us stock market, stock watch

Begin Part 2 of 3

SUBSCRIBER QUESTIONS

Q: Can you give a refresher on deltas? I see a delta of 82 on one play and then a delta of -71 on another. The information is more than other services provide, but please explain why it is important.

A: Deltas relate to options and they show how much the option value will move in relation to movements in the stock or index it is derived from. In other words, if a call option has a delta of 82, that means the option value will move 82 cents for every dollar move in the underlying security. That means either way; the stock goes up $1, the option gains $0.82. If the stock goes down $1, the option falls roughly 0.82. For put options the delta is a negative number; this means that if the stock falls the option gains in value, i.e., an inverse relationship. Thus if a put option has a delta of -71, if the stock falls $1, the option value will RISE $0.71. That is the inverse relationship at work.

When looking at option deltas we like to see a delta at 70 (-70 on a put option) as that gives us very solid movement on the option and allows us to get to our targets faster than a delta of say 50. We have to go a bit deeper in the money to get that delta, and you always have to balance the price you pay versus how far you think the stock will rise or fall; you may not want to pay $15 for an option when the stock is only going to move $2 to your target and net you $1.40 per option. We also have to factor in time. The further out we buy (say October or November during this June expiration period), you will see the delta a bit lower for the same strike price. Not dramatically, but it will be lower and that needs to be factored in.

Deltas improve when the stock moves in your direction. In other words, as the option gets deeper and deeper in the money or moves further in your favor, the delta will improve. Thus, what started as a 70 delta may be an 85 or better delta if the stock moves sharply in your favor. Gains can be even better than expected if the stock generates a lot of momentum. Volatility will be helping price increases at that point as well, but that is another issue on option pricing.

When looking at options for the report plays, we factor all of this in. Sometimes we will take a bit lower delta for a good price, knowing that if the stock hits our target the option delta will have improved to more of what we like at that point.

THE PLAYS:

BONUS PLAYS: MKSI hit the buy point and dropped, but reversed with the market today and we could see a bounce; we will gauge its strength, looking for the move to fail. GB is still set up for a possible downside move.

CF (Charter One--$35.60; +0.35; optionable): Savings & loan
http://biz.yahoo.com/p/c/cf.html
STATUS: Revisiting one that made a nice run for us, hitting the target on the play. Since then, CF has visited its 50 day MVA (then 33, now 34), bouncing nicely and forming a reverse head & shoulders. The right shoulder is a little pennant pattern, holding over the 18 day MVA (35.02). Today CF bounced up from that level on increased volume (1.05m; avg. 935k), and CF looks poised to breakout and make another run. Relative strength has broken out ahead of price. Target: 42
BUY POINT: 36.30 on volume of 1.26m. Stop: 33.76 (7%)
POSITION: Stock and/or August $35c to buy (CF HG).

ASXM (Acxiom--$17.29; +0.49; no options): Software
http://biz.yahoo.com/p/a/asxm.html
STATUS: Double bottom with handle. ACXM made a February-March move from 12 to 17.50, pulling back since then to form the double bottom pattern, recently breaking back over the pattern center (17) but stalling at the left side high of 17.50. It pulled into a nice handle over the last couple of weeks, holding support at the 18 day MVA (16.54). Today it made a solid move up, taking out the handle high but pulling back slightly to close. Volume was up at 772k (avg. 638k). Looking for a continuation to complete the breakout and run. Relative strength is very good. Target: 21
BUY POINT: 17.70 on volume of 950k. Stop: 16.46 (7%)
POSITION: Stock and/or August $15c to buy (UQA HC - 67 OI).

INTU (Intuit--$44.48; +1.56; optionable): Application software
http://biz.yahoo.com/p/i/intu.html
STATUS: Cup with handle. The pattern formed off of its 2001 cup, but it could not get past 46 in building the right side of its large base that dates back to late 2000 and highs near 70. Today INTU made a strong move up in its handle, actually hitting over the prior high as volume spiked up to 4.66m (avg. 2.41m). Poised to breakout, and a market bounce could help to push it up and over 46 and to a target 54. Relative strength has already broken out.
BUY POINT: 45.02 on continued strong volume (min. 3.6m). Stop: 41.87 (7%)
POSITION: Stock and/or October $40c to buy (IQU JH).

Quick updates prior bonus plays:

TKR - A good initial drop although we could get a bounce before more selling
BJ - Continued down on the put
PSUN - Being stingy on the drop, and could test the 200 day again
THQI - Bounced back today, we will see how it fares against the 50 & 200 day MVA's
FNF - Pulled back, but not giving up gains easily, which is good
EME - Nice drop again today!
WY - Dropping back off of the double top, could be in for a test of the 50 day
ATVI - Holding the 18 day, which has been strong recent support
IGEN - Hanging on, being stubborn in a consolidation under resistance
LNY - Strong selling back again through the 50 day. 24 is recent support
CCRN - Nice 18 day MVA bounce
AGN - Cozied back up to the 50 day with a lighter volume move up
WFMI - Showing a decent consolidation over support
GRMN - Still in the consolidation over the short-term MVA's, looking for another move
DISH - Still moving up, but on low volume today; don't like riding it up, but looking for a failure at resistance just ahead
CCRD - Has not been able to take out the 10 day, and looking for a drop back on the put play
WM - Holding on the pennant pattern
TDY - Nice pullback to the 10 day, still trending nicely

PRE-ANNOUNCEMENT PLAYS FOR THIS WEEK: None for this week.

PRE-ANNOUNCEMENT BEST PLAYS:
1) HSIC - Looking to break from the consolidation

HSIC (Henry Schein--$49.95; +0.41; optionable): Medical equipment wholesale. Researching a new date.
http://biz.yahoo.com/p/h/hsic.html
BACKGROUND: Based upon our research it does not appear that HSIC has ever split its stock. The company has sufficient shares for a 2:1 split.
STATUS: Followed up yesterday's 'shooting star' doji with a small move, but not with the strength we were looking for yet. HSIC broke out of a trading range in January (highs 40), and after testing that move (and its 50 day MVA) in March, has made a nice run up along the short-term MVA's. It has pulled into a lateral consolidation over the past eight sessions, and looks poised to move. We are looking for a hold of the 18 day (49.16), and then a blast up out of the consolidation. Target: 60
BUY POINT: 50.69 on minimum volume of 450k. Stop: 47.14 (7%)
POSITION: Stock and/or October $45c to buy (HQE JI).

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) GMRK - Looking for a move off the 50 day
2) FOSL - Waiting for the move
3) KSWS - Holding support and looking for a bounce
4) ATK - Starting the move
5) STJ - Bounced and looking for more
6) APPB - Poised for a 50 day MVA bounce

GMRK (Gulfmark Offshore--$42.10; -0.19; no options): Oil & gas equipment. Splits 2:1 effective 6-29-02.
http://biz.yahoo.com/p/g/gmrk.html
STATUS: GMRK broke out of a small cup with handle in April, a pattern that served as a handle to a much larger cup pattern dating back to May. The move took GMRT to a new high (49.25), but it has pulled back over the last month to test prior highs and its 50 day MVA (40.91). Today GMRT showed yet another in a string of dojis, held down by the short-term MVA's (18 day at 42.91). Holding firm on support, so looking for a strong move on the heels of the split announcement. Target: 52.
PLAY: Over 43, with stock. Stop: 40.60

FOSL (Fossil--$31.18; -0.27; optionable): Recreational goods. Splits 3:2 effective 6-10-02.
http://biz.yahoo.com/p/f/fosl.html
STATUS: FOSL has pulled back again, continuing to hold the support of the 18 day MVA (30.85). FOSL made a great move off of its 50 day (then 27, now 29.02), hitting 33.61 before its recent pullback to test the move. Still looking good as holding the 18 day and prior highs (30). Still targeting 36 on a pre-split run. Excellent money flow and buying.
PLAY: Over 32.29, with September $30c to buy (QFS IF - 60 OI). Stop: 30

KSWS (K Swiss--$45.92; -0.07; optionable): Footwear. Splits 2:1 effective June 22.
http://biz.yahoo.com/p/k/ksws.html
STATUS: Still holding the short-term MVA's (18 day at 45.61). KSWS has come up from its 50 day MVA (currently 44), and took off on the announcement, but since hitting an intraday high of 47.39 last Friday it has dipped slightly, moving on light volume. Still looking good, watching for KSWS to hold support here and continue the momentum upward. The high (from earlier this month) is 48.12. Targeting 58.
PLAY: Aggressive: Over 47 on above average volume (90,200; today down to 31,300), with stock and/or July $40c to buy (SWU GH - 46 OI). Stop: 43.80

ATK (Alliant Techsystems--$107.29; +2.27; optionable): Aerospace/Defense. Splits 3:2 on or about June 11.
http://biz.yahoo.com/p/a/atk.html
STATUS: A bit of a bounce today, taking out the buy point. ATK has been steadily trending up, bouncing along the secure support of its 50 day MVA (104.38). After several solid runs along its 18 day MVA, ATK has come back to test the 50 day, touching below that support intraday on Wednesday. It recovered smartly, today moving to close back over the 18 day (107.11), with volume picking up to 357k (avg. 326k). The last run for ATK stalled at 110.15, short of the high made on the announcement surge (115.40), so we will look for a move that could turn into a strong run to a target of 120, but will protect positions.
PLAY: We can still look at positions on a continued move over 108.50, with August $100c to buy (ATK HT).

STJ (Saint Jude Medical--$85.51; +1.11; optionable): Splits 2:1 effective June 29.
http://biz.yahoo.com/p/s/stj.html
STATUS: Bounced from the 18 day MVA (83.75). STJ has made a solid move since mid-April, when it tested 74 and then barreled back over its 50 day MVA and prior highs at 81. It is trending nicely along the 18 day, and we are looking for more of a run, holding that support for a couple of more bounces before testing back again to the 50 day (currently at 81.53). We can ride the move with options, targeting 93.
PLAY: Aggressive: Over 86 on increased volume near the average (670k; today up to 454k), with October $80c to buy (STJ JP).

APPB (Applebee's--$38.87; -0.19; optionable): Restaurants. Splits 3:2 effective 6-12-02.
http://biz.yahoo.com/p/a/appb.html
STATUS: Testing its prior highs and 50 day MVA (38.48), tapping the 50 day the last two sessions at its intraday lows. Volume has risen on the moves, showing some strength of support, and today APPB showed a doji. We can look for a bounce from this pattern, looking for a potential quick play with options. We will watch the short-term MVA's at 39.73, with the high from mid-May at 41.50. Target: 43.
PLAY: Aggressive: Over 39.75, with August $35c to buy (AQB HG).

CONTINUING CANDIDATES BEST PLAYS:
1) AZO - Making the move off of the test
2) DHR - Stronger drop
3) DRYR - Weak relief bounce could lead to more downside

AZO (Autozone--$82.56; +1.91; optionable): Auto Parts
http://biz.yahoo.com/p/a/azo.html
BACKGROUND: Last announced a 2:1 split in March of 1994 at a price of $58. The annual shareholder meeting was on 12-14-00 at which time no additional shares were authorized.
STATUS: AZO made a great move last week on earnings, breaking from its six-month cup with handle. It has acted as we wanted (and as strong stocks do), pulling back on lighter volume from its breakout high of 83.42 but holding the prior pattern high at 80. We were looking for a push back up on increased volume, and that happened today as AZO hit our buy point on a surge of above average volume (1.4m; avg. 1.04m). Still a buy on this move, targeting 98.
BUY POINT: A buy up to 85 on continued strong volume. Stop: 79.05
POSITION: Stock and/or September $80c to buy (AZO IP).

DHR (Danaher--$67.86; -1.02; optionable): General building materials.
http://biz.yahoo.com/p/d/dhr.html
STATUS: Dropped through the put buy point today, and we got a volume spike on the selling (1.04m; avg. 984k). It pulled up from its intraday low of 67.31, and we could see a bit of a relief bounce here, especially if the market gives us one, but we will be patient with positions, and be looking for new ones on a failed bounce and drop back. Target 63 (200 day at 62.35).
BUY POINT: For new or additional positions, after a failed bounce to the 69 range, a drop back through 68 on volume of 1m or better. Stop: 71.75
POSITION: September $75p to buy (DHR HO).

DRYR (Dreyer's Grand Ice Cream--$43.82; +0.29; optionable):
http://biz.yahoo.com/p/d/dryr.html
STATUS: Still looking downside. DRYR tanked through the 50 day MVA (44.71) last week, and after an abrupt bounce back over that level is again showing weakness. It dropped back through the 50 day Tuesday, and after a bit more of a drop gapped down but bounced back today, although it moved on low volume (down to 76,500; avg. 165k) and retreated from the intraday high at 44.37. That is a recipe for more weakness, and we will continue to look for a drop and new or additional put positions. Still targeting 38.
BUY POINT: Aggressive: Through 43 on volume of 200k. Stop: 45.50
POSITION: September $50p to buy (QDF UJ - no OI as of yet).

POST-SPLIT BEST PLAYS: PRHC made a strong move.
1) MKC - Tried the move
2) AMAT - Aggressive trading play
3) LLL - Looking for a strong bounce

MKC (McCormick & Company--$26.30; -0.18; optionable): Food & beverage. Split 2:1 effective April 9.
http://biz.yahoo.com/p/m/mkc.html
STATUS: Tried the move today but pulled back to close. Since its split in April MKC has come back for a couple of visits to its 50 day MVA (25.50), forming a pennant. It made a nice bounce last week from the 50 day, clearing the short-term MVA's (18 day at 26.03), and now has pulled back to that support, showing a nice consolidation. Today MKC hit the buy point, moving up to 26.85 on increased volume (335k; avg. 251k), but pulling back to close. The failed attempt does not spell the end, and we can continue to look for MKC to try a move. The high (April) is 27.25. Target: 32
PLAY: Over 26.85 on volume of 360k, with stock and/or September $25c to buy (MKC IE).

AMAT (Applied Materials--$22.59; -0.51; optionable):
http://biz.yahoo.com/p/a/amat.html
STATUS: Has suffered a strong drop off from the recent high (27.50), but today found support again at the 200 day MVA (21.75). AMAT touched that level at its low, but rebounded to close with a 'hammer' doji on sharply higher volume (38.2m; avg. 22.6m). The low could be the formation of a double bottom (early May also at the 200 day), and with a market bounce AMAT could make an aggressive trading play off of the doji on a ride over the course of the next couple of sessions. We will watch the 50 day MVA as possible resistance at 24.90, targeting 26.75.
PLAY: Aggressive: Over 23 on continued strong volume, with July $20c to buy (ANQ GD).

LLL (L-3 Communications--$62.10; -0.35; optionable): Split 2:1 effective 5-21-02.
http://biz.yahoo.com/p/l/lll.html
STATUS: Has dropped back to the 50 day MVA (61.33), holding again today with a doji over that support. LLL has been quite strong, making solid runs along its short-term MVA's between periodic tests of the 50 day. We will look for support to hold and for LLL to bounce and run. The 18 day MVA is at 63.27, with the high from earlier this month at 66.78. Still targeting 72.50.
PLAY: Aggressive: Over 63.30 on volume of 900k (today down to 708k; avg. 770k), with October $60c to buy (LLL JL).

End Part 2 of 3

us stock market
stock watch