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us stock market, trade stock
Begin Part 2 of 3
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
5-14-02
Retail Sales, April (8:30): 0.5% versus 0.1% prior
Retail Sales ex-auto, April (8:30): 0.4% versus 0.3% prior
5-15-02
CPI, April (8:30): 0.4% versus 0.3% prior
Core CPI, April (8:30): 0.2% verus 0.1% prior
Business Inventories, March (8:30): -0.1% versus -0.1% prior
Industrial Production, April (9:15): 0.4% versus 0.7% prior
Capacity Utilization, April (9:15): 75.7% versus 75.4% prior
5-16-02
Housing Starts, April (8:30): 1.63M versus 1.646M prior
Building Permits, April (8:30): NA versus 1.63M prior
Initial Claims, 5/11 (8:30): NA versus 411k prior
Philadelphia Fed, May (12:00): 11.0 versus 12.3 prior
5-17-02
Trade Balance, March (8:30): -$32.3B versus -$31.5B prior
Mich Sentiment-Prel., May (9:45): 93.0 versus 93.0 prior
SUBSCRIBER QUESTIONS
Q: Can you explain the advantage of and what exactly is a covered call and how to do it?
A: A covered call is where you sell a call option on a share of stock you own. What you are doing is selling the right to buy your stock at a specified price (the strike price) to someone else. Sounds pretty crazy at first, especially if you want to hang onto your stock. However, as we constantly write and teach in the online seminars, stocks move up, peak out, move down to consolidate, and then move back up. We like to take advantage of those inevitable peaks by selling calls against our stock positions. When they make a good run and then show signs of peaking on that move, we sell at or slightly in the money call options, let the stock fall, and then buy them back when the stock hits support. As the value of the call option falls as the stock price falls, our gain is the difference between the price we sold the call for and the price we buy it back for. This way our stocks make money for us not only when they appreciate, but when they inevitably pull back. We also use covered calls strictly for generating cash, i.e., where we don't really care if we are called out or not. It is a great defensive strategy, a great offensive strategy, and great for IRA's where we have large chunks of stock. We have a covered call seminar coming up next weekend. You can take it live or watch the rebroadcast the next week. You don't have to take all of the seminar series to learn about using covered calls to your advantage. To learn more, go to www.stockseminarsonline.com.
TEAM TRADES
NVLS: After the strong bounce Wednesday NVLS looked as if it wanted to roll over, and Friday we were looking at it and other downside plays. Now we could have (and maybe should have) jumped in on the downside on this one earlier in the session, but we wanted to make sure it was going to close below the 50 day MVA, and we wanted to do it on above average volume. The stock was already down over $2 moving into the last hour, but if the Nasdaq continues selling this week as we think it will, we were not worried about getting in on the move, especially when we saw it start to climb with about 15 minutes left in the session. It was setting itself up for a good entry point for more selling the next week. By rising up 50 cents in the last 20 minutes, it helped us get a better entry point for a move back down early. We love this kind of late action: when we are going upside, we often see late profit taking on stocks that look primed to continue the move higher. That gives us a good entry point, and if the stock continues its upward move the next session, we are almost immediately even or in the money. It gets us a small leg up. We were seeing the flip side Friday with NVLS. The options were right at 9.80 by 9.90 when the move started, and then they fell to 9.30 by 9.40 when it made its move higher. We issued the alert and went back to put in our order. The stock had pulled back a bit in the time it took to get the order entered, but we got a decent trade at 9.50. The stock fell a bit more and the options closed at 9.60 by 9.70. Not a bad entry point; a leg up so to speak.
THE PLAYS: Excitement this week on splits by ATK, APPB and YUM! BBY made the downside move we were looking for, and the put plays that were reversed on Wednesday's rally have been making their anticipated retreat.
BONUS PLAYS: NVLS and PCAR hit the put buy points, and DISH continued down. PPD, LNY and WM are still hanging in there for potential upside plays. RHI is still set up for a drop.
Downside:
ABT (Abbott Labs--$51.25; -0.90; optionable): Drug manufacturer
http://biz.yahoo.com/p/a/abt.html
STATUS: ABT triple-topped at 58 in January-March, dropping heavily from there. It caught support at the 51.50 range, and after rebounding back over its 200 day MVA (currently 53.82) and then dropping again, has set up something of a ragged head & shoulders pattern. A bearish pattern that sets up a further drop, and Thursday and Friday ABT fell down off the right shoulder, Friday on increased but below average volume (3.47m; avg. 3.64m). Looking for more volume to push ABT down, targeting 44, watching for possible interim support at some 2001 lows at 47.
BUY POINT: From here or after a bit of a relief bounce to test 52, a drop through 51 on above average volume. Stop: 54
POSITION: June or August $55 puts to buy (ABT RK - 66 delta; ABT TK - 57 delta).
CPRT (Copart--$17.18; +0.29; optionable): Business software
http://biz.yahoo.com/p/c/cprt.html
STATUS: A steady downtrend, and CPRT has, over the past week and a half, pulled itself back up to the down trendline (connecting December, February and April highs). The line is with the 50 day MVA, at 17.57, and Friday CPRT moved up but showed its second consecutive doji under resistance, with Friday's volume moving up to 1.52m (avg. 1.03m). This is a classic set up for a put. We will look for a drop and a target initially at 14.50 (recent low at 14.33).
BUY POINT: A drop through 16.75 on continued strong volume. Stop: 18.25
POSITION: August $20 puts to buy (KQJ TD - only 2 OI as yet).
CCRD (Concord--$15.83; -0.57; optionable): Telecommunications
http://biz.yahoo.com/p/c/ccrd.html
STATUS: CCRD has been gradually drifting lower since the beginning of the year, and last week dropped hard through 2002 lows (February and April) at 16.50. It was a hard drop that took the stock through its 200 day MVA (16), but as we often look for after a breach of support, CCRD tested back up this week. It found resistance at the 10 day MVA (17), and Friday dropped back through the 200 day as volume spiked back up to 188,100 (avg. 167k). We like to take put positions after a failed test of broken support, and are looking for CCRD to continue down. Target: 12
BUY POINT: A drop through 15.30 on increased volume. Stop: 17.50
POSITION: July $17.50 puts to buy (UCD SW).
BMET (Biomet--$27.49; -0.62; optionable): Medical appliances
http://biz.yahoo.com/p/b/bmet.html
STATUS: After a huge drop in March, BMET slowly rebounded toward the 50 day MVA (currently 28.21). It cracked through a couple of times, most recently with Wednesday's rally, but there was no real strength, and BMET dropped back Thursday and Friday, crashing back through the 50 day. There was still little volume on the selling back (1.2m Friday; avg. 3.38m), but we will look for volume to pick up and push BMET down on a put play, targeting 24. It could try to test the 50 day again after the last two days' drop. Recent low is 25.18.
BUY POINT: From here or after a test of the 50 day, a drop through 27 on increased volume near the average. Stop: 29.50
POSITION: July $30 puts to buy (BIQ SF).
Upside:
NAFC (Nash-Finch--$31.08; -0.14; optionable): Food Wholesale
http://biz.yahoo.com/p/n/nafc.html
STATUS: Test of double bottom breakout. NAFC's double bottom (right leg did not dip back as far as the left one) dates back to September. In April NAFC broke back over its 200 day MVA (28.74), and a test of that level formed a small ascending wedge, from which NAFC broke out last week. The move took the stock over the center of the double bottom (31.67, from December), and this week NAFC has pulled back to test the move. Volume has been low on the pullback (up to 62k Friday; avg. 56k), and it is holding the 10 day MVA. Looking good, and if NAFC can hold 31 we can watch for a bounce back up. The breakout high was 32.97, with the all-time high at 38.20. Target: Initially the high at 38.
BUY POINT: Over 32 on increased volume. Stop: 29.85 (7%).
POSITION: Stock only.
ROIA (Radio One--$23.00; -0.23; optionable): Radio broadcasting
http://biz.yahoo.com/p/r/roia.html
STATUS: ROIA is trending up along its 50 day MVA, making regular, strong bounces from that level as it moves. It has bounced each month in 2002, with each bounce showing the strong volume spikes that show strong support as buying kicks in at the 50 day (currently at 22.30). The moves are typically showing a move of about $4, and we can take advantage of a bounce with an options play, jumping in on the bounce and preparing to exit when the move shows topping signs (dojis, a close well of the intraday high, smaller daily gains on lessening volume). ROIA pulled back toward the 50 day the last week, Friday showing a 'hammer' doji with volume remaining low at 184k (avg. 301,500), touching near the 50 day at its low of 22.57. Looking for the bounce. Target: 26.50.
BUY POINT: 23.75 on above average volume. Stop: 22.09 (7%)
POSITION: August $20 calls to buy (UDO HD - 77 delta, 85 OI).
Quick updates prior bonus plays:
LIN - Quick pullback off the breakout is not a good sign
QLGC - Pulled back to the 50 day MVA, so watching to see if it gives us any more retreat through this key support (200 day below at 42.50)
LRCX and CYMI - Dropped to the 200 day and 50 day, respectively, and watching support much like with QLGC
AMG - Continued to drop, losing all it gained from Wednesday's rally. We will let it drop.
MXIM - Another we are letting drop
NTBK - Gave up the 50 day Friday, and we are not hanging around for more of a drop
AVY - Holding up on the breakout in a lateral consolidation - not bad
XTO - The weak breakout did not hold, and it is back in the consolidation
TBCC - Still holding up on the breakout, but wary of a drop
MTB - Testing prior highs now, falling on lower volume. If it can hold it is fine
ARW - The bounce did not hold, and ARW continues down
TDY - A bit erratic, but holding up on the breakout
MFC - Moved back up after the test of the breakout, but looks like another test back is imminent after the light volume move up and doji Friday
IRIC - Took out the 50 day and hit the stop
LEXR - Testing the 50 day
RF - Dropping back and could be headed for the 50 day
RTEC - Just continues to fall, and we will let it
MCY - Looking good on the breakout test
PZB - Still holding the 18 day, doing okay for now
SMTC - Continues back, and we will let it drop
CAT - Dropping back after the test of the 50 day
CF - Back on the 50 day, holding for now
ARW - Dropping back, still targeting 22
FCTR - Ready to bail out with any remaining positions after breaking the 50 day and hitting the stop
PRE-ANNOUNCEMENT PLAYS FOR THIS WEEK: Looking at BER on Tuesday, with CAKE, KSS (still a put) and MHK for Thursday.
NEW PRE-ANNOUNCEMENT PLAY:
CAKE (Cheesecake Factory--$41.18; +0.15; optionable): Restaurant. Forecast to announce a split on 5-16-02 in conjunction with its annual shareholder meeting.
http://biz.yahoo.com/p/c/cake.html
BACKGROUND: Last announced a 3:2 split on 5-24-01 with its annual shareholder meeting. The stock price was $34.50. The annual shareholder meeting is scheduled for 5-16-02 at 10:00 PT at which time no additional shares will be authorized. The company has sufficient shares for a 2:1 split. CAKE typically announces close to a shareholder meeting.
STATUS: We have followed CAKE as it announced prior splits in 2000 and 2001, both which were in this range. One taste of triple chocolate chip or chocolate mousse cheesecake and you understand the success. At any rate, CAKE broke out of its December-March range in April, making a nice move over 38 and then making a steady trend upward. It has now pulled back to the support of its 18 day MVA (40.90), selling back on low volume and showing a doji Friday as volume dipped to a very light 197k (avg. 546k). Looking for another bounce and continued trend up. Target: 49.50
BUY POINT: Over 42 on above average volume. Stop: 39.15 (7%)
POSITION: Stock and/or July $40 calls to buy (CFQ GH).
PRE-ANNOUNCEMENT BEST PLAYS:
1) BER - Looking for a bounce going into the split announcement
2) BRL - Dropping back again
3) BMS - High volume of selling through support
4) KSS - Continuing down
5) CTAS - Testing the breakout
6) EASI - Still in the handle
7) MHK - Forecast for Thursday
BER (W.R. Berkley--$57.85; -0.19; optionable): Property & Casualty Insurance. Forecast to announce a split at the annual shareholder meeting on 5-14-02 at 2:30 ET.
http://biz.yahoo.com/p/b/ber.html
BACKGROUND: Based upon our research it does not appear that BER has ever split its stock. The company has sufficient shares for a 2:1 split.
STATUS: BER has pulled back to the support of the 50 day MVA (57.55), roughly in its late April pullback range that also tested the 50 day before surging with earnings. Since the drop Wednesday BER has shown decreasing point losses, and Friday volume picked back up to 157,400 (avg. 129k). Looking for BER to hold here and make a bounce going into the forecast. We don't necessarily like the quick re-test of the 50 day, but with the recent gap up on earnings this drop could be an aberration as money chased tech Wednesday. The high is 61.20. Target: 68
BUY POINT: 59 on increased volume. Stop: 57. We can also look at positions up to the time of the shareholder meeting.
POSITION: Stock and/or July $55 calls to buy (BER GK).
BRL (Barr Laboratories--$64.49; -0.74; optionable): Generic drugs.
http://biz.yahoo.com/p/b/brl.html
BACKGROUND: Last announced a 3:2 split on 5-31-00 in conjunction with a board meeting. The stock price was $52. The company has sufficient shares for a 2:1 split.
STATUS: BRL took a big drop Tuesday, touching 61.60 at its low, but rebounded in the rally Wednesday, gapping up with a decent earnings report. The numbers were not enough for BRL to sustain the move; indeed, Wednesday the stock could only manage a doji under the 50 day MVA (67.30) after the gap up. It has fallen back the last two sessions, Friday on increased volume (654k; avg. 507k) that took it back into the lower range of its April consolidation (tapped the low Friday at 64.49). Looking again for strong selling to take BRL out of the consolidation range for a put play. Target: 57.
BUY POINT: A drop through 63.50 on continued strong volume. Stop: 68
POSITION: August $70 puts to buy (BRL TN).
BMS (Bemis--$53.58; -1.46; optionable): Packaging and containers. We are researching a date.
http://biz.yahoo.com/p/b/bms.html
BACKGROUND: Based upon our research it does not appear that BMS has ever split its stock. The company has sufficient shares for a 2:1 split.
STATUS: We were looking for BMS to form a handle to the double bottom it was forming, but it turned back from the down trendline connecting the left-side high and center of the pattern. Friday the selling picked up in a big way, with volume of 560k (avg. 283k) pushing it down and through the 50 day MVA (54.30). We got stopped out of some put plays on this one, but volume on the surge back up had not been so strong as the selling. It was one that could set up to go either direction, and the strong drop Friday entices us to try again on BMS. Targeting 49.50 (200 day MVA at 48.88).
BUY POINT: Could test the 50 day again, and a drop back from that level is the favorite buy point. After a failed test or on a drop from here, a drop through 53 on continued strong volume. Stop: 55.25
POSITION: July $60 puts to buy (BMS SL - 20 IO).
KSS (Kohl's Corp--$69.32; -0.83; optionable): Department Store. Forecast to announce a split on 5-16-02 after the market closes in conjunction with earnings or on 5-21-02 in conjunction with its annual shareholder meeting.
http://biz.yahoo.com/p/k/kss.html
BACKGROUND: Last announced a 2:1 split on 3-16-00 at a stock price of $76. The company has sufficient shares for a 2:1 split.
STATUS: Not fooled by the gap over the 50 day MVA (71.24) in Wednesday's rally, as KSS hit up to 73 that session but pulled back for a doji. It promptly gapped back through support, hitting our put buy point. Volume increased Friday as KSS continued the selling, which came in at 2.08m (avg. 1.76m). We are closing in on the earnings and forecast date, but KSS has been dropping steadily for a month and the prospects continue to be to the downside. We can continue to ride existing positions down, with this leg of the downtrend perhaps hitting 68 before a relief bounce takes it back up to test the down trendline (currently at 71). If we get a little bounce Monday before it hits that point, we can look at additional positions on a drop back from the line. Still targeting 64.
BUY POINT: Riding existing positions. On a test of the 70.50 range, we can look at new positions on a drop back on continued strong selling volume. Stop: 72.
POSITION: July $80 puts to buy (KSS SP).
CTAS (Cintas--$53.74; -1.37; optionable): Business services. Researching a date.
http://biz.yahoo.com/p/c/ctas.html
BACKGROUND: Last announced a 3:2 split on 1-18-00 in conjunction with a board meeting. The stock price was $54. The annual shareholder meeting was on 10-25-00 at which time additional shares were authorized.
STATUS: CTAS finally made a great breakout move, but after three sessions telegraphed Friday's pullback with a 'tombstone' doji Thursday. The tombstone is a doji with a close well off the intraday high - it indicates that sellers have caught up to the buyers and pushed the stock down to close, and the candlestick points to more selling back and a possible time to prepare and take profits on short-term positions. CTAS did in fact drop back, with selling volume continuing to be above average (1.32m; avg. 1m), but much lower than we saw on the breakout. That price/volume action is what we want to see on a test of the breakout, although the drop Friday was a bit larger than we would perhaps like to see for one session. CTAS is at an important point here; it needs to hold the former pattern highs (with the 10 day MVA, at 53) to show strength and keep the move alive. Still targeting 65 on the play.
BUY POINT: After showing that it can hold 53, a move back over 54.50 on increased volume. Stop: 52
POSITION: Stock and/or August $50 calls to buy (NQQ HJ).
EASI (Engineered Support--$51.13; +0.13; optionable): Aerospace/Defense. Forecast to announce a split the week of 5-27-02 with earnings. At this time, the company cannot confirm this date.
http://biz.yahoo.com/p/e/easi.html
BACKGROUND: EASI last announced a 5:4 split on 2-1-2001 with a board meeting at a price of $28.50. Before that it announced on 6-12-98 at a price of $26.50. The company has sufficient shares for a 3:2 split.
STATUS: Being patient with this one. EASI is trying to break from a cup with handle, and last Thursday it made a bit of a move, but it could not hold on to the gain and came back into the handle. EASI has since held on over the short-term MVA's (18 day at 49.84), Friday gapping up slightly near the handle high and pulling back a bit to close, with volume even lower at 93,300 (avg. 190k). Setting up a small ascending wedge in the latter stages of the handle, so we are still looking for a breakout. With some strength on a move, targeting 62. The left side high in the pattern is at 58 from October 2001.
BUY POINT: 52.23 on volume of 290k. Stop: 48.57 (7%).
POSITION: Stock and/or August $50 calls to buy (UFE HJ).
End Part 2 of 3
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