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us stock market, trading strategy
Begin Part 2 of 2
TEAM TRADES
The market opened lower, but it tried to start bouncing at the open (at least the Nasdaq did). Indeed, many tech stocks opened lower but started moving higher. We did not have a lot of faith in any rally given the CPI numbers, but were open to being convinced. We had some outstanding calls we had sold on some positions, and as we saw the stocks try to climb we decided to buy them back. The rally could be false, but we could buy them back for fractions, so we thought that was prudent to close the positions. With that in mind we put in orders to buy some EXTR calls we had sold for $5 back for $2, some JNPR March calls we had sold for $11 back for $4, and some GLW calls we had sold for $3.38 back for $0.60. These were all recent acquisitions we had picked up on the selling, launching calls right when we picked them up when the selling started anew. We reduced our basis nicely, but are still underwater on some. That is why we did not sink everything into buying them, and why we are still watching where we would unload them in more selling. Reducing the cost basis by selling calls on stocks we really want is a good method to come up with more cash to buy more stock or factor in a lower cost basis.
LLL: This is one of the telecoms that is leading the market, not lagging it. We saw the stock tap its 10 day MVA Tuesday and reverse up on higher volume. It has used this level as support for the past month and a half, so we were ready to get in on it if it gave us a further move today. It did that early on, jumping up in the first 15 minutes to 66.60. We figured it would test the move before long, perhaps moving down to the previous high (86.10) or the previous close (85.24). It moved back down to 85.60 and bounced, so we opened a partial stock position as it hit back to 85.75. It ran back up to its session high, but then tanked down to 85 over the next hour and one-half. With the Nasdaq starting to struggle, we wondered about the move, but liked the pattern the stock had showed us prior, and that is why we got in. Over the rest of the session it tested 86 again, failed, but held above the previous close and then took off from there. We picked up a few more shares when it moved past the previous session high at 86.60. We did that by putting in a buy stop at 86.75 when we saw it break over 86 coming off a higher low. This has been a recent leader and we are going to let it continue to work for us as it continues to work into new high territory.
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.
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 to move up in the handle.
2) FWC: Ready to move higher.
3) RCGI: Looking for a 50 day MVA bounce play.
4) RBNC: Trying to break out of its ascending wedge.
5) LLL: Ready to break to a new high.
New Stocks:
SRCL (Stericycle Inc--$38.56; +3.68l optionable (URL)): Materials & Construction: Waste Management
STATUS: The stock is making a breakout move on strong volume (331,500; avg. 174,045), racing up the right side of a short 7-week base. Previous closing high is 32.13 at the start of the base, posted the same day the stock hit a high of 42.25. On this volume, the stock can continue its breakout, but we will watch for a pullback on the way up to the previous high, as the stock forms a handle. This sector has been performing well recently, and continues to do so. The stock shows good buying, and great money flow and a relative strength that has broken out ahead of price (a bullish sign).
BUY POINT: Aggressive: On further upward movement on continued rising volume. POSITION: Aggressive: Stock and/or May $35 calls to buy (URL EG).
http://www.investmenthouse.com/cd/srcl.html
(Click to view the chart)
http://biz.yahoo.com/p/s/scrl.html
USON (Us Oncology Inc--$9.38; +0.19; optionable (QIA)): Specialized Health Services
STATUS: Has pulled back in the handle of its 20-month cup with handle pattern as volume declines steadily (reaching 300,500 Wednesday; avg. 687,000). Previous basing high is 12.81. Tested the 18 day MVA (9.08) on the Tuesday low, opened just lower and headed higher Wednesday though volume was just lower. Handle high is 10. The stock's relative strength has moved out ahead of price, a bullish sign, and money flow and buying look excellent.
BUY POINT: 10.13, on volume of 1 million or better.
POSITION: Stock and/or June $10 calls to buy (QIA FB).
http://www.investmenthouse.com/cd/uson.html
(Click to view the chart)
http://biz.yahoo.com/p/u/uson.html
FWC (Foster Wheeler Corp--$12.36; +1.00; optionable (FWC)): Materials & Construction: Heavy Construction
STATUS: Another construction stock that is looking good on a pullback from the February high of 14.19. The stock is in a 22-month base (prior high of 16.05), and simply charged up the right side of it late January/early February. After a brief (two-day) test, price ran to the 14.19 high. The stock got a bit overextended on that move, as the earlier test was on above average volume (though it was lower, showing good price/volume action). Currently appears to have completed its handle with a pullback on a test of the 18 day MVA (11.09) and looks ready to continue higher on the stronger, above average volume (575,000; avg. 407,272). Closed just under potential resistance at 12.39. Good buying, and money flow has taken off. Relative strength broke out ahead of price.
BUY POINT: Aggressive: Up from here on continued rising volume.
POSITION: Stock and/or April or July $10 calls to buy (FWC DB or GB).
http://www.investmenthouse.com/cd/fwc.html
(Click to view the chart)
http://biz.yahoo.com/p/f/fwc.html
Updates:
WTSLA (Wet Seal Inc--$36.06; +2.87; no options): Apparel Stores
STATUS: The stock was covered in the report late January and early February when it looked ready to break out of an ascending wedge pattern, but held off on that breakout until Wednesday. The stock showed a huge rise in volume Tuesday, then as that volume pulled back (but remained quite strong at 737,200; average is 200,136), the stock broke over the Tuesday high (and previous overhead supply) to post a new February closing high. The stock is making its way up the right side of a very long base (previous high of 47 is from May of 1999). Looking strong with great buying and money flow, and a relative strength that has broken out ahead of price.
BUY POINT: Aggressive: On further upward movement on continued strong volume. Safer: On a move back up after a test of 34-35.
POSITION: Aggressive: Stock.
http://www.investmenthouse.com/cd/wtsla.html
(Click to view the chart)
http://biz.yahoo.com/p/w/wtsla.html
RCGI (Renal Care Group Inc--$25.81; -0.57; optionable (NUQ)): Specialized Health Services
STATUS: A stock introduced in the weekend report as a pennant pattern holding support in the tail at its 10 day MVA (26.52). The stock dropped to the 50 day MVA Wednesday on stronger volume (319,200; avg. 386,363), and we are looking for a move back up from there since that level has support the stock on pullback since last fall. As volume remains below average, we could see the hold and bounce back. Still shows outstanding money flow, and buying continues to improve.
BUY POINT: Aggressive: Over the intraday high of 26.88, on a bounce, on above average volume.
POSITION: Stock and/or June $25 calls to buy (NUQ FE).
http://www.investmenthouse.com/cd/rcgi.html
(Click to view the chart)
http://biz.yahoo.com/p/r/rcgi.html
RBNC (Republic Bancorp Inc--$12.81; +0.12; no options): Regional Banks
STATUS: A weekend report stock that is in an ascending wedge, and making a breakout move Wednesday. Volume shot above average to 384,000 (avg.198,000) as the stock closed just under the pattern high of 12.88. On this kind of volume we'd like to see the stock move better than this, and we may get that move on the volume momentum tomorrow. The stock shows great buying and excellent money flow. Relative strength has moved out ahead of price.
BUY POINT: 13.01, on volume of 267,300 or better. Remains a buy on the breakout up to 13.66.
http://www.investmenthouse.com/cd/rbnc.html
(Click to view the chart)
http://biz.yahoo.com/p/r/rbnc.html
Puts for a falling market: These plays worked nicely Wednesday, and can offer more downside tomorrow as the financials could again come under pressure. On any put play when there has been intense market selling, you have to be ready to exit. At this point these plays are more aggressive after two sessions of sizeable drops.
MER (Merrill Lynch & Co--$59.38; -3.59; optionable (MER)): Investment Brokerage
STATUS: The put play worked well as the stock climbed to a high of 63.95 in an initial test of its Tuesday breach of the 200 day MVA (64.40), then dropped to a low of 58.01. Pulled off that low to the closing price, on stronger volume (7.3 million; avg. 4.8 million). Some support at 55.
BUY POINT: Aggressive: On a continued drop (in and then out if finds support at 55) or a failed test of the 62 to 63.50 level. October and November lows are at 54.25 and 56, respectively.
POSITION: April $65 puts to buy (MER PM).
http://www.investmenthouse.com/cd/mer.html
(Click to view the chart)
http://biz.yahoo.com/p/m/mer.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 not changing our strategy on the current stocks in the leaders portfolio. Stocks such as JNPR, AMCC, CIEN, GLW, SEBL, VRSN and EXTR continue to exhibit superior earnings power and will rebound when the market rebounds. Indeed we still have investments in those stocks. What we are doing is looking to those leaders in the current market, those stocks that are asserting good patterns on top of strength in earnings while the other stocks we have been following work through their bases. This provides additional stocks that are showing more near-term potential in the current market. We focus on the stocks that are performing best in a down market as they tend to help lead when the market turns back up.
ADBE, AMCC, ARBA, BEAS, BRCD, CIEN, EMC, EXTR, GLW, JNPR, NEWP, NTAP, PMCS, SCMR, SEBL, VRSN, VRTS, ACS, CPN, SGR, ESRX, NATI, LLL
LLL (L-3 Communications--$88.15; +2.96; optionable (LLL)): Telecom Equipment
STATUS: Moved up from the doji and closed just under Thursday's all-time closing high of 88.26. Volume was in line on the move, higher at 645,800 (avg. 353,454). Look for a break over the previous closing high on stronger volume. Excellent money flow and high relative strength, and good buying. The stock moved up from a Tuesday doji that settled just above the 10 day MVA (84.64), and moved up from that support level in Wednesday's action.
BUY POINT: Aggressive: On a move up from here on continued rising volume.
POSITION: Stock and/or April $85 calls to buy (LLL DQ).
http://www.investmenthouse.com/cd/lll.html
(Click to view the chart)
SGR (The Shaw Group Inc--$49.50; -2.20; optionable (SGR)): Manufacturing: Industrial Equipment & Components
STATUS: Pulled back as expected, closing on top of its 10 day MVA (49.40) as volume fell back to 314,400 (avg. 364,636). It was a pretty quick pullback, and the stock can continue down to its 18 day MVA (47.93) as volume drops to even lower levels. Otherwise, the stock can find support at the current moving average for a move back up. The stock reached a new all-time closing high last week (52.35), and tried to move higher Tuesday (reaching 53.70 on the high), but obviously needs some consolidation at this point. Continues to show great money flow and high relative strength, along with good buying.
BUY POINT: Aggressive: On a move back up from here or from the 48 range, on average or better volume.
POSITION: Stock. July $45 calls (SGR GI), to buy, have 52 open interests (SGR DJ).
http://www.investmenthouse.com/cd/sgr.html
(Click to view the chart)
CPN (Calpine Corp--$44.24; -1.46; optionable (CPN)): Electric Utilities
STATUS: Even some of our new leader stocks are fighting this market. CPN pulled back below the 10 day MVA (44.91) on slightly higher volume (1.9 million; avg.4.35 million). Still well below average, so on a continued pullback to the 18 day MVA (43.59), which was tested on the low of 44, look for the stock to rebound. The down trendline (connecting September and December highs) slides in just under the 18 day, adding to the support (the stock broke above that trendline February 8, on strong volume). The stock shows good buying and a relative strength that has moved out ahead of price. February high is 48.80.
BUY POINT: Over 49 on volume of 6.5 million or better.
POSITION: Stock and/or April $45 calls to buy (CPN DI).
http://www.investmenthouse.com/cd/cpn.html
(Click to view the chart)
BRCD (Brocade Communications--$44.69; avg. -0.19; optionable ( )): Computer Hardware: Computer Peripherals
STATUS: The stock was hammered after its after-hours earnings report Wednesday; the company beat estimates by a cent but gave lowered guidance for this year. Such news from a former leader (and strong company still) drove the stock down to $36.25 at the close of after hours trading. BRCD has already been smashed over the last few weeks, dropping from a January high of 112, wrenched out of a double-bottom pattern formed since earlier December. The stock at the close of regular trading showed a doji and a small move up from the opening price of 43.50, but failed to hold a high of 50.75. Volume was stronger at 2.6 million (avg. 10.1 million). The stock will most likely gap lower in the morning. As with other leaders joining the wreck, we will have to see when it recovers.
http://www.investmenthouse.com/cd/brcd.html
(Click to view the chart)
UP & COMERS PORTFOLIOS:
EXDS, TQNT, BVSN, SANM, PKI and GMST for now.
No plays.
MEMBER PORTFOLIO: BRCM, CHKP, CSCO, EMLX, IDTI, INTC, JDSU, MVSN, NT, PWER, SUNW, VTSS
A potential covered call or put play:
CHKP (Check Point Software Tech--$84.19; -5.44; optionable (EXK)): Computer Software & Services: Security Software & Services
STATUS: Broke its 200 day MVA (86.29) on volume that shot above average levels (9.65 million; avg. 5.76 million). The stock pulled up from a low of 81.50 in a show of muscle, but we are looking for a downside play should a continued move up to the moving average result in a turn back down. There is potential support at 80-81, but the stock, from the 200 day, can offer a nice downside move even if that support holds. Safer play is to let the stock move below 80. The stock has hit 80.04 five times since August, but on stronger volume that can melt.
BUY POINT: On a move back down after the stock moves up to test the break of the 200 day MVA at the 86 level. If it tries but fails to break back over that level we will play the downside move if the Nasdaq is failing as well.
POSITION: Covered Call: March $80 calls to sell (EXK CP; 49 open interests). Put: April $90 or $85 puts to buy (EXK PR or EXK PQ).
http://www.investmenthouse.com/cd/chkp.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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us stock market
trading strategy
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