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us stock market, top stock pick
Begin Part 2 of 2
SUBSCRIBER QUESTIONS
Q: Once a stock has broken out (e.g., through a critical level of resistance) and you have made some profit on the move, what guidelines do you use to sell and take your profit? It would be nice to be able to follow your advice on exit as well as entrance criteria. Thanks.
A: Many times we let the manner in which we played the stock, options or stock, tell us when we will take profits. In the simplest sense, we tend to take profits on options trades when a stock's breakout move starts to slow and roll over. We move up trailing stops behind the play in case of unexpected weakness, and then when we see it starting to roll over, we will go ahead and sell. We may be wrong and miss a brief pullback and run back up, but in the type of market we are seeing, we would rather take the profit in hand than see if the stock is going to recover after the almost inevitable pullback to test the move. We say 'why not take the profit and play the test if it successful?' As options are wasting assets, we will take profit first and play it again rather than ride it down in this market.
On very strong breakouts, i.e., powerful volume such as SDS' breakout over several days, that shows institutions are still buying after the breakout. There will be some profit taking before too long, but the volume on the buying shows massive support. Thus, we are willing to ride it back on a test as long as the volume remains low. We may even sell half the position to lock in some profits if we are uncomfortable, but on this move we will most likely hang on as SDS could be a real leader. We will watch if it can make a quick 20% move; that is an indication a stock could be a long term winner. If volume is not that strong on the breakout, we would tend to lock in profits after the breakout tends to top. There are not fixed percentages, though some around here use 20% gain as a rule of thumb. In a weaker market, not a bad idea. The key on stocks such as SDS is to watch volume; if it starts notching higher on selling, we get out. If support holds and it moves back up on stronger volume once again in a successful test of the breakout, we can get back in.
In short, where and when we decide to take profits depends on the type of position we took, the strength of the breakout, and the condition of the market. Some big gainers from the summer (SDLI) broke out and powered ahead, but when the overall market started to fold, SDLI started to sell down as well on higher volume. That combined with a weakening market showed the move was over.
Q: When I follow your suggestions and make a purchase (as in PLC & IFMX), & no follow-up mention is made from you, should I just sit & wait or what?
A: As there are many times to take positions on a stock that is moving up, so setting stating sell points is not as easy. First and foremost, we don't enter a positions unless it hits our buy point on the volume we want. If we take an aggressive position, i.e., before the breakout move, we need to be ready to cut and run if it turns against us or sells down 7% or 8%; that is the price of playing an aggressive position. If a stock hits a buy point but then stalls, as long as it holds above the buy point that is fine. We are on alert, however, that it has stopped moving and thus are ready to get out if it starts to fall below the buy point. If it makes a move but then returns to the pattern, while that is not the best sign for a move back up, if the pattern holds on and it continues to show decent price/volume action, we will give the pattern a benefit of the doubt to continue to work toward a solid break to the upside. If the pattern breaks down, we get out immediately as the reason for following the stock is no longer there. Patterns give you an edge over just picking a stock, and if it stops working, it is time to move on.
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
THE PLAYS:
A note on options: The symbol in the parenthesis represents the option prefix for a particular stock. It usually does not change. The last two letters indicate the month and the strike price. We are striving to make sure they are accurate, but please be sure to double check them when you place any order to make sure you are buying the right option.
Please note that when we reference the 10, 18, and 50 day moving averages (MVA), those are exponential moving averages (EMA). The 200 day moving average is always simple (SMA). We will note when we reference a particular MVA differently, e.g., a simple 50 day MVA.
SUBSCRIBER'S CHOICE:
NOK (Nokia Corp Ads--$29.65; +1.66; optionable (NAY)): Telecom Wireless
STATUS: Friday's low of 27.51 was just above the October low of 27.63; that possible bottom helped the move up Monday, as the stock enjoyed a strong buy upgrade from Wit SoundView. Volume was strong but down from Friday's higher number (dropping to 17.2 million; avg. 13.6 million). The high tapped 29.85 on a test of resistance at the 30 level, so look for a move over the latter price range on a continued move up. One day of lower volume after the previous sessions' strong volume doesn't mean the move will pull back or fail. The stock is in a steady downtrend, and won't be out of it until it can break over the 35 level (currently at the 18 day MVA). The aggressive, however, can play it up to that level if desired with resistance levels well in mind (31 through 33); 10 day MVA is at 32.01.
BUY POINT: Aggressive: Over 31, on stronger volume. Safer: Over 35 on volume of 23 million or better.
POSITION: Aggressive: Stock and/or April $30 calls to buy (NAY DF). Safer: Stock and/or April $35 calls to buy (NAY DG)
http://www.investmenthouse.com/cd/nok.html
(Click to view the chart)
http://biz.yahoo.com/p/n/nok.html
Best Plays: We like all the plays we put on the Daily, but these we are really focusing on for the next session.
1) USON: Ready for another breakout move in its base.
2) RI: Ready to break to a new high.
3) PRGN: Still looks good in the handle.
4) CHCS: Watch for a continued move up.
5) SEBL: Showing a doji after five days of downside.
6) JNPR: A doji at the top of its trading range; an aggressive play.
7) VRTS: Tight doji on high volume, after a lengthy pullback.
New Plays: Looking at some small stocks that are in great patterns.
USON (Us Oncology Inc--$9.44; -0.12; optionable (QIA)): Specialized Health Services
STATUS: Pulling back to support on lower volume Monday (644,600; avg. 704,454) as the stock moves up the right side of a lengthy base (prior basing high, 12.81). The stock's chart shows a pattern of pulling back to the 10 day MVA (the current support at 9.25, noted above) before popping up for anywhere between one and four days (the last such move was at the start of this month, and lasted three days, taking price to 10). The stock looks ready to make its move up from here. Shows good buying, and money flow is trending up well.
BUY POINT: On a move up from here, on stronger volume.
POSITION: Stock and/or June $7.50 calls to buy (QIA FU).
http://www.investmenthouse.com/cd/uson.html
(Click to view the chart)
http://biz.yahoo.com/p/u/uson.html
RI (Ruby Tuesday Inc--$16.75; +0.61; optionable (RI)): Restaurants
STATUS: Moving up on stronger volume (189,200; avg. 218,772) and looks ready to break to a new high (previous closing high is from January, at 17). The stock is uptrending beautifully since the start of the year, and reported continued growing earnings in its report January 8. Relative strength has broken out ahead of price (bullish), and the stock shows outstanding money flow. Look for a continued move up.
BUY POINT: Aggressive: On a move up from here on continued rising volume (average or better). Next buy point: Over 17 on above average volume.
POSITION: Stock and/or April $12.50 or $15 calls to buy (RI DV or DC).
http://www.investmenthouse.com/cd/ri.html
(Click to view the chart)
http://biz.yahoo.com/p/r/ri.html
Updates:
PRGN (Peregrine Systems Inc--$28.00; -0.63; optionable ( )): Application Software
STATUS: Continues to hold above its down trendline (July/September highs) and the 18 day MVA (27.48) as volume drops further below average (1.4 million; avg. 3 million). The stock is in a 21-week cup with handle pattern, with a handle high of 33.13 (January high). We like the pullback on lower volume over the last two weeks. Strong buying.
BUY POINT: Aggressive: Up from here on stronger volume. Breakout: 33.26, on volume of 4.5 million or better. Remains a buy on the breakout up to 34.92.
POSITION: Aggressive: Stock and/or April $25 calls to buy (GQP DE). Breakout: Stock and/or April $30 calls to buy (GQP DF).
http://www.investmenthouse.com/cd/prgn.html
(Click to view the chart)
http://biz.yahoo.com/p/p/prgn.html
CHCS (Chico's Fashions--$39.50; +1.94; optionable (HNU)): Apparel Stores
STATUS: Up after a two-day pullback on lower volume and a test of the 10 day MVA (36.39, on Friday's low). The stock is in a short 14-week base and on the stronger volume looks ready to make a break over Thursday's high of 39.75 (arguably a handle high). Prior high in the base is 43.50. Relative strength has broken out ahead of price, a bullish sign, and money flow has shown a nice upturn. The stock has moved up from a December low of 17.38. Trading up to 40 in after hours trading (at the time of this writing).
BUY POINT: Over 40 (a price hit a few times both prior to and in the base) on continued rising volume.
POSITION: Stock and/or May $40 calls to buy (HNU EH).
http://www.investmenthouse.com/cd/chcs.html
(Click to view the chart)
http://biz.yahoo.com/p/c/chcs.html
THE PORTFOLIOS: Each report, we look at these to see which is in a buy position. We don't cover them all each time, just the ones that are looking as if they are ready to pick up a few shares.
THE LEADERS: We are in the process of flushing out this portfolio, as many of the stocks featured here are no longer in leadership positions. Look for a fresh set of stocks this week as we begin to turn our sights to the new leaders that will emerge from the bear market.
ADBE, AMCC, ARBA, BEAS, BRCD, CIEN, EMC, EXTR, GLW, JNPR, NEWP, NTAP, PMCS, SCMR, SEBL, VRSN, VRTS
SEBL (Siebel Systems Inc--$58.00; -0.69; optionable (SGW)): Computer Software & Services: Application Software
STATUS: Showing a doji after the 5-day drop on milder selling; volume rose to average levels (13 million; avg. 12 million). Higher volume dojis can indicate a reversal of recent selling, so we will look for a move back up from here in a continued market relief rally. Possible resistance at the 62.13 level. 10 day MVA is at 64.28. The stock was unchanged in after hours trading (at the time of this writing). This is one that we are looking at taking more long term positions with as it is a leading software company.
BUY POINT: Aggressive: On a move up from here on continued rising, above average volume.
POSITION: Stock and/or May $50 calls to buy (SGW EJ).
http://www.investmenthouse.com/cd/sebl.html
(Click to view the chart)
JNPR (Juniper Networks--$79.88; -4.00; optionable (JUX)): Computer Hardware: Networking & Communication Devices
STATUS: Showing a doji after falling from the last doji four days ago. Volume remained high and above average, but slightly down at 21.1 million (avg. 17.3 million). The stock fought up from a low of 75.31, and was trading just higher in after hours trading (at the time of this writing). That type of finish can show a reversal of fortune, but where it goes from here depends on the market. First possible strong resistance is at the December low of 89.63, if the stock gets past 83.88, Friday's closing price. Look for a move up from here in a continued market bounce, keeping in mind that the market upside may be brief. Another stock that has the earnings power that has been hammered to lows on fears of the future.
BUY POINT: Aggressive: On a move up from here on continued strong, preferably rising, volume.
POSITION: Stock and/or April $80 (for a move over 80) calls to buy (JUX DP).
http://www.investmenthouse.com/cd/jnpr.html
(Click to view the chart)
VRTS (Veritas Software--$71.94; -6.19; optionable (VIV)): Computer Software & Services: Application Software
STATUS: Showing a tight doji after the stock dropped on no apparent news. The move was on volume that shot well above average (from well below the average of 11.2 million) to 17.5 million, the stock pulling up from a low of 68.13 (intraday high is 74.88). Another type of pattern that can lead to a reversal as volume reached the highest in over a month on the selling as it tapped its previous low and finished in the top of its range for the day. We are looking for a move up from here on the momentum for a quick play up to the 76-77 level. Ahead of that, the stock has possible resistance at 80. Closed slightly higher after hours.
BUY POINT: Aggressive: On a move up from here on continued strong volume.
POSITION: Stock and/or May $70 calls to buy (VIV EN).
http://www.investmenthouse.com/cd/jnpr.html
(Click to view the chart)
SCMR (Sycamore Networks Inc--$23.06; +0.62; optionable (SMZ)): Computer Hardware: Networking & Communication Devices
STATUS: Subscriber request. The stock continues to drift lower on pretty strong volume; the small move up Monday was on 10.5 million volume, lower but still above the average of 8.9 million. SCMR has suffered a couple of downgrades this month, and although it remains above its down trendline (connecting August and December highs), it continues to ride that line down, and has cut below the December low of 26.75. Earnings are out after the bell Tuesday, so that can impact movement, obviously. 10 day MVA is at 28.02. Need to see the stock break back over its 50 day MVA (42.69), which has pushed it back down the last three times (since September) price has moved up to that level. Up to 23.13 in after hours trading (at the time of this writing).
BUY POINT: Aggressive: On a move over 28.02 (10 day MVA) on volume of 14 million or better.
POSITION: Aggressive: Stock and/or June $25 calls to buy (SMZ FE).
http://www.investmenthouse.com/cd/scmr.html
(Click to view the chart)
NEWP (Newport Corp--$65.75; -3.63; optionable (NZZ)): Electronics: Scientific & Technical Instruments
STATUS: Showing a doji after four days on falling from its 10 day MVA (76.60). Volume was high on the initial drop-off, but fell back the next two days to below average levels, then moving just higher Monday (3.2 million; avg. 2.85 million). The doji is at the top of the intraday trading range (high is 68.31), so the stronger volume indicates a possible reversal of the recent downturn. The low tested 62.50, just above some November 61-62 prices (and the January low of 60.50) that can comprise a bottom for the stock. Watch for resistance at 70, hit three times in the last few months. Reported good earnings in January but has been a whipping boy ever since. It can fly when it does turn, but for now it is a quick play if it does.
BUY POINT: Aggressive: Up from here on stronger volume.
POSITION: Stock. March and May $60 and $65 options have very few open interests (NZZ CL or CM, or (May) NXX EL or EM).
http://www.investmenthouse.com/cd/newp.html
(Click to view the chart)
UP & COMERS PORTFOLIOS:
EXDS, TQNT, BVSN, SANM, PKI and GMST for now.
No reports on stocks in this portfolio tonight.
MEMBER PORTFOLIO: BRCM, CHKP, CSCO, EMLX, IDTI, INTC, JDSU, MVSN, NT, PWER, SUNW, VTSS
EMLX (Emulex Corp--$40.38; -37.12; optionable (UEL)): Computer Hardware: Peripherals
STATUS: Panic selling? By this time everyone knows EMLX 'warned' about possible third- quarter earnings slowdown, and was almost cut in half on the news, which also included a downgrade from Piper Jaffray. The sell-off was brutal, coming on 48.6 million in volume (average is a mere 5 million), and it threw the stock below its 200 day MVA (53.97). Down 70 points from its recent high, bad enough news itself, and then a drop below the 200 day on top of that. We are going to keep an eye on where the stock stops the fall. That may be at the 35-56 level, the upper level of a June-August consolidation. On a recovery, the typically strong stock will offer some great upside plays, but recovery usually takes some time when this much damage is done.
http://www.investmenthouse.com/cd/emlx.html
(Click to view the chart)
VTSS (Vitesse Semiconductor--$60.88; -1.25; optionable (VQT)): Electronics: Semiconductor, Integrated Circuits
STATUS: Continues to hold in the same vicinity with the stock sitting on its down trendline on slightly higher volume (5.7 million; avg. 6.4 million) as the chips look a bit better. The low tested support at the 50 day MVA (simple, 59.43). The stock didn't participate in the weak bounce rally today, but can use the support to jump on board in a continued rally. The high tested resistance at the 50 day MVA (63.18), and the 10 and 18 day MVAs are at 64.67 and 64.78 (respectively). Continues to show good buying.
BUY POINT: Aggressive: Up from here on stronger volume. Watch resistance levels at the MVAs noted above.
POSITION: Aggressive: Stock and/or April $60 calls to buy (VQT DL).
http://www.investmenthouse.com/cd/vtss.html
(Click to view the chart)
BRCM (Broadcom Corp--$80.44; +3.25; optionable (RDZ)): Electronics: Semiconductor, Integrated Circuits
STATUS: Moved up from the doji, but volume was lower at 10.5 million (avg. 13.3 million). Will need to see stronger volume to continue to push this one up to its 10 day MVA (91.01). The stock hit 84 twice several weeks ago, so look for possible resistance at 84-85 if the move up is not strong.
BUY POINT: Aggressive: On a continued move up from here on stronger volume.
POSITION: Stock and/ May $80 calls to buy (RDZ EP).
http://www.investmenthouse.com/cd/brcm.html
(Click to view the chart)
Good Investing!
Jon Johnson and The Daily Staff
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 of 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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