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us stock market, stock watch
Begin Part 2 of 3
SUBSCRIBER QUESTIONS
Q: I have heard from others to always exit a pre-split play before the split date, to be out no later than the pay date--no matter what. Do you ever take this stance as well?
A: Static approaches to the market usually land you in trouble. We are always looking at the dynamic processes in the market, and playing pre-splits is no different. In an established bull market, the 'typical' split play is to get in before the announcement to get any upside on the bullish news. As we have seen this year, as the economy improves and the leaders make their strong moves, the announcement can drive them higher in a hurry (e.g., LLL, PNRA, PFCB, WSM). The next play is in the two or so weeks ahead of the actual split, where stocks tend to give us a nice move into the actual split. After the split, stocks tend to dip or slump as the additional shares require a lot of buying to move the stock higher. It has to digest those shares and then set up another pattern for a move higher. In that situation, we often take profits before the split effective date if we have a nice run, particularly if we see the topping signs that so often occur during this volatile time after a good run and right before the actual split.
What we have seen in this market this year, however, is different. We have an economy that is recovering. We have a stock market coming off its longest bear market in 28 years. There has been a sea change of leadership, and now we see economically sensitive stocks taking the leadership roles and of course announcing splits. Instead of slumping on the actual split, however, investors are using the 'lower' price to buy more shares. Indeed, we have seen many stocks set up bullish bases moving into the split and then breaking out on the actual split date or shortly thereafter. Why? Investors are focusing on the areas that are working in the recovering economy and market. Economically sensitive stocks are outperforming, and more money just keeps flowing into those stocks even as they split. Thus, they are being driven higher post split. We will still exit if we have had a good run and the stock shows us topping signs as we teach in our seminars, but if we see a solid pattern, we will also hold some positions if it continues to perform well. Indeed, we have often bought into the stock on the split as they have broken out on the split.
THE PLAYS: Three announcements today! Got the split announcement from BER today, two days late but better late than never, and also from Continuing Candidates STJ and SRCL! No announcements today from MHK, KSS (still looking later this month) or CAKE. Reports of a split announcement by PMI relate to the shareholder approval of additional shares for the split announcement made in February.
BONUS PLAYS: CCRN broke out! BSG could not continue the move, pulling back to test recent highs, and RGFC crashed back. AGN hit the buy point on the put and we are looking for a continued drop.
LEN (Lennar--$53.53; -1.87; optionable): Residential construction
http://biz.yahoo.com/p/l/len.html
STATUS: Homebuilders having trouble now, and LEN is one of them that broke through major support today. LEN dropped through the 50 day MVA (54.52) on sharply higher volume today (1.58m; avg. 1.25m). In March LEN crashed through the 50 day but made a quick recovery, and has tried to form a cup. With the sector perhaps weakening, we will see if there is another quick recovery, but we will look for a test of the 50 day and failure, looking for strong selling and put play. Target: 48 (200 day MVA at 46).
BUY POINT: After a failed test of the 50 day, a drop back through 53.40 on continued strong volume. Stop: 56
POSITION: August $60 puts to buy (LEN TL - 37 OI).
RACN (Racing Champions--$20.90; +0.93; optionable): Basic materials wholesale
http://biz.yahoo.com/p/r/racn.html
STATUS: RACN has been trending up steadily off of the September lows of 4, and in 2002 has made a couple of nice bounces from the 50 day MVA. RACN is back at the 50 day (19.73), and the visits to this support have been regularly spaced and produce solid moves. Today RACN started up again, with volume kicking up to 370,500 (avg. 302k). Today's push took RACN back over its short-term MVA's (20.78), and we look for more on the move from here. The high is 22.85, and we are targeting 25.50
BUY POINT: Over 21.20 on increased volume. Stop: 19.81 (7%)
POSITION: Stock and/or September $20 calls to buy (QAR ID - no open interest).
PG (Proctor & Gamble--$92.97; +0.82; optionable): Consumer products
http://biz.yahoo.com/p/p/pg.html
STATUS: PG has been on a nice, steady run, periodically bouncing from its 50 day MVA in between runs along its short-term MVA's (18 day at 91.74; 50 day is at 89.60). After its bounce from the 50 day in April, PG has now pulled into an ascending wedge over the 18 day. Looking good and looking for an options play on a breakout, looking for run to 100.
BUY POINT: 93.73 on volume of 4.2m (avg. 3.1m; today 2.79m). Stop: 89.50
POSITION: July $90 calls to buy (PG GR).
Quick updates prior bonus plays:
SERO - Hit the buy point but pulled back intraday and is still in the consolidation
GRMN - Broke out but action is a bit erratic, with a pullback from the intraday high the last two sessions and a gap up today. Watching carefully.
PCAR - Hit the stop Wednesday, and held the 50 day on a slight move back today
DISH - Still held back by its 10 day MVA and could retreat again
ROIA - Holding the 50 day on the drop back, not looking too good
CCRD - Looking for a harder drop
ABT - Huge drop
CPRT - Still fighting the 50 day MVA, at a point where it could go either way
LIN - Quick pullback off the breakout, and now trying to hang on
AVY - Moving well, with the pullback the last couple of days on nice, light volume
XTO - Trending up along the 18 day MVA
MTB - Still looking good
TDY - Another great move!
MFC - Protecting positions, a bit erratic now
IRIC - Pulled back promptly from the bounce, and is very erratic
LEXR - Nice bounce from the 50 day
RF - Still proceeding up the short-term MVA's with weak volume
MCY - Still holding on the breakout test
PZB - On the uptrend and holding support
CF - Bounced nicely from the 50 day but losing momentum at resistance of prior highs
PRE-ANNOUNCEMENT PLAYS FOR THIS WEEK: Still looking at KSS for next Tuesday, and MEG next Friday.
PRE-ANNOUNCEMENT BEST PLAYS:
1) EASI - Getting close . . .
2) ABC - Looks ready to bounce
EASI (Engineered Support--$50.07; -0.85; 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: Looking for the breakout. EASI is trying to break from a cup with handle, and today pulled back intraday to 48.82, but pushed back up on strong volume (way up to 267,800; avg. 187k) to close at the 18 day MVA (50.17). A nice recovery, and we will see if the dip shook out the last sellers, and look for the upward momentum to continue and push 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).
ABC (Amerisourcesbergen--$76.04; +0.18; optionable): Drugs wholesale. We are researching a forecast date.
http://biz.yahoo.com/p/a/abc.html
BACKGROUND: Last split in March 1999 in the $70 range. The annual shareholder meeting was on 2-27-02 at which time no additional shares were increased. The company has sufficient shares for a 2:1 split.
STATUS: Nice handle-type consolidation. ABC formed the pattern after a breakout from a six-month cup with handle, and it has shown solid action with low volume on the move, holding over support of the 18 day MVA (74.98; former pattern highs at 72.50). ABC could be ready to move, as today it dipped back to 73.59 at its intraday low, but recovered, closing back over the 18 day as volume moved up to 1.35m (avg. 992k). Still looking for a strong move off of this pattern, targeting 90. The high is 79.70. Good buying and relative strength is solid.
BUY POINT: Bounce: Over 77 on increased volume. Stop: 71.70 (7%, currently at 50 day MVA).
POSITION: Stock and/or August $75 calls to buy (ABC HO).
PRE-SPLITS BEST PLAYS: Remember, we try to grab Pre-Splits as they break out of good patterns or as they start a run right before the split. Not looking for home runs, but looking for those $3 to $4 moves running into the split, watching for topping signs and potential resistance. Not huge money, but it can be very steady. We set our initial stops at the 7-8% range below the purchase price (or just below obvious support), and move them up on a move to preserve our profits.
1) ANN - Filled the gap and could be ready to move
2) LLL - A doji could lead a last pre-split move
3) IFIN - Holding up and could make another surge
4) CPS - Forming a handle
ANN (Ann Taylor--$48.94; +0.20; optionable): Apparel stores. Splits 3:2 effective 5-21-02.
http://biz.yahoo.com/p/a/ann.html
STATUS: ANN made a nice bounce from the 50 day MVA (44.16) earlier this month, and Tuesday gapped up on good retail sales numbers. That move was a gap up to a doji, and that pattern sets up a pullback; the key was if the stock could hold the prior highs upon filling the gap. It has today tapping down to former highs at 48, but rebounding to close. Volume is typically not as important a factor in pre-splits, but it was notably strong on today's move at 1.41m (avg. 636k). Closing in on the split date, and we could see a strong move that carries it through the split.
PLAY: Aggressive: Over 49.50, with September $45 calls to buy (ANN II).
LLL (L-3 Communications--$129.61; +0.46; optionable): Splits 2:1 effective 5-21-02.
http://biz.yahoo.com/p/l/lll.html
STATUS: Still in something of an ascending wedge. After dipping back Wednesday, LLL held the 18 day MVA (127.89), and showed a doji over the level today. The doji over support sets up another possible run as we near the split. The pattern high is at 133.56. On strength we can ride LLL through the split with short-term positions, protecting profits. The target is 145 for the play (72.50 post-split), but for the short-term plays we will watch for topping as the stock nears 140, perhaps taking profits.
PLAY: Aggressive: Over 132. The breakout is over 133.50. July $130 calls to buy (LLL GF). Stop: 126.
IFIN (Investor's Financial--$77.13; +0.30; optionable): Splits 2:1 effective 6-17-02.
http://biz.yahoo.com/p/i/ifin.html
STATUS: Made a great bounce from the 50 day MVA (74.43), hitting our buy point but pulling back as it hit recent highs in the 78 range. IFIN showed good action by catching support in the range of March-April consolidations (over the 18 day MVA, at 75.72), and continued to hold today with a doji on reduced volume (149k; avg. 166k). Looking for a continued hold of 76 and a continuation of the run. Still targeting 90. Good buying.
PLAY: Over 78 on above average volume, with July $75 calls to buy (FLQ GO - 75 OI).
CPS (Choicepoint--$59.21; -0.69; optionable): Business services. Splits 4:3 effective June 7.
http://biz.yahoo.com/p/c/cps.html
STATUS: Forming up nicely. CPS trended up nicely along its 50 day MVA (56.57), hitting a high of 61.80 in early April before taking several weeks to re-test the 50 day, dropping below it but coming back recently to form a six-week cup. Accumulation has been solid in the right side of the pattern, with volume very strong as it makes its way back up toward the high. After gapping up for a doji Tuesday on big volume, which is a topping sign, CPS has eased back with much lower volume. Today it dropped back a bit more as volume slowed to 101,500 (avg. 222k). This is good action for the formation of a handle, and we could see a few more sessions of consolidation, but will look for a breakout. Target: 69
PLAY: 60.50 on volume of 150k, with stock and/or July $55 calls to buy (CPS GK).
CONTINUING CANDIDATES BEST PLAYS: INVN still set up for a possible put.
1) BER - Also a split announcement!
2) STJ - Split announcement!
3) GNSS - Holding support and could move
4) ACDO - Dropping now and a put
5) AHC - Showing strength
BER (W.R. Berkley--$59.66; +0.19; optionable): Announced the split! Splits 3:2 on or about July 3.
http://biz.yahoo.com/p/b/ber.html
STATUS: Announced the split after hours Thursday. BER has made another bounce from its 50 day MVA (57.85), forming a possible double bottom. Today BER closed with a doji after tapping its 18 day MVA (58.98) at its low. Volume continued up to 166,500 (avg. 115k), and that action can indicate a pullback. After the steady rise we have seen that led to the break from its cup pattern, we will look for BER to hold the 18 day and continue its trend along that support. It has solid earnings and a split announcement behind it. Still targeting 68 with current positions.
BUY POINT: Looking for a hold of the 18 day, and after it shows it has strong support there, a move over 60 with increased volume. Stop: 57.
POSITION: October $55 calls to buy (BER JK - 62 OI).
STJ (Saint Jude--$83.21; +0.74; optionable): Announced a split today! Splits 2:1 effective June 29.
http://biz.yahoo.com/p/s/stj.html
STATUS: STJ sold back hard Tuesday but held support at the 18 day MVA (82.28), and on the news of the split STJ bounced up a bit but closed with a doji. With the split announcement, we will see if it can hold support and set up again for a move; stocks can sometimes pullback even after an announcement after having made such a great run. The aggressive can look for an options play on a move back up.
BUY POINT: Aggressive: Over 84.25 on above average volume (712k; avg. 609k). Stop: 81. Target: 90
POSITION: July $80 calls to buy (STJ GP).
GNSS (Genesis Microchip--$28.40; +0.64; optionable): Semiconductor.
http://biz.yahoo.com/p/g/gnss.html
STATUS: Still interesting. Not really a continuing candidate at this level, but one that we have kept our eyes on after our put plays ran their course. This is one of the techs that is working on the bottom of its base, and which can give us plays on the way back up - we just have to realize that there is a lot of overhead supply that can push it back down after a run and be prepared for that type of action. GNSS made a strong move earlier in the week, running back over its 50 day MVA (27.28) as volume ran high. It has held on since, not giving up the 50 day but showing consecutive dojis, today with volume dipping back to 2.6m (avg. 4.1m). Looking for a hold and continued move with strength in techs. Targeting 34 on a move.
BUY POINT: Holding existing positions. For new ones, over 29.45 on continued strong volume. Stop: 27.40
POSITION: Stock and/or September $25 calls to buy (QFE IE).
ACDO (Accredo Health--$53.71; -1.99; optionable):
http://biz.yahoo.com/p/a/acdo.html
BACKGROUND: Last announced a 3:2 split on 1-29-01 in conjunction with earnings. The stock price was $45. The company has sufficient shares for a 3:2 split.
STATUS: Very weak now. ACDO had given some nice upside moves, but it dropped through its 50 day MVA (57.35) last week, and after tapping back up toward that resistance several times it was not able to break back through. After a weak test Wednesday, ACDO dropped back today on higher volume, hitting 52.38 at its low but rebounding a bit to close. We could see a test back up toward 55, but will look for such a move to fail and send ACDO back down for a put play. Target: 46 (200 day MVA at 44). BUY POINT: After a test up toward 55-56, a drop back through 53 on continued strong volume. Stop: 57.75
POSITION: August $60 puts to buy (DZU TL - only 2 OI, delta .70; the 55 strike has 76 OI, but delta .51).
AHC (Amereda Hess--$83.26; +1.88; optionable): Oil and Gas.
http://biz.yahoo.com/p/a/ahc.html
BACKGROUND: Last announced a split on 7-21-80. Based upon our research we are unable to determine the price at the time of the split announcement. The company has sufficient shares for a 2:1 split.
STATUS: Broke out today, hitting our buy point with strong volume (just below the total daily volume we were looking for). We were looking perhaps for a bit more consolidation over 80 before the move, which took the stock out of the handle to a cup dating back to September (within a larger pattern going back a year with highs at 90). However, a nice move and we are riding positions for a run to the target of 96.
BUY POINT: Has made a run from the bottom of the handle, so we are limiting our buys up to 84.50, with continued strong volume.
POSITION: Stock and/or August $80 calls (AHC HP).
POST-SPLITS BEST PLAYS:
1) WTSLA - Still a put play
WTSLA (Wet Seal--$22.10; -0.12): Apparel stores. Split 3:2 effective 5-10-02.
http://biz.yahoo.com/p/w/wtsla.html
STATUS: Still clinging under the 50 day MVA (22.55) after tanking back through that former support earlier this month. Today WTSLA again hit down intraday (low of 21.50) but pulled back to show another doji, as volume dropped back to 275,500 (avg. 306k). We are still looking for a put play on a drop through 21 on strong volume.
PLAY: On a drop through 21 on above average volume, July $25 puts to buy (WTQ SE - no open interest as yet).
End Part 2 of 3
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us stock market
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