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SUBSCRIBER QUESTIONS

Q: Love your service. Question: Why do you like to go so far out (month-wise) when you offer a stock that is optionable?

A: Thanks. One thing we have found over the years is that time can be your friend, particularly when the market is choppier as we have seen of late. With options one of the things you are paying for is time. The more time you buy before expiration, the more you pay for the option. Many option players buy same month expirations; they are speculating. They have to be right on the movement and have the timing just right as well. When an option gets within 60 days of expiration it starts to lose value based on eroding time value. When it gets within 30 days, value is bleeding away rapidly, particularly if the option is out of the money. It can be impossible to ever get back your investment. Though we pay more for longer term options, we don't have to be right to the minute on the buy. We try to focus on the best point to buy, but we also recognize that a stock can start a move and then stall a bit, or take a consolidation, then resume the move. With extra time that rest period does not cost us much in lost time value. Thus we are not continually trying to make up lost ground. It acts more like the stock: when it is not moving, the value is not eroding away on us. That helps take out some of the emotion of option investing.

It is not perfect; if the stock falls, the option value will fall as well and you may not recover even if the stock does. You still have to enforce loss rules. If the pattern breaks down you don't know when it will recover. If it takes too long, you end up losing more than if you cut your losses and looked for better game. When selling options we put time on our side because the time decay works for us along with any price movement in the direction we want. We really like selling options and we discuss how we do that in our online seminars in the Options You Can Use Seminar.

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.

Stocks from Monday's report:
UDI: Nominal gain on lower volume (171,700). Still looks good for the breakout the next day the heavy selling is dormant.
CFBX: Riding back down in the ascending wedge pattern on lower volume (75,800). Don't like the fact that it turned back at the March high, but that is where it has been hitting resistance for most of the pattern.
OMX: Big breakout on massive volume!

Continued Plays:
RITA: Massive reversal as the doji on the breakout was a flag. Volume backed off, but the pattern was busted on today's action. We will see if we can get a bounce up to 9 or 9.10 and then get out of dodge.
HARB: Big move on big volume, breaking out of the cup with handle in decisive fashion. For financials, S&L's and regional banks remain the best.
SNS: Low volume pullback (49,400) in the pattern. It could form that handle here above 14.50 with a lateral move for a few days. That would be the best action.
NBTY: Still moving higher.
HFK: Moving into the breakout on rising, above average volume (157,600).
SCIO: Tried the breakout today on big volume (2.59 million), but as with RITA, could not hold the gain giving that tombstone doji. We will see if this one regroups or continues on and breaks out from there and then take positions.
GBBK: Still moving and today we got the volume!
CHK: Good volume, but the selling in the market stalled the action today. Still in good shape.
CHGO: Paused on much lower volume today in the market selling.
HLYW: Holding at the top of the breakout move with a slight gain after Wednesday's doji. Lower volume. On any pullback we want 18 to hold.
LNY: Yeah baby! In a down market LNY makes the breakout on continued strong volume. No time for handles when the food is ready!
CHPC: Held up well in the handle given the market, but volume jumped above average on a wide trading range. Held on, but have to watch it.

Best Plays:
1) MYK: Nice handle on this new issue.
2) DANKY: Another office supplier ready to make the move?

New plays:

MYK (Mykrolis--$14.91; +0.11; no options): Personal services
http://biz.yahoo.com/p/m/myk.html
STATUS: A new issue from August, MYK sold off in October and then rallied to 16 at the turn of the year. Since then it has corrected into a reverse head and shoulders or cup with handle pattern. Many times these patterns can be very close. It is now in a sure enough handle over the past 2 weeks on very low volume. The exception is Wednesday when the stock threw off a huge volume spike and showed a hammer doji. That can indicate an upside move is on the way. Today it traded slightly higher in the handle on very low volume (147,300; avg. is 425K). Money flow is excellent and there is good buying.
BUY POINT: 15.39 on volume of 650K or better. Target: 18.48. Stop=14.15.
POSITION: Stock (no option chain).

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

CCRN (Cross Country--$29.02; -0.08; no options): Staffing and outsourcing
http://biz.yahoo.com/p/c/ccrn.html
STATUS: Another new issue that ran to a high in February at 32.94 and has since corrected. We like to look at new issues after they correct for the first time. CCRN has now formed a 7-week cup with handle, forming the handle the past three sessions. Today it showed a doji right above the 10 day MVA (28.75) as volume fell to below average levels (298K; avg. is 345K). We want to see a big volume breakout on this one.
BUY POINT: 30.70 on volume of 650K or more. Target: 36.94. Stop=28.55.
POSITION: Stock

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

DANKY (Danka Business Systems--$3.88; -0.09; optionable): Office imaging
http://biz.yahoo.com/p/d/danky.html
STATUS: After the big OMX breakout DANKY came up on the radar screen. After a long and deep correction, DANKY bottomed in 2001 and then started its ascent this year. It corrected back to the 50 day MVA in March and climbed from $2 to the current price. The past two weeks it has been moving laterally with slightly lower intraday lows as volume falls well below average (291,100; avg. is 630K). Money flow is excellent as is buying. Hope we will be singing 'thank you' after the breakout.
BUY POINT: 4.05 on volume of 850K or better. Target=5.25. Stop=3.72
POSITION: Stock.

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

Revisited:

RMCI (Right Management--$25.26; +0.05; optionable): Management services
http://biz.yahoo.com/p/r/rmci.html
STATUS: In a 5-month ascending wedge with a higher near 26, riding up the 200 day MVA on the bottom of the pattern. 26 is acting as a lid on the move higher while the 200 day MVA (19.25) pushiness it up from below. That builds pressure for a breakout to the upside: rising lows are bullish. Money flow is rock solid, buying remains strong, and relative strength is all dressed up and ready to go. Today it showed a doji on continued below average volume (94,300; avg. is 266K). It could test lower toward 22 before making the breakout, but we like the fact that it bounced up off of the 18 day MVA (23.75) on the last test lower. Kind of upping the ante.
BUY POINT: 26.15 on volume of 500K or better. Target=31.25. Stop=24.30.
POSITION: Stock and/or July 20c to buy (UHU GX).

http://www.investmenthouse.com/cd/rmci.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

FRX (77.80; -2.06): Sold down as expected for the covered call play. At 78 on the close as volume was still above average but lower on today's action (1.74 million). Want it to hold here or at the 200 day MVA at 76.65 and then buy them back.

MIK (36.20; -2.36): Double topped and sold on strong volume today (761K) as it reported same store sales up 15%. It still sold off hard, however, something you don't like to see. When stocks react strangely to good news that is not good obviously. It is now in the position of having to hold the 50 day MVA again at 35.50.

UP & COMERS PORTFOLIOS: BBBY, SRCL

None tonight.

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

WMT ($60.17; -0.40): Strong retail sales gains of +9.5% sent it to 61.81, but it could not hold, reversing and closing just below the exponential 50 day MVA. Volume rose to above average levels (8.56 million). It cannot make the break back over after the valuation downgrade. We are going to be very careful of a fall here. Retail sales are out tomorrow; we will see if they can drive the break back over the 50 day MVA and a hold there. If not, it might head back down with this action.

SEBL ($23.67; -1.77): SEBL did not guide lower and was not referring to its own results according to Mr. Siebel himself. SEBL stated that Bloomberg quoted him out of context, but failed to provide information as to what the proper context was. The stock did not like it still.

NOC ($118.88; +1.23): Rising once again to a new high but though volume was up (1.41 million), it was still below average. Beware highs on low volume. We will look at selling some calls if it shows us a doji in the next few sessions and if volume stays light.

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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