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trading strategy, top stock pick
Begin Part 2 of 2
TEAM TRADES
The put plays were obviously good choices today, and we were playing them.
QQQ: This is the option chain that tracks the Nasdaq 100. We had a feeling it was heading lower, and when the early rally attempt failed and broke below the opening price of the session for the QQQ, we looked at positions with April 55 puts. They were trading at 7.8 by 8 and had a delta of -.715, so we jumped in at the ask. The index fell from 49.20 to 47.20, and the options went from 7.8 on the bid to 9.1 by 11:30 ET. The market started to bounce and we sold out at that point. We were drafting some seminar materials, so kept watching the market. When the QQQ hit near 49 again and started to stall, we were interested once more. That was right in the middle of the early congestion in the morning and we felt it would act as resistance. When we saw it start to fall, we jumped back in at 8.3. The QQQ then fell to near 46 on the low and the options were back over 9 on the bid. We saw it start to bounce and sold out again. The QQQ fought back to 48 and started to roll over again at the close. We tried to get in again for tomorrow morning once again, but we were missed. We will have to try again tomorrow if we get a rally attempt that fails.
The OEX was also beautiful to the downside today with the March 660 puts asking 21.10 early in the session as the early rally back up started to fail, and tanking to over $30 on the low. We could not get the bottom but 28.50 was not bad. Tomorrow we are looking to catch it again on a further tank. We could have rode them further, but we are a bit edgy with the possibility of a rate cut still somewhere in the mix, but we feel that is a low percentage.
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: In the mix of new plays we have enjoyed some excellent moves from the likes of WCNX, OCLR, USON, SRCL, CHCS, TIER, EBTB, EASI, ROP. Many others are still looking great in patterns, such as TSS, PRGO, IFMX, RCGI, and we will continue with our usual methods to pinpoint the rest. We like all the plays we put on the Daily, but these we are really focusing on for the next session.
1) PLB: Ready to break out.
2) OCLR: Making its breakout move.
3) WCNX: Broke to a new high and looks ready to tack on some more.
4) PRGO: In a pennant as it tests the breakout.
5) ACS: Continues to defy the market.
6) Puts: Some look ready to continue moving down, and we have added some new plays. Take a look at GS, MWD, and BRCD.
New Stocks:
PLB (American Italian Pasta--$33.86; +0.26; optionable (PLB)): Food & Beverage
STATUS: The stock is in a pattern established since December, lateral consolidations that pull back to the 18 day MVA before breaking out. The current pullback has been on steadily decreasing volume (35,100; avg. 95,000), and the stock is being squeezed between the 10 day MVA at 33.99, and the 18 day MVA at 33.50. Looking for the breakout from here. The stock shows strong money flow and a relative strength that has broken out ahead of price (bullish). Previous high is 36.25.
BUY POINT: Up from here on volume in the range of 47,000.
POSITION: Stock. June $30 call options (PLB FF) have 31 open interests.
http://www.investmenthouse.com/cd/plb.html
(Click to view the chart)
http://biz.yahoo.com/p/p/plb.html
Updates:
OCLR (Ocular Sciences Inc--$17.25; +0.75; optionable ( )): Health services
STATUS: Making its breakout move from the handle to its cup base, which is at the bottom of the stock's much larger base. Buy point is 17.38, and on this outstanding volume (741,400; avg. 103,227), looks ready to complete the breakout. Strong money flow, buying, and high relative strength.
BUY POINT: 17.38, on continued strong volume (minimum breakout volume is 155,000). Remains a buy on the breakout up to 18.25.
POSITION: Stock and/or July $15 calls to buy (QLO GC); 96 open interests.
http://www.investmenthouse.com/cd/oclr.html
(Click to view the chart)
http://biz.yahoo.com/p/o/oclr.html
WCNX (Waste Connections Inc--$33.44; +3.94; optionable (NBU)): Materials & Construction: Waste management
STATUS: Covered February 26, the stock made the expected move up from support, lunging to a new closing high on strong volume (653,100; avg. 371,590). The stock his a previous high at 35.25 in December, so that is our next target. Relative strength has broken out ahead of price, a bullish sign. Outstanding buying and money flow.
BUY POINT: Aggressive: On further upward movement on continued strong volume.
POSITION: Stock and/or July $30 calls to buy (NBU GF).
http://www.investmenthouse.com/cd/wcnx.html
(Click to view the chart)
http://biz.yahoo.com/p/w/wcnx.html
PRGO (Perrigo Co--$10.13; +0.07; no options): Drug Related Products
STATUS: In a little pennant that is testing the breakout from the recent ascending wedge pattern. Volume was higher (220,800; avg. 280,000) as the stock moved up from support of the 10 day MVA (10.01). Look for a breakout over the pattern high (which is the wedge breakout high) of 10.31. The stock shows great money flow, high relative strength, and strong buying.
BUY POINT: Breakout: 10.44, volume of 378,000 or better. Remains a buy on the breakout up to 10.96.
POSITION: Stock.
http://www.investmenthouse.com/cd/prgo.html
(Click to view the chart)
http://biz.yahoo.com/p/p/prgo.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.
New Leaders: ACS, CPN, SGR, ESRX, NATI, LLL
Previous Leaders: ADBE, AMCC, ARBA, BEAS, BRCD, CIEN, EMC, EXTR, GLW, JNPR, NEWP, NTAP, PMCS, SCMR, SEBL, VRSN, VRTS,
New Leaders:
ACS (Affiliated Computer Svc--$62.89; +0.61; optionable (ACS)): Computer Software & Services: Information Technology
STATUS: Just beat the targeted resistance at 62.88 (18 day MVA) on good volume (703,800; avg. 435,000). The high ran to 63.40; looking for a move back up from here on the momentum. February high is 68.59. Relative strength is out ahead of price, a bullish sign. On a pullback, look for support at the 10 day MVA (62.61). 50 day MVA is at 61.36.
BUY POINT: From here on continued strong volume.
POSITION: Stock and/or July $60 calls to buy (ACS GL).
http://www.investmenthouse.com/cd/acs.html
(Click to view the chart)
CPN (Calpine Corp--$44.49; -2.29; optionable (CPN)): Electric Utilities
STATUS: Will it or will it not bounce? CPN dropped to the 18 day MVA (44.22), tested just lower at 44.01, then closed above both prices on a slight rise in volume (2.7 million; avg. 4.3 million). As long as the stock holds above the down trendline (43), things look good for a move up for this leader. CPN made a strong pop up over its short term moving averages Monday, from which it has pulled back on lower volume. The February high is 48.80.
BUY POINT: Aggressive: On a bounce back up on stronger volume.
POSITION: Aggressive: Stock and/or July $40 calls to buy (CPN GH).
http://www.investmenthouse.com/cd/cpn.html
(Click to view the chart)
SGR (The Shaw Group Inc--$50.40; -3.61; optionable (SGR)): Manufacturing: Industrial Equipment & Components
STATUS: Continued the pullback with a steep drop to the 18 day MVA (49.73), the level from which the stock has made its recent pops. Despite lower volume (329,300; avg. 379,363), we aren't crazy about such abrupt drops, and look for a complete pullback to the support level and a subsequent bounce back up. Look for that move on stronger volume, such as the stock got Monday on the nice breakout move to a new closing high (54.91). Strong buying, high money flow, and relative strength.
BUY POINT: Aggressive: Up from the 49.73 range (18 day MVA) on stronger volume.
POSITION: Stock and/or July $45 (SGR GI, 52 open interests) or $50 calls to buy (SGR GJ).
http://www.investmenthouse.com/cd/sgr.html
(Click to view the chart)
Previous Leaders:
Covered call or Put:
CIEN (Ciena Corporation--$67.19; -2.56; optionable (UEE)): Telecommunications: Processing Systems & Products
STATUS: Tapped near possible support on the low of 64.75, closing higher. The stock tapped its 10 day MVA on the high of 73.63 but couldn't break the resistance on the much stronger volume (27.6 million; avg. 16.7 million). The moving average turned the stock back down Monday as well. The stock looks ready to head down, but let it break below the low first. December low is 59.56. 200 day MVA is at 89.73.
PLAY: On a move below 64 on continued strong volume, July $65 calls to sell (UEE GM), and/or March (UEE OM) or July (UEE SM) $65 puts to buy.
http://www.investmenthouse.com/cd/cien.html
(Click to view the chart)
May bounce up to set up another move back down:
JNPR (Juniper Networks--$64.56; +1.72; optionable (JUX)): Computer Hardware: Networking & Communication Devices
STATUS: Got the drop to 57.50 on the low for the put play, but the stock recovered back to show a doji at the top of its trading range. Volume was higher and very strong at 40.8 million. On the momentum and after the two-day drop from the 10 day MVA (74.28), the stock can move up to the 10 day MVA (or at least hold at this level), after which we will look at that set-up for another downside play. The stock has not broken over that resistance level since January.
BUY POINT: Upside: (Aggressive) On a move up from here on continued strong volume. Downside: On a move back down from 72-74 on strong volume.
POSITION: Upside: Stock and/or July $60 calls to buy (JUX GL). Covered call or Put for the move back down, July $70 calls to sell (JUX GN), and/or March or July $75 puts to buy (JUX OO or JUX SO).
http://www.investmenthouse.com/cd/jnpr.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
No reports on this portfolio tonight.
PUT PLAYS: We continue to look at stocks that are poised for moves down if this market cannot turn itself around. They are grouped separately: Some of these stocks hit new lows Wednesday, while others (VRSN) look ready to set up for another turn down. Things are getting a bit oversold, but as we noted above, things can stay oversold for weeks before rallying. As always, keep reasonable loss cutting rules in place.
Continued Puts: These stocks produced today, and look ready to offer more downside:
SEBL (Siebel Systems Inc--$38.25; -3.25; optionable (SGW)): Computer Software & Services: Application Software
STATUS: Another new low on even stronger volume (24.1 million). The stock can continue down to the January low of 32.75 if this keeps up.
PLAY: On a continued move down on the strong volume, March or May $40 puts to buy (SGW OH or SGW QH).
BRCM (Broadcom Corp--$49.25; -4.38; optionable (RDZ)): Electronics: Semiconductor, Integrated Circuits
STATUS: Continues to tumble, volume rising higher (and above average) at 19.5 million. No near-term support, and money flow and relative strength are at new lows.
PLAY: On a continued move down from here on stronger, rising volume, March or May $50 puts to buy (RDZ OJ or RDZ PJ).
PMCS (Pmc-Sierra Inc--$33.50; -4.44; optionable (SQL)): Electronics: Semiconductor, Integrated Circuits
STATUS: Volume slowed only slightly, but remains above average at 14.4 million as PMCS continued down. The stock can keep going from here; if it stalls and turns back up in a day or two, we can look for resistance at the 10 day MVA (currently 46.16) to turn it down again.
PLAY: On a move down from here on stronger volume, March or May $35 puts to buy (SQL OG or QG).
Financial:
MWD (Morgan Stanley Dean Witter--$65.13; -4.53; optionable (MFZ)):
STATUS: Moved down as expected, and looks ready for more as volume rose higher above average to 7.3 million. The stock on the low of 64.40 tested near possible support at 63.50, the safer play on a continued move down. November low is 60.63.
PLAY: Aggressive: On a move down from here on continued strong and rising volume, July $70 or $65 puts to buy (MFZ SN or SM). Safer: Below 63.50 on continued rising volume, July $65 puts to buy (MFZ SM).
http://www.investmenthouse.com/cd/mwd.html
(Click to view the chart)
New Puts:
AMCC (Applied Micro Circuits--$26.75; -3.56; optionable (AEX)): Electronics: Semiconductor, Integrated Circuits
STATUS: Hit a new low on stronger, above average volume (24.9 million). From here, the stock doesn't have any near-term support. AMCC continues to turn down from its 10 day MVA and shorter term down trendline (Jan/Feb highs).
PLAY: On a continued move down on stronger volume, March or May $40 puts to buy (AEX OH or AEX QH).
http://www.investmenthouse.com/cd/amcc.html
(Click to view the chart)
VTSS (Vitesse Semiconductor--$39.44; -4.12; optionable (VQT)): Electronics: Semiconductor, Integrated Circuits
STATUS: A new low for the year Wednesday, continuing to sell down harder after tapping its 10 day MVA Monday on that day's high (54.13). Volume popped up, above average at 10.1 million, and on that momentum, the stock can head down to the May low of of 35.63 or lower. Money flow and relative strength have tanked.
PLAY: On a continued moved down on stronger volume, March (VQT OH) or July (VQT SH) puts to buy.
http://www.investmenthouse.com/cd/vtss.html
(Click to view the chart)
BRCD (Brocade Communications--$38.81; -4.69; optionable (UBF)): Computer Hardware: Computer Periperals
STATUS: Moved down on stronger, slightly above average volume (15.5 million). The stock moved up to its down trendline (January and February highs) Monday at the end of a 3-day run, but did not break that resistance and looks ready to move lower. February low is 33.97.
PLAY: On a move down from here on continued strong volume. Watch the February low for possible resistance. March or July $40 puts to buy (UBF OH or UBF SH).
http://www.investmenthouse.com/cd/brcd.html
(Click to view the chart)
VRSN (Verisign Inc--$47.69; -0.50; optionable (VUQ)): Internet Software & Services
STATUS: Holding at the 46-47 level (intraday low, 46.75) as volume dropped to 6.5 million. The high tapped near upper resistance, the 10 day MVA (51.75). On a move up from this loose doji, the stock can meet the moving average again, but we will look for a move down from there once again. VRSN has turned down from that resistance since mid-January.
PLAY: On a move down from the 53 range after a move up to that level, or, on a move below the February low of 45.88 on stronger volume. From 53, March (QVR OK) or June (QVR RK) $55 puts to buy. Below 45.88, March (QVR OI) or June (QVR RI) $45 puts to buy.
http://www.investmenthouse.com/cd/vrsn.html
(Click to view the chart)
GS (Goldman Sachs Inc--$91.75; -6.59; optionable (GS)): Bank
STATUS: Sold down on stronger volume (4.7 million; avg. 2.77 million). The stock looks ready to continue sliding after turning down from its 10 day MVA (98.54) Tuesday.
PLAY: On a continued move down on stronger volume. Watch 90 for potential support.
July $95 puts to buy GS SS).
http://www.investmenthouse.com/cd/gs.html
(Click to view the chart)
WEBM (Webmethods Inc--$43.00; -4.75; optionable (UUW)): Business Software
STATUS: Hit a low of 40.75 but pulled up to close just higher (and above the previous February low of 42.24). Volume was huge, however (3.3 million; avg. 1.28 million), and on a move back under the low, the stock has no other support. Previous low (prior to the one noted above) was back in April at 44.50; the stock was issued a year ago.
PLAY: Aggressive: On a move down from here on continued strong volume. Safer: Below 40.75 on continued strong volume. July $45 or $40 puts to buy (UUW SI or UUW SH).
http://www.investmenthouse.com/cd/webm.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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