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understanding the stock market, trade stock
Begin Part 2 of 2
TEAM TRADES
SEBL: One of the puts we were looking at on the Daily, after a breach of the 200 day MVA two weeks earlier and a weak move up to test that breach. This is one of our favorite entry points on downside plays: breach of major support, then the test of that. If the test fails, that shows that the stock does not have any power in the upside move, and more downside is ahead. This is particularly true with the 200 day MVA as institutions tend to use this as a selling point. If they were selling on the way down, a breach of the 200 day MVA can mean even more unloading of shares.
Early in the session SEBL opened lower with a gap down and then did intraday what we were seeing on the larger chart: rallied a bit to test the move lower. We were expecting it to stall at the prior session's close or at the prior session's low. It did not even reach the low before it started to roll over about 25 minutes into the session. That was good enough for us. We saw the stock peak out near 26.50, and when it started to sell, jumped in fast with some August 35 puts. They were asking 9.00, and we put in a limit order at that price as the spread was not bad at 20 cents. After the fill the stock continued its fade, attempting a bounce about every half hour that was met with more selling pressure. After lunch it tapped near 25.60, and that proved to be the low for the session, as SEBL worked its way back up to close near 25.90. Volume did not surge on the selling, but it did rise. With continued tech pressure for a couple more days we should get our play out of it.
THE PLAYS:
Good movers: MTEC, MVL, NAV, OEX.
Best Plays: Many of our stocks have made good moves!
1) AMMD: Looks ready.
2) GWW: Breaking down.
3) MVL: Good move and still a buy.
4) NAV: Strong move lower.
5) DAV: A day of rest.
6) BYBI: Pattern tightens
7) NWRE: From continued plays. Ready to bounce.
8) XL: Still waiting on the move.
NEW PLAYS:
AMMD (American Medical--$23.50; +0.52; optionable): Medical appliances
http://biz.yahoo.com/p/a/ammd.html
STATUS: Double bottom with handle. Not quite 2 years since its IPO, AMMD is recovering nicely from a test of the 200 day MVA back in March, forming a double bottom with handle off of that level, converting a head and shoulders pattern (so there is hope for the Nasdaq and S&P as well). During the pattern price/volume action has established accumulation in 3 weeks versus 2 distribution weeks. Not the greatest we have every seen, but when counting up the accumulation, a simple majority wins. Money flow is moving higher and relative strength is ready to breakout. It also does not hurt that it is in a favored sector right now. The pattern in the handle the prior four sessions was very tight and on very low volume. Today it made solid move on much stronger volume, indicating it may be ready to move higher (293K; avg. is 360K).
BUY POINT: 23.98 on volume of 540,000. Target=28.75. Stop=21.90.
POSITION: Stock and/or September 20c to buy (TQI ID).
http://www.investmenthouse.com/cd/ammd.html
BRO (Brown & Brown--$34.65; -0.11; optionable): Surety and title insurance
http://biz.yahoo.com/p/b/bro.html
STATUS: Cup w/handle. A solid performer for the past two years, BRO is in a 12-week base where it tries to consolidate some of its strong moves for another breakout. Now it has run a ways, and stocks can run out of gas. That is why BRO had to base again, and why, as always, we wait for the stock to make the strong volume breakout before we act. In the base it has good price/volume action with up weeks to down weeks leading by a 2 to 1 margin. During the handle, volume has tanked as we like it to do (118K; avg. is 390K) and prices slow decline toward the 10 day MVA (31, tapped on the low the past three sessions). We have seen better money flow, but relative strength is solid and the price/volume action is our key.
BUY POINT: 35.63 on volume of 585K+. Target=42.75 (new high territory). Stop=32.95.
POSITION: Stock and/or September 30c to buy (BRO IF; low OI for now, but delta of 80).
http://www.investmenthouse.com/cd/bro.html
GWW (W.W. Grainger--$54.95; -2.20; optionable): Wholesale Electronics
http://biz.yahoo.com/p/g/gww.html
STATUS: Breach of 50 day MVA. Has doubled over the past 19 months and was trying to base out in another short cup pattern, but it was showing distribution recently, and today the 50 day MVA (55.71) gave way on some strong volume (542K; avg. is 457K). There is some support at 54.50, where it tapped down intraday today before a slight recovery. If it crashes through 54 it looks as if it could hit 50 on the first leg down. We might see a test of the 50 day MVA before it gives it up, and the test is always our favorite point to take positions on a put play.
BUY POINT: 53.95 after a test of the 50 day MVA (55.71) on volume of 500K or better. Target=50. Stop=56.
POSITION: July 60p to buy (GWW SL; low OI, Delta 76)
http://www.investmenthouse.com/cd/gww.html
CONTINUED PLAYS:
New from Weekend Report:
DVA (Davita $25.89; -0.08; optionable): Specialized health services
http://biz.yahoo.com/p/d/dva.html
STATUS: Flying plateau. Not the day to extend Friday's move as DVA held its ground on lower, below average volume (452K; avg. is 650K). The stock is in the right sector for the current market attitude, and it has good money flowing into it. Buying has started anew as well. It may try to test the move last Friday with a pullback toward 25. That would not be bad and would give it upward momentum on a break to a 2-year high over 26.
BUY POINT: 26.05 on volume of 800K. Target=31.25 (initial). Stop=24.25.
POSITION: Stock and/or October 22.50c to buy (DVA JX).
http://www.investmenthouse.com/cd/dva.html
ESI (ITT Educational--$49.55; +0.15; optionable): Education and Training
http://biz.yahoo.com/p/e/esi.html
STATUS: Successful test of breakout. Broke out of a 9-month cup with handle 4 sessions back on a strong surge in volume for the entire week. Monday it hit our buy point briefly; it managed to hold most of the session's move, however, though it did end with a 'hanging man' doji, not the most promising candlestick pattern. Still, given the day it was not bad action as the stock held steady on lower though above average volume (179K; avg. is 134K). We like stocks that successfully test the breakout, so we are sticking with it and will look for new buys over 50. Again, the price/volume action in the pattern was solid.
BUY POINT: New positions/add-to: 50.05 on volume of 250K or better. Target=56.75 (initial). Stop=46.20.
POSITION: Stock and/or October 45c to buy (ESI JI; low OI currently).
http://www.investmenthouse.com/cd/esi.html
MANH (Manhattan Assoc.--$35.84; -3.71; optionable): System software
http://biz.yahoo.com/p/m/manh.html
STATUS: CSFB downgraded MANH to a hold today in a pre-emptive move citing weakness in application software. The stock never got out of the blocks, gapping lower and testing below the 50 day MVA (34) on the low. It recovered above that level, but volume was massive (1.34 million; avg. is 558K). It may recover, but that was not the plays we were looking for, and it is why we like to see the move take place before we get involved.
BUY POINT: We are not going to get in on this one for now. Buy point was 40.25 on volume of 750K+. Target=38.44. Stop=37.25
POSITION: Stock and/or July 35c to buy (MQR GG).
http://www.investmenthouse.com/cd/manh.html
MVL (Marvel Enterprises--$8.74; +0.54; no options): Toys and Games
http://biz.yahoo.com/p/m/mvl.html
STATUS: Broke out! We have played MVL before earlier on the run with great success, and today it broke out again, moving from its wedge consolidation. Volume action continued to be strong, coming in today at 859k (avg. 344k). Buying is great and money flow is strong. Solid, but an aggressive buy from here with the initial target at 10.05.
BUY POINT: Aggressive: A buy up to 9 with continued strong volume. Target=10.05 (initial). Stop=8.15-8.40.
POSITION: Stock.
http://www.investmenthouse.com/cd/mvl.html
PUTS:
NAV (Navistar--$41.06; -0.99; optionable): Trucks
http://biz.yahoo.com/p/n/nav.html
STATUS: One of the sectors showing signs of breaking down. A double top in March and April, the second top on below average volume. Always a danger sign, and NAV broke the 50 day MVA (42.62) on Friday on heavy volume. NAV continued down through the buy point today, although volume was much lower and did not hit the average (545k; avg. 620k). We can still catch it on a fall from here, or after a failed test back up toward the 50 day.
BUY POINT: A move down from here on volume of 700K or more, not chasing below 40.50. Target=37.75. Stop=43.35
POSITION: July 50p to buy (NAV SJ).
http://www.investmenthouse.com/cd/nav.html
MER (Merrill Lynch--$47.89; -1.41; optionable): Investment brokerage
http://biz.yahoo.com/p/m/mer.html
STATUS: After its strong drop through the 200 day MVA (currently 50.46), MER ahs climbed back up but on lower and lower volume. Off of Friday's doji under the 10 day (49.20), we got the drop back today, although volume was down at 5.2 million (average 6.76 million). Targeting 45 on this play.
BUY POINT: Aggressive: Through 47.50 on volume of 7 million or better. We do not want to chase farther than that. Target=45 initial. Stop=51.
POSITION: July 55p to buy (MER SK).
http://www.investmenthouse.com/cd/mer.html
Super thin volume, but a nice pattern. We put this in with the understanding that we do not own this stock. The analysis is purely on a technical basis; we like the pattern. The very thin trade makes it subject to price swings based on fairly small levels of buying and selling activity.
GMP (Green Mountain Power--$18.61; +0.07; no options): Electric utility
http://biz.yahoo.com/p/g/gmp.html
STATUS: Cup with handle. A 3.5 month pattern with the handle forming the past week on mostly lower volume (today 4200; avg. 6454). Price/volume action in the base is solid, along with money flow and relative strength. This is one of those sectors we are seeing activity in given the increase in defensive bias in the market at the end of last week.
BUY POINT: 18.85 on volume of 15,000 or more. Target=22.62. Stop=17.75
http://www.investmenthouse.com/cd/gmp.html
PUTS:
OEX (S&P 100 550.04; -9.75; optionable): S&P 100 options
STATUS: Put. Continued down Monday, dropping down to the neckline in the head & shoulders pattern. It tapped within a hair of the 548.50 initial target (low 548.91), and we still look for it to hit that target. We are also still looking for a breakdown out of the head & shoulders, and on that move we can take new or additional positions as well as ride this position lower.
BUY POINT: On a breakdown: 546.10. Target: 525 initial. Stop= 549.
POSITION: May 555p to buy (OEB QK).
http://www.investmenthouse.com/cd/$oex.html
BRCD (Brocade--$24.95; -0.35; optionable): Telecom
http://biz.yahoo.com/p/b/brcd.html
STATUS: Put. BRCD started the fall Friday, and gapped down today, hitting 24.06 at its low before reversing to close. Volume continued to be low, and we are still targeting 21.75 on this play. If BRCD moves back up to test the 18 day MVA (25.54) with continued low volume (down to 9.2M today; avg. 16.7M), we can look at new positions on a drop back from there with stronger volume and a weak market.
BUY POINT: Riding existing positions. New positions: After a move on the 18 day MVA, a drop back through 24.90 on volume of 17M+. Target=21.75. Stop=27.75
POSITION: July $30 puts to buy (UBF SF).
http://www.investmenthouse.com/cd/brcd.html
SYMC (Symantec--$37.49; -0.02; optionable): Internet software
http://biz.yahoo.com/p/s/symcl
STATUS: Put. Not much change, with a fourth consecutive doji today. SYMC is still working on completing the head and shoulders pattern, with the right shoulder forming beneath the 50 day MVA (37.64). There was low volume on the move back up, and continued low volume in the consolidation of dojis (2.25M today; avg. 3.8M). Still looking for the breakdown this week on the kiss goodbye. We can enter at two points: a fall from here and a break below 35 on rising volume.
BUY POINT: Aggressive: 36.65 on rising volume. Breakdown: Below 35 on above average volume. Target: 30. Stop=38.50.
POSITION: July 45p to buy (SYQ SI)
http://www.investmenthouse.com/ct/symc.html
VARI (Varian--$33.28; -1.53; optionable): Scientific & Technical Instruments
http://biz.yahoo.com/p/v/vari.html
STATUS: Head and shoulders. Made the drop today, falling through the buy point and continuing to fall, although volume was down at 239k (avg. 278k). Although volume was light, a steady drop that continues the weakness we have seen on the move below the 50 day MVA (35.04). Targeting 31.50 with current positions.
http://www.investmenthouse.com/ct/vari.html
BASING/TRADING RANGES:
BYBI (Back Yard Burgers--$8.30; +0.02; no options): Restaurants
http://biz.yahoo.com/p/b/bybi.html
STATUS: Cup with handle. Still working in the 3 month cup with handle, holding Monday to close with a doji right at the 10 day MVA as volume dipped back further (15,100; avg. is 46,600). The price/volume action in this pattern shows heavy accumulation, and the money flow is excellent.
BUY POINT: Aggressive: 8.85. Breakout: 9.55 on volume of 100K+. Target=11.50 (initial). Stop=8.15.
POSITION: Stock
http://www.investmenthouse.com/cd/bybi.html
ULAB (Unilab--$28.10; -0.89; optionable): Healthcare software & services
http://biz.yahoo.com/p/u/ulab.html
STATUS: Double bottom. In the right sector (health), even if software. Friday it hit the buy point on a move up in the handle, but volume was not there, and today it reversed. Volume was very light on the selling (233k; avg. 459k), so we are looking for it to hold and set up a stronger breakout move. Great buying and money flow, and price/volume action shows positive accumulation over the base.
BUY POINT: Breakout: 29.25 on volume of 690,000. Target: 35. Stop: 26.97 (7%)
POSITION: Stock and/or August $25 calls to buy (HQZ HE)
http://www.investmenthouse.com/ct/ulab.html
Run to 100:
XL (XL Capital--$94.94; -0.06; optionable): P&C insurance
http://biz.yahoo.com/p/x/xl.html
STATUS: Run to $100. Yet another doji Monday from XL as it continues to snug up to the 50 day MVA (93.80) on this low volume pullback (up 720k; avg. is 830k). We are looking for that bounce up that we can get in on and ride a nice pop up to 100 or more. Continued strong money flow from a stock in a sector that has been moving well.
BUY POINT: 95.55 (moved from 96.55) on volume of 900K or better. Target: 102. Stop=94
POSITION: We are looking at options on this one as it is high priced and the move is limited. July 90c to buy (XL GR).
http://www.investmenthouse.com/ct/xl.html
WEDGES, PENNANTS, FLYING PLATEAUS
UPS (United Parcel Service--$60.89; -0.55; optionable): Delivery
http://biz.yahoo.com/p/u/ups.html
STATUS: UPS tried a move last week, but after a strong volume move that it could not hold and weaker move Friday that it held, it gapped back today. Not a serious move, as UPS closed with a loose doji over its 10 day MVA (60.34), but we were looking for the stock to get an infusion of volume to continue the move. It is now back in the upper reaches of it lateral consolidation, and we will see if it can hold on and try again.
BUY POINT: Over 61.50, but need volume of 2 million+ (959K today). Target: 66.44 represents a former high and is the initial target. Stop Advisory: 59
POSITION: Stock and/or July 55c to buy (UPS GK).
http://www.investmenthouse.com/ct/ups.html
Watchlist stocks: Still looking strong but removed to make way for new plays as well.
MTEC: Breakout!! Great volume on the surge higher. See Thursday's report for details on target and stop.
CKP: Did not continue the move higher today, splashing down to the 18 day MVA on rising, above average volume. Needs to rebuild.
SIGM: Lost it.
PLAB: Still holding up very well in the 4-month flat base on very low volume the past two sessions. Looking for another move over 34.50.
ROOM: Reports earnings tomorrow, making a nice gain today on rising, above average volume. This could be the thing that pushes it to 68 or beyond. Online travel (hotel reservations in this case) has been a bright spot. This is a bounce play we want to ride on to 68.
NWRE: Tight doji right on the 10 day MVA (9.95) on rising volume. Looks as if it is ready to end the test.
FNF: Looks as if it is regrouping for a move higher, rising on rising volume today. This test of the breakout looks to be shaping up successfully.
PRGX: Still moving laterally, now on below average volume as it continues to test 14 on the low. Still like the pattern and look for a move over14.85.
TYL: Back in action, up at 6 as it forms more of an ascending wedge. Volume is low, and it still needs one more pullback to the 18 day MVA at 5.60 and then up to the breakout over 6.
OAKT: Doji reaching the 18 day MVA on the low. Good recovery as volume rose to slightly above average. Good test if it can now start the move back up.
AH: Bounced off the 50 day MVA with volume. Did not like to see it at the 50 day MVA, but the strong volume is a better sign.
Good Investing!
Jon L. Johnson and your Technical Traders Report Team
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 in 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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