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Begin Part 2 of 3
Support and Resistance
Nasdaq: Closed at 1600.85
Resistance: The down trendline at 1635. The 18 day MVA is next at 1675.12 (the 18 day MVA often acts as resistance in continuing downtrends). Some resistance at 1700 from a recent bottom and top. The next March down trendline is at 1725.
Support: Some support from 1600 to 1620 from the October consolidation. 1550 to 1560 are the October lows and could try to hold. Then 1500. After that is the September low at 1387.06.
S&P 500: Closed at 1054.99
Resistance: The February lows at 1074. The down trendline at 1077 is now back in control, backed up by the 18 day MVA (1083.27). Then the next down trendline at 1090, backed up by 1100 from price consolidations. 1125 is the serious resistance as that represents strong price points and the 200 day MVA (1123.54).
Support: At the bottom of the downtrend channel on the close. The October lows at 1050 are the last price consolidation level before the September low. There is possible support at 1000, but it is not much. The September low is 944.75.
Dow: Closed at 9939.92
Resistance: The March down trendline is back in play at 9950. Then there is the 18 day MVA (10,037.42). 10,100 continues to block the passage (50 day MVA at 10,121.15). After that, 10,300 holds the key to reaching toward the March high. After that is 10,400, the barrier to the upper half of the March trading range. The top of the June, July, and August 2001 trading range at 10,600 (10,679 intraday high) marks the top half of the March trading range.
Support: The 200 day MVA stopped the fall Friday at 9910.29. Then recent lows at 9811. The bottom of the downtrend channel is at 9645. Then 9500 to 9600 in the shelf of support from 9500 to 10,100.
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:
Best Plays:
1) ABF: Breaking out on strong volume.
2) BDK: A volume spike in the handle.
3) EXPE: Getting ready for a bounce.
4) CDI: Ditto.
5) C: Selling on strong volume.
6) HLT: Broke support on strong volume.
7) BGG: Ditto.
8) ELBO: Close to making its move.
9) CTX: Breaking down.
10) ACF: Ditto.
11) PCLE: Still a nice pattern.
12) SCS: Ditto.
13) Watchlist: CACI; UVN; GMP
NEW PLAYS:
Upside:
ABF (Airborne Freight--$22.17; +1.14; optionable): Air & Freight
http://biz.yahoo.com/p/a/abf.html
STATUS: Breakout. Formed the 8-week cup with handle after an ascending wedge breakout in late February. The stock pulled back to the 10 day MVA in the handle, bouncing up from there on Wednesday but waiting for another day to follow through. Volume fell off Thursday on the slight pullback, but ABF sprang from that doji on Friday with volume blasting up to 1.4 million (avg. 633K). Remains a buy on this move, having just beat the buy point in the handle. Money flow and relative strength are breaking out, and money flow has really exploded since late April.
BUY POINT: 22.23 on continued strong volume. A buy on the move up to 23.08. Target=25.75. Stop=20.67 (10 day MVA is at 20.76).
POSITION: Stock and/or August 20c to buy (ABF HD; delta= 0.72).
http://www.investmenthouse.com/ct/abf.html
BDK (Black & Decker--$49.71; +0.16; optionable): Small tools
http://biz.yahoo.com/p/b/bdk.html
STATUS: Cup with handle. It is a short handle to the 10-week base, but volume fell back to low levels Wednesday and Thursday before spiking up Friday to 988,700 (avg. 779K). The base formed after BDK broke out of a double bottom with handle in February, when it ran to the prior highs in the new base that are just under 50. The cup shows good accumulation (3 up weeks on stronger volume to zero down weeks on stronger volume), so we are looking for this spike to follow through on what spikes can signal: a strong move up. High money flow and relative strength.
BUY POINT: 50.60 on volume of 1.16 million or higher. Target=58. Stop=48.50
POSITION: Stock and/or August 45c to buy (BDK HI; delta=0.77).
http://www.investmenthouse.com/ct/bdk.html
EXPE (Expedia--$72.50; +0.04; optionable): Internet software
http://biz.yahoo.com/p/e/expe.html
STATUS: 50 day MVA bounce. EXPE has been a leading stock, not just in this sector, since early 2001. It formed a cup with handle base mid-year, broke out, then tested the 50 day at the February lows just above 40. After trending up to its recent high at 84 for a huge percentage gain, the stock has again tested its grounding mark at the 50 day (now at 70). Volume is high, up again Friday to 3 million (avg. 1.25 million) but the stock held the support for a small bounce, after some heavy selling the previous 2 days. That is showing strength, so we are looking for another uptrend to start from here. Initial target is the recent high, but this is one to let run.
BUY POINT: Aggressive: Over 74 on continued strong volume. Target=84. Stop=72
POSITION: Stock and/or October 65c to buy (UED JM; delta= 72).
http://www.investmenthouse.com/ct/expe.html
CDI (Cdi Corp--$29.20; -0.44; no options): Staffing and outsourcing
http://biz.yahoo.com/p/c/cdi.html
STATUS: Flag. Threw a flag in April and is pulling back in another, volume falling and the stock finding support at the 10 day MVA (29.06), showing a doji. This support is from where CDI flew up on the last flag breakout. With the doji and low volume (43,100; avg. 49K), the stock is looking ready to make another move, and we like the high money flow and relative strength as well. The stock has been in a strong uptrend since December of 2000 but after testing the 50 day MVA in early April, is preparing for its second bounce. A thinly traded stock, but a sector that performs well in a recovering economy (temp hiring before full-time hiring starts).
BUY POINT: Aggressive: 30 on volume of 50K or higher. Target=34.75. Stop=28
POSITION: Stock.
http://www.investmenthouse.com/ct/cdi.html
SGR (Shaw Group--$33.25; +0.12; optionable): Industrial equipment
http://biz.yahoo.com/p/s/sgr.html
STATUS: Ascending wedge. In a large base dating from a year ago, but most recently SGR flew back over its 200 day MVA (in April) to complete a more recent, 7-month cup base. After reaching the April high at the upper right side, 33.79, the stock sold back to the 50 day MVA but bounced back, forming an ascending wedge as a test of the strong breakout over the 200 day. Volume surged up Thursday and SGR popped up from the 10 day, but did not follow through Friday as volume inched a bit higher (1.06 million; avg. 632K), the stock pulling off a test of resistance at the 34 level. We are looking for another dip back to the 10 day MVA (32), then a bounce back and breakout from the pattern. Relative strength is high. Options can better leverage positions.
BUY POINT: 34.32 on continued strong volume. Target=40.75. Stop=31.85.
POSITION: Stock and/or October 30c to buy (SGR JF; delta=70).
http://www.investmenthouse.com/ct/sgr.html
Downside:
Puts:
C (Citigroup--$43.30; -1.03; optionable): Banks
http://biz.yahoo.com/p/c/c.html
STATUS: Put, head and shoulders. C peaked in the head of the pattern in March at the 50 level, and Friday headed down from the top of the right shoulder on strong volume (14.3 million; avg. 12.8 million) in what looks like the start of a breakdown in the overall pattern. The stock tried to hold an opening price over the 18 day MVA (the resistance in the shoulder) but then took the dive. The neckline, support it will need to break, is at 42.
BUY POINT: 42 on continued rising volume (16 million or higher). Target=36 (initial); below that, 34. Stop=44
POSITION: June 47.50p to buy (C RW; delta= -0.71).
http://www.investmenthouse.com/ct/c.html
DHR (Danaher--$69.89; -0.68; optionable): Building materials
http://biz.yahoo.com/p/d/dhr.html
STATUS: Put. The stock almost double topped (the March high, 74.14, is not quite at the level of the April high, 75.33), but DHR has been having trouble staying above its 50 day MVA, and slid below Friday for the second time last week. Volume is lower and below average at 707,200 (avg. 1.13 million), allowing the stock to hold near some support at the 69.50 range (February tops). However, if it cannot move back over the 50 day (70.59), we will look for more selling and a move down toward the 200 day MVA as the double top pattern follows through.
BUY POINT: 69.10 on volume in the range of 1.5 million or higher. Target=63 (initial); 200 day MVA at 61.50 is lower target. Stop=71.75
POSITION: June 75p to buy (DHR RO; delta -0.76, 38 OI)
http://www.investmenthouse.com/ct/dhr.html
HLT (Hilton Hotels--$14.43; -0.63; optionable): Lodging
http://biz.yahoo.com/p/h/hlt.html
STATUS: Put. HLT broke its 18 day MVA Thursday, then Friday the 50 day MVA could not hold it as volume shot higher (3.4 million; avg. 2 million) in a continued breakdown off the April high (17.01). The stock can try for a test of the broken support (which is at 14.70) for a kiss good-bye; on the move back down we are looking at an initial target at 12. The 200 day MVA is currently at 11.65.
BUY POINT: 14.35 on continued strong volume. Target=12. Stop=15.80
POSITION: July 17.50p to buy (HLT SW; delta= -0.73, 40 OI).
http://www.investmenthouse.com/ct/hlt.html
BGG (Briggs & Stratton--$39.80; -1.00; optionable): Machinery
http://biz.yahoo.com/p/b/bgg.html
STATUS: Head and shoulders (put, kiss good-bye). Peaked in the right shoulder at the 42 range then sold below the 200 day Friday (40.46) on strong volume (171,200; avg. 143K). Head peak is at 48. It bounced off the low and can test the 200 day MVA if that trend continues, but we will look for a move back down from there for the kiss.
BUY POINT: 39.40 on volume in the range of 200K or more. Target=35 (initial); below that, 33. Stop=42
POSITION: July 45p to buy (BGG SI; delta= -0.78, 0 OI).
http://www.investmenthouse.com/ct/bgg.html
TXN (Texas Instruments--$28.70; -1.90; optionable): Semiconductor
http://biz.yahoo.com/p/t/txn.html
STATUS: Put. TXN was been struggling to hold a move back over its 200 day MVA since November, and was looking better in March on a strong break over that resistance, marking this year's high at 35.71. It has trended back down since that time, however, first breaking its 50 day MVA and then early this month falling back through the 200 day. Volume just wasn't there after the stock hit the March high. In Wednesday's rally TXN flew up to test the resistance but fell back (in a kiss of death). Volume is decreasing but the stock is bleeding, moving farther on less volume Friday. It can move back up to test the 10 day MVA (29.62), but if not, we are looking for a fall to the October low is at 22.75. September lows are at 20. Volume 8 million (avg. 9.8 million).
BUY POINT: Aggressive from here: 28.50 on stronger volume. Target=22.75 (initial) Stop=30.
POSITION: July 35p to buy (TXN SG; delta= -0.70).
http://www.investmenthouse.com/ct/txn.html
ELBO (Electronics Boutique--$30.69; -0.07; optionable): Electronics stores
http://biz.yahoo.com/p/e/elbo.html
STATUS: Has been in a downtrend since late December; the stock finally broke below the 200 day MVA mid-March and has been in that neighborhood since, trying to break back over its 50 day MVA three times but failing. Last attempt was in Wednesday's rally, when even super strong volume couldn't break it through the resistance though the stock banged up against it. Volume fell back to low levels the rest of the week (Friday at 251,700; avg. 385K) with ELBO holding with its second doji at the 18 day MVA. We are looking for a breach there, and a continued trend lower.
BUY POINT: 30.30 on volume of 400K or higher. Target=26. Stop=32.50 (50 day MVA=32.27).
POSITION: July 40p to buy (LQB SH; delta= -0.77, 0 OI).
http://www.investmenthouse.com/ct/elbo.html
End Part 2 of 3
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