 10 day MVA.
IMH: Pulled back to test the 18 day MVA in the ascending wedge portion of the pennant, volume strongly higher. Closed above the 10 day MVA, but is at a critical point.
CHPC: Volume shrank Thursday but the bounce advanced +0.55.
SBUX: Still tight in the ascending wedge.
ISSX: For now holding just above 25. Volume was lower and below average. Looking for a fall through that support for the put play.

Continued Plays:
BBX: Ready to head up again after testing the breakout from the recent ascending wedge. Volume was rising as the stock gapped higher Thursday and headed up after testing the 10 day MVA Wednesday. Looks good!
INVN: The stock hit a suggest stop advisory Wednesday, but after falling lower Thursday, it bounced back up and closed above the up trendline that is supporting the pattern, and above its 18 day MVA. Looks good if it can hold the support. New buy point for a breakout from the ascending wedge is 49.86 on 2.7 million volume for stock and/or July $40 calls.
LYTS: Good bounce from the 50 day MVA on strong volume after hitting a stop loss advisory point two days ago on some big selling.
PLCM: Put play. Buy point was 26.50, and the stock tapped 22.37 on the low before bouncing back up. Still below resistance, so a hold for the the July put positions for now.
LPX: Fell through the 18 day MVA, through our suggested stop advisory at 10.51.

SUBSCRIBER'S CHOICE:

CMX (Caremark Rx--$19.25; -0.10; optionable): Health Services
http://biz.yahoo.com/p/c/cmx.html
STATUS: CMX broke out of a 7.5-month cup with handle earlier this month, running to a high at 19.98 on the run. For the last three days, the stock has pulled back from that high, volume falling back (by Thursday to 1.4 million; average is 1.6 million). The 10 day MVA is at 18.97, and that is potential support the stock tested four days ago on the intraday low. Look for a hold there in this test, for a bounce back up on rising volume. CMX has been in a great uptrend since the fall of 1998, with the recent cup with handle forming at the top. Strong money flow and buying. Target: 23
BUY POINT: Aggressive on a bounce from the 10 day MVA: 19.55 on strong and rising volume, in the range of 1.7 million or higher. Stop Advisory (7%): 18.18
POSITION: Stock and/or June $17.50 calls to buy (CMX FW).

http://www.investmenthouse.com/cd/cmx.html

Best Plays:
1) LOOK: Nice pennant pattern.
2) CACOA: Ready to move up after testing the breakout.
3) GAP: Another ascending wedge.
4) HB: Blasting higher!

New plays: Looking at a few smaller stocks tonight. They look good!

YHOO (Yahoo!--$18.74; +0.54; optionable): Internet
http://biz.yahoo.com/p/y/yhoo.html
STATUS: In a 10-week double bottom with handle, and currently back at support in the handle, the 18 day MVA (18.18). The stock tested its 50 day MVA on the low at 17.60, then on a strong volume surge bounced back up to close above the 18 day. We are now looking for a move up from here in the handle, for a breakout over the March high at 20.54. That is pretty far out to wait for a buy, so will look at taking aggressive positions on a strong move up from here. Volume was stronger at 10.2 million, just under average levels. Money flow is strong. Target: 24.50
BUY POINT: Aggressive: 19.50 on volume in the range of 14 million. Stop Advisory (7%): 18.14. Breakout: 20.60 on volume of 15.8 million or higher. Stop Advisory (7%): 19.16
POSITION: Stock and/or July $15 calls to buy (YHZ GC).

http://www.investmenthouse.com/cd/yhoo.html

LOOK (Looksmart--$2.51; +0.09; no options): Internet Info Providers
http://biz.yahoo.com/p/l/look.html
STATUS: LOOK is in a 7-week pennant with a high at 2.94, and also in a big 2-year base. The lows are under a dollar, so the stock has done well to make it back over the 200 day MVA (now at 1.25); it crossed over that resistance in early December. It broke out of a short base late January, and the pennant formed as the test. On rising volume LOOK was up from its 18 day MVA Thursday (2.41), and from here we are looking for a move up into a breakout (610,900; avg. 692,000). Outstanding money flow and strong buying. Target: 3.75
BUY POINT: Breakout: 2.94 on volume of 934,200 or higher. Stop Advisory (7%): 2.73
POSITION: Stock.

http://www.investmenthouse.com/cd/look.html

CACOA (Cato Corp--$23.60; +0.50; no options): Retail: Apparel
http://biz.yahoo.com/p/c/cato.html
STATUS: CACOA is testing its recent breakout from a 10-month double bottom with handle; the handle was an impressively tight lateral base that spanned all of February and the first week in March. Blasting off on strong volume, the stock tested the breakout the previous 2 sessions, then Thursday started to move up again on rising volume after the test (127,100; avg. 70,090). Looking for a move over the breakout high at 23.84; with the excellent money flow and buying looking good along with the pattern, the chances appear good. Target: 27.85
BUY POINT: 23.85 on continued rising volume, 150,000 or higher. Stop Advisory (7%): 22.18
POSITION: Stock.

http://www.investmenthouse.com/cd/cato.html

Update:

GAP (Great Atlantic & Pac--$27.86; +0.49; optionable): Grocery Stores
http://biz.yahoo.com/p/g/gap.html
STATUS: Formed another ascending wedge after breaking out of the last one (December through mid-February). This pattern is a month long, holding support at the 18 day MVA (27.14) and above the highs in the earlier pattern. It is from the 18 day that GAP gave a small bounce Thursday on rising volume (88,900; avg. 127,000). Looking for another breakout here; money flow at good levels. Target: 34
BUY POINT: Breakout: 28.10 on volume of 171,500 or better. Stop Advisory (7%): 26.13
POSITION: Stock and/or July $25 calls to buy (GAP GE).

http://www.investmenthouse.com/cd/gap.html

PORTFOLIOS: Each report, we look at these to see which is in a buy position. We don't cover them all each time, just the ones that look ready to pick up a few shares.

THE LEADERS: DGX, FRX, LLL, MIK.

LLL ($111.26; -0.82): Hit the buy point for the covered call play (111.90), showing another doji but closing below its 18 day MVA at 111.95. That is a sign that it might make the drop to the 50 day MVA (105.77). Volume was lower, so still could move back up (hammer doji), especially since it held support on the low at 110.

DGX ($78.80; -0.57): Still holding above the 10 day MVA in the test of the breakout, tapping that support on the intraday low at 78.11, the 10 day MVA. That was our target for the covered call; with the nice pullback in price and volume, DGX looks ready for a move up, so will be ready to buy back the calls on that move.

UP & COMERS PORTFOLIOS: BBBY, SRCL

SRCL ($63.50; -1.50): Tested near the 50 day MVA on the low of 62.50 (support is at 61.68), bouncing back up to close under the broken support at the 18 day MVA. Volume was lower.

MEMBER PORTFOLIO: CSCO, SEBL, EMLX, BRCM, HDI, BRCD, BUD, AMGN, WMT, ORCL, HB, NOC

HB (Hillenbrand--$60.50; +1.81): Personal Services
http://biz.yahoo.com/p/h/hb.html
STATUS: What a move! HB was actually in a bearish descending wedge pattern, but the up trendline was sturdy, and after the squeeze between in and the 18 day MVA (59.02), the stock used the trendline to blast up through resistance! Volume was strong, surging to 227,700 (avg. 145,300). The stock broke out of a 7.5-month base in early February, and this 6-week decline from the February high (61.40) has been a test of that breakout. Looking for a continued move up from here. Huge money flow. Target: 71
BUY POINT: Aggressive: 60.60 on continued strong volume. Stop Advisory (7%): 56.36
POSITION: Stock and/or June $55 calls to buy (HB FK).

http://www.investmenthouse.com/cd/hb.html

WMT ($62.20; -0.98): Fell to the 18 day MVA as we noted it might in last night's report. Volume was lower on the move and WMT held at the support. We are looking for it to test the 50 day MVA soon, and if it breaks here, it will likely do so.

AMGN ($62.24; +1.18): After selling back to the 10 day MVA Wednesday, AMGN bounced from there today; volume remained pretty steady (as it has the previous three days as well) at below average levels.

EMLX ($30.94; +2.20): Back over the 200 day MVA, but volume was weaker. Has the 18 day MVA ahead at 32.15.

Good Investing!
Jon L. Johnson and The Daily Staff

All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Online Investment Services, LP or its paid consultants and are 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 our related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of Partners of Online Investment Services, LP or its paid consultants may, in some instances, include securities mentioned herein and on our 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.

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