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Begin Part 2 of 2
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
2-13-01
Retail Sales, January (8:30): 0.5% versus 0.1% prior.
Retail Sales ex-auto, January (8:30): 0.4% versus 0.0% prior.
2-14-01
Business Inventories, December (8:30): 0.4% versus 0.5% prior.
Greenspan semi-annual testimony on economy
2-15-01
Export Prices ex-ag., January (8:30): -0.2% versus -0.2% prior.
Import Prices ex-oil, January (8:30): 0.9% versus 0.9% prior.
Philadelphia Fed, February (10:00): -23.0 versus -36.8 prior.
2-16-01
PPI, January (8:30): 0.2% versus 0.0% prior.
Core PPI, January (8:30): 0.1% versus 0.3% prior.
Housing Starts, January (8:30): 1.550M versus 1.575M prior.
Building Permits, January (8:30): 1.493M versus 1.493M prior.
Capacity Utilization, January (9:15): 80.3% versus 80.6% prior.
Industrial Production, January (9:15): 0.0% versus -0.6% prior.
Preliminary Michigan Sentiment, February (10:00): 94.0 versus 94.7 prior.
SUBSCRIBER QUESTIONS
Q: In your Investment House newsletter, specifically the option recommendations, you list out of the money option positions as a safer investment. I am still in the learning process, but I thought out of the money options are riskier since the underlying stock movement must be greater and you have very little intrinsic value. Also, your report does not recommend entry points on the options. I appreciate any information you could provide on this matter.
A: When looking at the plays, you need to read the 'Buy Point' and 'Position' sections together. If a play is aggressive, that usually means it is a play from that point and still has some resistance to conquer. The aggressive position goes with that play. The 'safer' play is when there is near term resistance (e.g., a down trendline or a breakout point) and the entry point is when the stock breaks that resistance. That breakout point is higher than the aggressive play, so in many cases the options selection is at a higher strike price than the aggressive play. In other words, you would not buy the 'safer' option play until the stock has broken the resistance. At that point the option we are looking at is usually in the money. Only when we are looking 4 months or more out do we look at options at the money. Otherwise when buying options we almost always buy in the money.
As for entry points, we don't look at the option price as our cue to when we enter but instead use the stock price as the cue. As the option price generally moves with the stock movements, when the stock hits our buy point, that is when we enter on option plays as well.
TEAM TRADES
SDS: SDS is a continuing split play that has been moving up while the Nasdaq moves down. Business software continues to be strong, and SDS made a breakout move on Wednesday and Thursday ahead of its earnings that were announced Thursday after the close. We entered some positions prior to the earnings announcement when we saw the stock start to run Wednesday, and we tried to enter more on Thursday but got caught in the stock's up and down action and just made a partial fill on our order. After the earnings came in stronger than expected we wanted to get in more positions if we got the chance. We have been looking longer term on the stock because it looks so solid, and the earnings confirmed this. We were not sure if the stock would get sold off or would rise on the earnings, but the stock was powering into the announcement.
Friday the stock opened flat but immediately sold down to 51. That is the low it hit Thursday, and it is also the top from the previous week. Thus, it looked like solid support and with the earnings we would see if it could bounce off of that level. It stopped at that point and immediately attempted to move up. It then gapped to almost 52 and then gapped to 52.50. We tried to catch it on the move with some July $50 options that were trading at $7.50. We put in a limit order at 7.50 but the stock made a quick move to 74, then 75, but the stock ran on away from us. It then sold back to 53 and started back up. As the stock opened at that point and previously closed at that point, we were looking at it as a potential support level now. When we saw the stock hold and start up, we looked at the options once again, and they were asking 7.88. We had the order already to go and just typed in the price and fired it off. The fill was made almost immediately as the stock moved through 54 and back to 55 over the next two hours. It spent the last 2.5 hours moving between 54.50 and 50 as the Nasdaq sold lower. After hours we saw trades over 55, but that is all problematical. We are going to be watching the 55 level Monday. The stock hit it 5 times Friday but could not break it. If it gaps higher, we will most likely put in a stop for the options at $9 or just under in the event it falls back through 55 and cannot break back over. We would rather capture that gain on all positions and try again than lose a gain in this market.
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
THE PLAYS: We are continuing to watch the financial sector for stocks that look like they can make good moves when the market moves back into the rally mode. Many are showing strong patterns, while others are pulling back and consolidating for moves up in the next rally.
All prices reflect prices at the close on Friday.
NOTE: Several stocks are looking good despite the market, and some are breaking out nicely, and we are including the best-looking of those on the report. Other stocks have been removed, but we are keeping them on a watchlist because while they continue to hold up fairly well, they aren't moving at this time and/or we need to see them break back over some support levels (MAY, MER, CSBI, HWP, FLEX, BSC, VRTY, KEI, LEH, HBC, IBM, CFBX, GM, USG, BBBY, ESRX, C). We'll be ready to slap any of these back on if they make a solid move up.
Best Plays:
1) SDS: Breaking out and still a buy.
2) ASD: Ditto.
3) ACS: A low-volume pullback to a doji.
4) SUB: The pullback may be over.
5) HI: In a tight pattern.
6) SWBT: Holding a good pattern.
7) NEU: A lower volume pullback doji in the pennant.
8) WB: Moving up in the handle on stronger volume.
9) STE: Ditto.
10) NCC: Look for a move up from this doji at major support.
11) AZA: Strong move.
READY TO BREAK TO A NEW HIGH:
New Play:
PHCC (Priority Healthcare--$37.88; +2.07; optionable (UHP)): Drugs Wholesale
http://biz.yahoo.com/p/p/phcc.html
STATUS: In a pennant consolidation after pulling off the December all-time closing high of 40.81. The pattern is using the 50 day MVA (currently 34.18) as support as lows continue to climb. The stock moved up on strong volume Friday (715,700; avg. 484,227), the high tapping at possible resistance (39.13, hit four times in the pattern). Look for a continued move up from here. Relative strength has broken out ahead of price, a bullish sign.
BUY POINT: Aggressive: On further upward movement on continued strong volume. Watch for resistance noted.
POSITION: Aggressive: Stock and/or April $35 calls to buy (UHP DG, which have only 13 open interests).
BREAKOUTS:
New Play:
SDS (Sungard Data Systems Inc--$54.99; +2.19; optionable (SDS)): Business software
http://biz.yahoo.com/p/s/sds.html
STATUS: The stock is in a nice uptrend since early July and broke out Wednesday and continuing Friday on even higher volume as investors jumped on board this good-looking stock (1.9 million; avg. 790,000). Buy point is 52.88, so remains a buy; indeed, the stock was trading up to 55.75 at the close of after hours trading. Outstanding money flow and high relative strength. Business software is performing well.
BUY POINT: Remains a buy on the breakout up to 55.52; after which we can add to positions after a test of the breakout (pullback).
POSITION: Aggressive: Stock and/or April $50 or $55 calls to buy (SDS DJ or DK). Safer: Stock and/or April $50 calls to buy (SDS DJ).
Continued Plays:
ASD (American Standard--$54.96; +3.20; optionable (ASD)): Materials and construction
http://biz.yahoo.com/p/a/asd.html
STATUS: Broke out on strong volume (730,900; avg. 354,090) from its breakout test; we had to be patient on this one, but it paid off. Actual buy point is 53.82, so this one remains a buy. A strong breakout move from Thursday's star doji (which came on a very slight pullback on just higher volume).
BUY POINT: Up to 56.51, on continued rising volume (minimum breakout volume was 478,000).
POSITION: Stock and/or April $50 to $55 calls to buy (ASD DJ or DK).
NATI (National Instruments Cp--$56.13; +1.07; optionable (SJQ)): Computer peripherals
http://biz.yahoo.com/p/n/nati.html
STATUS: Computer peripherals look good. NATI broke out accordingly the last two days of the week on good volume (increasing to 543,500 Friday; avg.248,090). The stock has surpassed our limit for buying on the breakout (that was 55.92), and the pull off the high of 57.56 on the just higher volume indicates pullback time. Look for a test of the breakout point of 53.26 (or better) and subsequent move back up. Outstanding money flow.
BUY POINT: On a move back up after a pullback to 53.26 (or better).
POSITION: Stock. June $50 options (SJQ FJ) have insufficient open interests (57).
TESTS OF THE BREAKOUT: Some of these stocks are moving back on low volume to test the breakout. We often take profits on option plays when they start to pullback on the breakout move and then get back in when the stock bounces up off of the breakout point. This second move is where some of the biggest gains are made.
Continued Plays:
THQI (Thq Inc--$30.81; -0.75; optionable (QHI)): Software
http://biz.yahoo.com/p/t/thqi.html
STATUS: Pulling back to test the level of the lateral consolidation from which the stock popped Thursday (that consolidation formed as a test of the recent breakout). Volume was higher as the stock moved up from the low (30.25) to close, but off the high of 31.31. Can pull back again to the 30 level support, but look for a subsequent move back over the high. Relative strength broke out higher. Software continues to hold up pretty well.
BUY POINT: Back over the Thursday high of 31.69 on stronger volume.
POSITION: Stock and/or June $30 calls to buy (QHI FF).
ACS (Affiliated Computer Svc--$66.20; +0.11; optionable (ACS)): Software
http://biz.yahoo.com/p/a/acs.html
STATUS: Got the higher volume we were looking for and a new high Thursday (67.75), but the stock pulled back, showing a tight doji Friday. That move was on lower volume (308,700; avg. 320,272) as the low tested support at the 10 day MVA (65.09). We like the low-volume doji, and look for a move up. Great money flow and high relative strength.
BUY POINT: Over Thursday's high of 67.75 on volume of 417,000 or better.
POSITION: Stock and/or April $60 calls to buy (ACS DL). April $65 options have 65 open interests (ACS DM).
SUB (Summit Bancorp--$43.12; +0.52; optionable (SUB)): Regional banks
http://biz.yahoo.com/p/s/sub.html
STATUS: Moved up from the Wednesday doji (that was below the 18 day MVA, 42.46) and by Friday was showing renewed life on stronger, above average volume (978,900; avg. 740,727). The 5-day pullback may be finished. Some financials have broken from patterns, but others like SUB are holding up well, though patience is required: the stock has tested its recent ascending wedge breakout for the last 5 weeks. Great money flow.
BUY POINT: Over 44.61 (consolidation high) on volume of 1.3 million or better.
POSITION: Stock and/or April $40 calls to buy (SUB DH).
WEDGES, PENNANTS, and FLYING PLATEAUS (AND FLAGS): These are some of our favorite patterns as the moves can be explosive. In this market, however, we need to see the move on the breakout on strong volume.
Wedges:
New Play:
HI (Household International--$59.20; +0.42; optionable (HI)): Credit services
http://biz.yahoo.com/p/h/hi.html
STATUS: Matched Wednesday's new all-time closing high as the stock showed a doji in its ascending wedge pattern. Volume dropped back below average (1.1 million; avg. 1.6 million); HI can pull back to lower support in the pattern before breaking out. This is a nice, tight pattern. The stock has trended up beautifully since February. Relative strength is high and money flow strong.
BUY POINT: 60.33, on volume of 2 million or better. Remains a buy on the breakout up to 63.35.
POSITION: Stock and/or April $60 calls to buy (HI DL).
Continued Plays:
TD (Toronto Dominion Bank--$28.96; -0.22; optionable (TD)): Banking
http://biz.yahoo.com/p/t/td.html
STATUS: Showed a doji on its latest dip in the large ascending wedge, as volume dropped even further below average (36,300; avg. 101,409). The doji is at the top of the day's trading range (high of 29.08), so this one may not drop to the 50 day MVA (28.54), although that is the support level for the last dip in the pattern. 10 day MVA is at 29.30; pattern high is 31.13. High relative strength.
BUY POINT: Aggressive: On a test of the 50 day MVA and a move up on rising volume. Breakout: 31.13, on volume of 137,000 or better.
POSITION: Aggressive and Breakout: Stock and/or April $25 calls to buy (TD DE).
PNC has been moved to the next section.
Pennants:
Continued Plays:
SWBT (Southwest Bancorp of Tx--$43.75; -0.63; optionable (ZRQ)): Regional banks
http://biz.yahoo.com/p/s/swbt.html
STATUS: A bank stock that continues to hold a good-looking pattern. Volume dropped back to 146,000 (avg. 237,090) as price pulled back slightly, remaining above support of the 10 day MVA (43.34). Look for that level to bump the stock back up again as the pattern tightens. Outstanding money flow and high relative strength.
BUY POINT: Breakout: 45.76, on volume of 320,000 or better.
POSITION: Breakout: Stock and/or May $40 calls to buy (ZRQ EH).
FAF (First American Corp--$32.25; +0.77; optionable (FAF)): Insurance
http://biz.yahoo.com/p/f/faf.html
STATUS: Still like this pattern as well, as price moved up from support (10 day MVA, 31.43). Volume was lower, however (139,500; avg. 322,227), so we want to see that pick up to sustain this move. Otherwise, the stock can pull back to the support level once again. Patience is key in this market, as we have seen with other breakouts. Strong money flow and high relative strength.
BUY POINT: Breakout: 33.01, on volume of 435,000 or better. Remains a buy on the breakout up to 34.66.
POSITION: Breakout: Stock and/or April $30 calls to buy (FAF DF).
NEU (Neuberger Berman Inc--$81.01; -0.51; optionable (NEU)): Financial services
http://biz.yahoo.com/p/n/neu.html
STATUS: Made a move up Thursday on stronger volume, but the pennant is still shaking out holders, pulling back to close on a doji as volume dropped back down (112,700; avg. 283,000). 10 day MVA is at 80.27 on a continued pullback, but the stock looks ready to move up again from here. Great money flow and high relative strength, and good buying.
BUY POINT: Aggressive: Up from here on increased volume. Breakout: 85.82, on volume of 382,000.
POSITION: Aggressive: Stock and/or March $80 calls to buy (NEU CP; 25 open interests). April $25 options have no open interests. Breakout: Stock and/or April $85 calls to buy (NEU DQ; 20 open interests).
EDS (Electronic Data Systems--$63.74; +1.23; optionable (EDS)): Software
http://biz.yahoo.com/p/e/eds.html
STATUS: Gapped up on the earnings report Thursday, beating the buy point of 60.13, and held support near the close for another move up Friday as volume remained strong but sharply down (3.6 million; avg. 2.2 million). This is a breakout move from a pennant that was functioning as a handle to a cup base (prior high of 68). Look for a hold at support for a continued move up on stronger volume. Showing good buying and money flow.
BUY POINT: Aggressive: Up from here on stronger volume. Safer: On a move back up after a pullback to the 60 range to test the breakout.
POSITION: Stock and/or June $60 calls to buy (EDS FL).
PNC (Pnc Financial Svcs Grp--$73.43; +0.51; optionable (PNC)): Banking
http://biz.yahoo.com/p/p/pnc.html
STATUS: Slipped from Wednesday's doji but remains above its 18 day MVA (73.38) after dropping below that level Thursday. Volume was lower (708,100; avg. 1.1 million) but the stock managed a small move up. A financial stock that is holding a pattern (though it is no longer an ascending wedge), so we will see if it can move higher from here. We like the move back over the support level; intraday high tapped the 10 day MVA at 73.59. Pattern high is 75.81. Excellent money flow.
BUY POINT: 75.94, on volume of 1.5 million or better. Remains a buy on the breakout up to 79.74.
POSITION: Stock and/or May $75 calls to buy (PNC EO).
BASING/TRADING RANGES: There are many stocks, particularly financial stocks, forming solid patterns from which to break out. Because of the number, write-ups are as brief as possible.
New Play:
PPDI (Pharmaceutical Prod Dev--$49.13; -1.25; optionable (PJQ)): Health services
http://biz.yahoo.com/p/p/ppdi.html
STATUS: Consolidating after some selling off the December high of 58.75. The stock surged from the 50 day MVA (44.18) February 1 and is trying to settle down in a decent pattern above its 10 day MVA (48.19). Volume has dropped off well below average the last two days, along with price (131,500; avg. 490,045), which showed a doji just above the support level. On a move up, look for a break over Thursday's high of 52.13. Great money flow and good buying.
BUY POINT: Over 52.13, on volume of 179,000 or better.
POSITION: Stock and/or (PJQ DJ).
WB (Wachovia Corp--$67.23; +1.40; optionable (WB)): Regional banks
http://biz.yahoo.com/p/w/wb.html
STATUS: Moving up from the base of its handle in a nice-looking 35-week cup with handle base (prior high, 75.25). Volume was stronger on the move at 796,800 (avg.
929,045). Looking for a breakout over the handle high (69.36). Money flow is improving, and buying decent.
BUY POINT: 69.49, on volume of 1.4 million or better. Remains a buy on the breakout up to 72.96.
POSITION: Stock and/or April $65 or $70 calls to buy (WB DM or DN).
STE (Steris Corp--$18.19; +1.21; optionable (STE)): Health services.
http://biz.yahoo.com/p/s/ste.html
STATUS: After breaking out with a strong move in late December, the stock has pulled back gradually in another handle to its long (two-year) cup. The pullback found the support of its November and December highs, and Friday STE blasted off again with a strong move on good volume (493,500; average 265,909). Looking for more, with the previous breakout (handle) high 19.25.
BUY POINT: 19.38, on volume of 399,000 or better.
POSITION: Stock and/or March or June $17.50 calls to buy (STE CW or STE FW).
AZA (Alza Corporation--$44.55; +2.05; optionable (AZA)): Drug delivery
http://biz.yahoo.com/p/a/aza.html
STATUS: In a flat, rolling base and making a breakout move for the second day on stronger (though lower on Friday) volume of 3.3 million; average 2.1 million. The stock looks ready to attack the November high of 47. Options (most of them calls) for the stock traded over 5 times the average on Thursday, activity we like to see. Relative strength has broken out ahead of price, a bullish sign.
BUY POINT: Aggressive: From here. Breakout: Over 47 on volume of 4.4 million or better.
POSITION: Stock and/or April $42.50 calls to buy (AZA DV).
Continued Plays:
FITB (Fifth Third Bancorp--$57.69; -0.37; optionable (FTQ)): Regional banks
http://biz.yahoo.com/p/f/fitb.html
STATUS: Cannot get the volume it needs to break out of the handle of its double-bottom, so the stock continues to hold its pattern though it closed just below the 18 day MVA (57.72) and its up trendline (Nov/Jan lows). However, price is holding above possible support at 57.56 (hit 5 times since October) and volume, though just higher, remains well below average (1.1 million; avg. 2.2 million). The low tested lower support at the 50 day MVA simple (57.06) as well. Continuing to look for a breakout. High money flow and good buying.
BUY POINT: Breakout: 59.51, on volume of 3 million or better. Remains a buy on the move up to 62.49.
POSITION: Stock and/or May $55 calls to buy (FTQ EK).
NCC (Nations City Corp--$27.21; -0.03; optionable (NCC)): Banking
http://biz.yahoo.com/p/n/ncc.html
STATUS: Previously covered as a pennant, the stock remains in the handle of its 15-month base, but has pulled back to the 50 day MVA where it showed a tight doji Friday. Volume was lower (899,000; avg. 1.13 million). The last time the stock was at this support (21, in November) it launched a run to the 30 level, from which it has pulled back on lower volume. Another financial stock trying to hang on; look for a move up from the doji. 18 day MVA is at 27.97.
BUY POINT: Aggressive: Up from here on stronger volume. Breakout: 30.44, on volume of 1.7 million or better.
POSITION: Aggressive: Stock and/or April $25 calls to buy (NCC DE). Breakout: Stock and/or April $30 calls to buy (NCC DF).
Some continued trading plays:
AZPN (Aspen Technology Inc--$38.13; -1.93; optionable (ZQP)): Software
http://biz.yahoo.com/p/a/azpn.html
STATUS: Starting to range back down in the handle of its 23-week cup base, closing just under its 10 day MVA (38.58) on even lower volume (253,600; avg. 369,318). The stock hit the closing price twice earlier in the base, and on the lower volume and test of support on the low (18 day MVA, 36.91), just might hold for a move back up. Otherwise, look to the 18 day for support on a continued pullback. Buying and money flow are even better.
BUY POINT: 41.38, on volume of 554,000 or better. Remains a buy on the breakout up to 43.45.
POSITION: Stock and/or March $40 calls to buy (ZQP CH) (May $40 calls (ZQP EH) have 27 open interests).
A small stock that looks great:
FRED (Fred's Inc--$24.69; +0.81; no options): Retail
http://biz.yahoo.com/p/f/fred.html
STATUS: Broke out of the handle to its 22-week cup base on strong volume which pulled back Friday (82,300; avg. 45,000), keeping the stock inside the prior basing high of 25.38. Still remains a buy on this breakout, so we will look for that move if volume can pick back up, but FRED can pull back to test the buy point (24.01) before breaking out of the base altogether. Great money flow and high relative strength (which has broken out ahead of price, bullish). Buying is strong.
BUY POINT: A buy on the breakout up to 25.21.
POSITION: Stock.
Continued Plays:
JPM (J.P. Morgan & Co--$51.95; +0.27; optionable (JPM)): Banking
http://biz.yahoo.com/p/j/jpm.html
STATUS: Still in the handle to its cup base, Friday showing a doji (and a small move up) as volume continued to fall (5.5 million; avg. 10 million). The stock is below its 10 and 18 day MVAs (53.03, 52.84, respectively), but the pattern continues to look good. Handle high is 57.33. Buying picked back up and relative strength has moved out ahead of price, a bullish sign.
BUY POINT: Aggressive: Over 53.03 on volume in the range of 7.4 million. Breakout: 57.46, on volume of 15 million or better.
POSITION: Aggressive: Stock and/or March or June $50 calls to buy (JPM FJ). Breakout: Stock and/or March or June $55 calls to buy (JPM CK or JPM FK).
Good Investing!
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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