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Begin Part 2 of 2
SUBSCRIBER QUESTIONS
Q: When you select stocks are you viewing Daily, Weekly or Monthly Charts? A few months back I set up my charting service with 1 day, 2 day, 7 day and monthly charts. I have been taking the charts from the report and viewing them in each of the above charts. I notice that it paints a different picture. For instance looking at NWK on a daily chart I do not see anything that makes me excited about this stock (Probably because of my inexperience). But looking at a 7 day chart of the same stock I see a beautiful pattern forming. Also when I view the different time periods the moving average changes. On the 7 day chart NWK has not closed below the 10 day moving average. As a matter of fact it has been following the 10 day MVA and now seems as though it has come to a point where it must either break above or below the weekly charts 10 day MVA. How do you know when to you use the different time frames, or does it vary with different stocks?
A: Great questions. When we look at a chart for the first time, we back off and look at a daily chart for at least a year. If we need to see an even bigger picture, we take a look at 2-day or weekly. You are right; you can see things from a different perspective backing away and moving in as well. After we get an idea of whether the stock is in an uptrend, downtrend, and where it is in its range we start looking for a pattern. Is it in one of the signature patterns we teach in the Technical Analysis seminars? Is it bouncing up or down a trendline or moving averages? A daily chart is good for this, but we can also look at a weekly chart as well. If we find a stock in a good pattern, then we start looking closer. We look at a weekly chart to see if it is under accumulation or distribution. A weekly chart makes that easier as we can look at where institutions closed a stock for the week as that says a lot about whether they are interested in it or not. It is also easier to match the volume to the price movement as it clears out a lot of the 'noise.'
In sum, we look at the chart from a number of views. We are not trying to see something that is not there, but we are making sure we don't miss something. We may see a stock we like, but then when we look at it from other views it might not continue to show solid attributes. The key is to take a chart and decide if there is something there worth looking at. We start with a daily chart for a year or more and then start narrowing it down from there.
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: UCI blasted higher and VVUS made the move we were looking for, breaking out of the pennant! PDX moving out of the ascending wedge formed in the upper right side of its 6-month cup. HARB was up on strong volume, and looks ready to break out (see notes below). CHPC hit the buy point in the cup with handle. Volume was low, but if it meets the target the stock is a buy up to 9.85 on the breakout. Put: ISSX tanked over 2 points today on strong volume (hit the buy point Monday) on cautious comments by some analysts.
Stop Advisory (7%): INVN (39.50 for buys at 43.30)
Stocks from Monday's report:
UCI: Headed higher in the breakout from its flat base! Buy point was 17.30 and the stock is over 5% above that, so we are not chasing it here. Will wait for a test.
OLGC: Moved to 5.50 on the high (buy point was 5.40) as volume climbed higher, but closed with a doji. A hold for positions in the cup base.
VVUS: Nice move in the test of the breakout! A hold for buys at 9.74.
CSTR: Holding above the 18 day MVA in the ascending wedge, but higher volume on the move down today. Still below average levels, however.
SGI: Still tight in the handle to its cup base. Pivot point is 4.80.
Continued Plays: Still like SBUX, PEGS, OMX.
CACOA: Strong volume today as the stock held 23 and looks ready to move; testing the breakout.
GE: Held at 37 (intraday low) on lower, below average volume; it tried to hold a move up to 38. Doesn't look imminently ready to tank, but resistance will cause it some trouble (put play with target at 35).
HARB: Is approaching the buy point (20.10) in what was formerly a pennant but now a reverse head and shoulders. Strong volume bounce from the 18 day MVA today!
LOOK: Holding above $3 on very low volume as it tests the breakout. A hold for buys at 2.94, new positions on a move over 3.50.
PDX: Moving out of the ascending wedge pattern on strong volume. New buy point is 40.59 on continued rising volume. A hold for positions taken at 40.03 (cup with handle).
ODP: Broke out of the flying plateau (buy point 19.50) and now is forming an ascending wedge-type pattern with volume decreasing nicely over the last week. New buy point is 20.48 (3 million) volume for stock and/or July $17.50 calls. A hold for earlier buys.
Best Plays:
1) VWKS: Huge volume as it tries to break out.
2) SFCC: Ditto.
3) PCX: Ready to bounce.
4) SRCL: Another potential 18 day MVA bounce.
New plays:
VWKS (Vitalworks--$5.68; +0.08; no options): Business Software
http://biz.yahoo.com/p/v/vwks.html
STATUS: VWKS is in a 20-week shallow cup/flat base and on strong volume is trying to break out of it (991,000 on Monday, a strong rise over the average of 160,000). The stock's buy point is 6.07, just above the December high at the start of the base at 5.97. That level posed resistance today even on the strong volume. Nevertheless, the stock closed above some lower resistance in the pattern (at the 5.60-5.65 range) and was trading higher after hours. That does not mean it will do so tomorrow, but supports our observation that VWKS is ready to move into a breakout. We expect it to hold in this range (above 5.50)Showing outstanding money flow and good buying. Target is 7.65.
BUY POINT: Breakout: 6.07 on continued strong volume (minimum required for the breakout is 240,000). Stop Advisory (7%): 5.65 (18 day MVA is at 5.20)
POSITION: Stock.
http://www.investmenthouse.com/cd/vwks.html
SFCC (Sfbc International--$25.60; +1.41; no options): Research Services
http://biz.yahoo.com/p/s/sfcc.html
STATUS: The stock broke out of a 4-month pennant formed at the bottom of its 9-month cup base (the latter has highs at 34) and as a test is consolidating above the 22.50 range, the 18 day MVA and most immediately as support the 10 day MVA (23.76). On the candlestick chart the pattern looks like an ascending wedge with the intraday highs in the previous two peaks in the pattern hitting at 25.99 and 25.97 earlier this month. Today SFCC shot off of the 10 day as volume soared to 555,400 (avg. 102,136), no specific news to back it up just a technical tightening up in the consolidation. It closed just under that earlier resistance (the high was up to 26.54), but we will look for continued strong volume to break it out here on the bounce. Money flow is huge and relative strength is breaking out. Initial target is 31.92.
BUY POINT: Aggressive: 26.10 on continued rising volume. Stop Advisory (7%): 24.27
POSITION: Stock.
http://www.investmenthouse.com/cd/sfcc.html
Revisited:
PCX (Pan Canadian Energy--$30.02; +0.25; optionable):
http://biz.yahoo.com/p/p/pcx.html
STATUS: Broke out of the cup with handle base early this month and ran to the closing high at 31.25. From there PCX has made a decreasing volume pullback, and by Tuesday volume was down to a low 65,400 (avg. 249,300) while the stock held the 18 day MVA (29.86; it had closed just below that support Monday but on the low volume was able to move back over quickly). From here, we look for a bounce after this test of the breakout run. PCX has strong money flow and high relative strength, the latter of which is ahead of price, a bullish indicator. Focusing on options to get the best gain on the move. Target: 34 (initial)
BUY POINT: Aggressive: 30.50 on volume in the range of 100,000 or higher. Stop Advisory (7%): 28.37
POSITION: Stock and/or July $25 calls to buy (PCX GE).
http://www.investmenthouse.com/cd/pcx.html
EXLN (Excelon--$1.48; +0.01; no options): Internet Software
http://biz.yahoo.com/p/e/exln.html
STATUS: A very small software stock we have looked at before. EXLN broke out of a flat base, starting the move on a run from the 50 day MVA earlier this month. It is now testing the breakout, consolidating above the 10 day MVA (1.39) on low volume until Tuesday, when volume shot above average to 301,100 (avg. 292,000). The stock moved up from the support, and while it pulled off the high at 1.53, that high did clear the consolidation; we will look for EXLN to follow up and do the same. Huge money flow and strong buying. Target: 2.00
BUY POINT: 1.55 on continued rising volume (335,000 or higher). Stop Advisory (7%): 1.44
POSITION: Stock.
http://www.investmenthouse.com/cd/exln.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.
DGX ($81.35; +1.42): Hit the buy point Monday for the 18 day MVA bounce and kept moving Tuesday with volume rising again. It has to move over 81.70 (March high) to be in the clear on the bounce.
FRX ($81.05; -0.71): After falling through the 18 day MVA Monday, the stock went ahead and tested the 50 day MVA (simple) at 80.77; the 50 day MVA exponential is at 80.50. Showing a tight doji there so is suggesting it will hold, but we can't be sure how strong a bounce it can give at this point.
MIK ($37.73; -0.39): Still moving lower, though it is crawling. Volume rose Tuesday, still below average but by just a bit, and MIK was a cent below the 10 day MVA. We are looking for a drop to the 18 day MVA for the covered call buy back, support that was up a bit higher to 36.80 today. Sell point was 38.40.
UP & COMERS PORTFOLIOS: BBBY, SRCL
SRCL (Stericycle--$64.68; +1.06; optionable): Waste Management
http://biz.yahoo.com/p/s/srcl.html
STATUS: SRCL tested as close to the 50 day MVA (62) as it will likely get on this pullback off of the March closing high (66.98), achieved on the breakout from the 2-month cup base. The breakout was on a run off of the 50 day mid-February. Support is coming from the December highs near 62.85 (that was Monday's intraday low), enough to boost SRCL back over the 18 day MVA (64.31) on rising volume today; 136,000, below the average of 299,318. After the February 50 day bounce, we will look for SRCL to hold the 18 day here and on strong volume, bounce to launch another run. Strong money flow. Target: 74
BUY POINT: Aggressive: 65.25 (10 day MVA is at 64.53) on volume in the range of 160,000 or higher. Stop Advisory (7%): 60.68
POSITION: Stock and/or August $60 calls to buy (URL HL).
http://www.investmenthouse.com/cd/srcl.html
BBBY ($32.65; +1.07): Volume didn't fall back but surged higher Tuesday, and BBBY tried to bounce back after Monday's close below the up trendline. It failed to take out the 50 day MVA, but it shows that the stock isn't ready to face the 200 day MVA for now (at 30.60).
MEMBER PORTFOLIO: CSCO, SEBL, EMLX, BRCM, HDI, BRCD, BUD, AMGN, WMT, ORCL, HB, NOC
HB ($61.05; +0.60): Looking good after hold the 60 level support the previous two sessions. Moving up again Tuesday on a rise in volume above average levels. February high is 61.40.
WMT ($62.17; +0.89): Reversed and was back over the 18 day MVA on higher volume Tuesday. Not a strong move, but enough to break above resistance; we will see if it can hold.
NOC ($107.50; -0.50): Still wants to buy TRW; TRW still resisting, and the stock price continues to struggle. It dropped below the 50 day MVA (to test the 105 level) but closed back above, volume rising. Want to see NOC hold that support.
BUD ($52.08; +0.04): Looks like it is topping out after hitting near 52.50 the last three days (intraday highs), but is a bit close to play (covered call) for a move to the 18 day MVA at this point (that support is at 50.76).
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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