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trading strategy, top stock pick
Begin Part 2 of 2
TEAM TRADES
Once again we were out looking for the downside and breakouts: playing both ends of the spectrum.
QQQ: Went to the well again. We could have let Wednesday's play on these options hold over as the bias continued down from Wednesday to today's open. We happened to be at the screen all day so we rode it down and up and down. Today we missed the top in the QQQ about an hour into the session. We were watching it approach the morning high and had an idea it would not break it, but I was called away on a conference call and did not have a standing order in with any broker. Missed that one, but as has been its habit, the Nasdaq 100 made another run toward the high, and it too failed. As soon as we saw it start down we jumped on that one with the same April 55 puts to get the better delta once again as the options were trading at 8.9 by 9.2. That was the largest spread we had seen, so we but an order to buy in at 9.1. It was filled instantly. Have to love the liquidity of index options. The QQQ followed its 15 minute moving average down for the next hour and one-half, and then the AMCC news came out. They dropped from 46.60 to 45.80 in a half hour. That was close to our target profit, but we felt there was still some downside as the Nasdaq support we saw was 2050 to 2000. It rallied to 46.50 and we watched the index hit the 15 minute line and fall back. It tanked to 45.80 again for 10 minutes as the Nasdaq undercut the prior leg. At that point it started to show doji's, and after slightly undercutting its left leg, it looked as if it wanted to rise. The options hit our profit point and we sold at 10.1. The timing was good as the index started back up. We thought about playing the upside off the double bottom, but did not because we wanted to play the downside. We watched it climb, ready to get in when it hit the highs for the day. It hiccupped right there but then raced on ahead. We thought of buying at the close, but did not want to have to fight any momentum in the morning. Looks as if that won't be there in the morning, but you never can control news.
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
THE PLAYS:
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) SBUX: Watch this doji as the stock holds up in the handle.
2) RARE: Up on stronger volume.
3) TRIH: Ditto, in its small ascending wedge.
4) Trading plays: EMC, PMCS, JNPR, IDTI, VTSS
New Stocks:
TTN (Titan Corp--$24.10; -0.60; optionable (TTN)): Business Software
STATUS: A small software stock that was holding at its closing price in after hours trading, when other sector stocks were getting hit on the ORCL warning. The stock is trying to start to come out of a lengthy base with a prior high of 60.50, and Tuesday made a strong move over its 200 day MVA (23.93). Currently pulling back from the high at the top of the run (24.50) in a 6-month saucer at the bottom of the base, we are looking for the stock to form a handle here with the moving average as support as volume keeps falling (604,400; avg. 423,590). Thus, on a pullback to the mid-to-high 23 range, we'll watch for a move back up for a breakout. Money flow looks good and the stock shows decent buying.
BUY POINT: Breakout: 24.63, on volume of 635,000 or better. A buy on a breakout up to 25.86.
POSITION: Stock and/or July $20 calls to buy (TTN GD).
http://www.investmenthouse.com/cd/ttn.html
(Click to view the chart)
http://biz.yahoo.com/p/t/ttn.html
Updates:
SBUX (Starbucks Corporation--$47.56; -0.07; optionable (SQX)): Specialty Eateries
STATUS: Continuing to pull back in the saucer with handle base (handle high is 51.31), showing a pretty tight doji at the top of its intraday trading range. Volume remained above average but down at 2.37 million (avg. 2 million). Wednesday the company reported good earnings revenues for February, which helped pull the stock off the low of 46.31, which was a test of the 50 day MVA. Looking for a move back up from the doji, letting the stock break over the high of 48 for taking positions. High relative strength.
BUY POINT: Breakout: 51.38 on volume in the range of 3.2 million.
POSITION: Stock and/or July $45 calls to buy (SQX GI).
http://www.investmenthouse.com/cd/sbux.html
(Click to view the chart)
http://biz.yahoo.com/p/s/sbux.html
UTX (United Technologies Corp--$78.01; +0.10; optionable (UTX)): Conglomerates
STATUS: Covered earlier this week, and still looks good in its ascending wedge. Price dropped back to test support again the last two days (18 day MVA, 77.21), then moved up to show a doji. Volume dropped back but remains above average at 2.26 million (avg. 2 million). Continue to look for a breakout over the pattern high of 80.40. Excellent money flow and high relative strength (that has moved out ahead of price).
BUY POINT: 80.53, on volume of 2.7 million or better. Remains a buy on the breakout up to 84.56.
POSITION: Stock and/or May $80 calls to buy (UTX EP).
http://www.investmenthouse.com/cd/utx.html
(Click to view the chart)
http://biz.yahoo.com/p/u/utx.html
RARE (Rare Hospitality Inc--$30.06; +1.00; optionable (QRH)): Restaurants
STATUS: RARE is moving up on stronger volume (329,600; avg. 308,000) after a pullback from the February all-time closing high of 31.69. On lower volume over the last week the stock tested support at the 10 and 18 day MVAs (just below at 29.08 and 28,55 respectively), resulting in today's pop. Look for a continued move up on volume that breaks above average. RARE shows strong money flow, high relative strength (that is out ahead of price), and good buying.
BUY POINT: Over 31.69, on volume of 445,000 or better.
POSITION: Stock and/or May $30 calls to buy (QRH EF); options have 1 open interest (illiquid).
http://www.investmenthouse.com/cd/rare.html
(Click to view the chart)
http://biz.yahoo.com/p/r/rare.html
TRIH (Triad Hospitals Inc--$33.19; +0.50; optionable (RIU)): Health Care Plans
STATUS: The stock has been in a steady uptrend since the fall of 1999, and since late of last year has posted new highs on runs from an up trendline connecting August and December (2000) and February lows. The stock is currently consolidating in an ascending wedge on its most recent run up from the trendline, moving up from the 10 day MVA (32.49) on stronger volume (374,700; avg. 540,590). Looking for a breakout from this smaller wedge, that will propel the stock toward the previous all-time closing high at 34.38. Good money flow and buying, and relative strength has moved out ahead of price (bullish).
BUY POINT: Breakout: 33.57, on volume of 730,000 or better.
POSITION: Stock and/or May $30 calls to buy (RIU EF); 58 open interests (illiquid).
http://www.investmenthouse.com/cd/trih.html
(Click to view the chart)
http://biz.yahoo.com/p/t/trih.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:
CPN (Calpine Corp--$44.55; +0.06; optionable (CPN)): Electric Utilities
STATUS: It wasn't much of a bounce, but at least price/volume action was decent, volume moving up almost to average levels (3.68 million). The high tapped resistance, the 10 day MVA at 45.08. Look for a move over that level for positions. CPN continues to hold above its down trendline, and we are patiently awaiting its next move back up to the 47 range, from which the stock pulled back the last two days (for the second time since mid-February). February high is 48.80.
BUY POINT: Over the high of 45.08 on volume in the range of 5 million.
POSITION: Aggressive: Stock and/or July $45 calls to buy (CPN GJ).
http://www.investmenthouse.com/cd/cpn.html
(Click to view the chart)
SGR (The Shaw Group Inc--$52.00; +1.69; optionable (SGR)): Manufacturing: Industrial Equipment & Components
STATUS: Used Wednesday's closing price of 50.31 as support (18 day MVA is at 49.97) and the stock moved back over the 10 day MVA (51.30) as volume remained below average at 392,300 (avg. 379,000). The stock is ready to move up from here, just needs volume to do so. The February high is 55.39, from which the stock pulled back over the previous two days. Continued good buying and strong money flow.
BUY POINT: From here on above average volume.
POSITION: Stock and/or July $50 (SGR GJ).
http://www.investmenthouse.com/cd/sgr.html
(Click to view the chart)
Previous Leaders:
AMCC (Applied Micro Circuits--$29.56; +2.81; optionable (AEX)): Electronics: Semiconductor, Integrated Circuits
STATUS: Reversed and headed up (despite a weaker revenue estimate) on quite strong volume (51.2 million; avg. 17 million). The high tapped the down trendline (connecting January and February highs) at 31.88, so we will have to watch that level for resistance on a continued move up. Looking for a move to at least the 10 day MVA at 35.74. Trading down a few cents (at the time of this writing) after hours.
BUY POINT: Aggressive: On a move up from here on continued strong volume, watching noted resistance levels.
POSITION: Stock preferred so don't have to deal with spread in options. Options: May $25 (17 open interests) or $30 calls to buy (AEX EE or AEX EF).
http://www.investmenthouse.com/cd/amcc.html
(Click to view the chart)
EMC (Emc Corp--$42.91; +3.15; optionable (EMC)): Computer Hardware: Data Storage Devices
STATUS: Headed up from a low of 37.43 on stronger, above average volume (20.5 million (avg. 16.8 million), the high reaching almost to the 10 day MVA (46.23). The stock was trading just lower after hours, so look for a test of the 40-41 level, then we will see if the market can rally the stock back up.
BUY POINT: Aggressive: On a move up from here, or from the 40-41 level after an initial pullback.
POSITION: Stock and/or July $40 calls to buy (EMC GH).
http://www.investmenthouse.com/cd/emc.html
(Click to view the chart)
A trading play:
PMCS (Pmc-Sierra Inc--$39.13; +5.63; optionable (SQL)): Electronics: Semiconductor, Integrated Circuits
STATUS: Looking at PMCS again for a move up to (at least) the 10 day MVA, at 44.88. The stock moved up from a new low of 31.63 Thursday on a nice pop in volume to 16.7 million (avg. 10.5 million). The stock was trading down after hours to 37.50 (at the time of this writing), so it may pull back on the open before heading back up in a continued rally. The ORCL news was hitting software badly after hours, but the chips are trying to hang on.
BUY POINT: On a move up on continued strong volume, for a run up to the 45 range or better.
POSITION: Stock and/or May $35 calls to buy (SQL EG).
http://www.investmenthouse.com/cd/pmcs.html
(Click to view the chart)
Looking for a bounce up to set up another move back down:
JNPR (Juniper Networks--$61.81; -2.75; optionable (JUX)): Computer Hardware: Networking & Communication Devices
STATUS: Still looking for that trading play up to the 10 day MVA (72.02) or better (18 day MVA, 80.61) since the stock held close to Wednesday's doji, pulling back on lower volume (32.2 million; avg. 19.1 million). That is still high, so the stock is fighting to hold on here. The doji is pretty tight, and closer to the top of the day's trading range than to the bottom of it, so we will see if the stock can move up. If so, we will look for the downside play when the stock hits resistance.
BUY POINT: Upside: (Aggressive) On a move up from here on continued strong volume. Downside: On a move back down from 72-74 (looking at the 10 day MVA for resistance, for now) 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 April $85 puts to buy (JUX OO or JUX PQ).
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
IDTI (Integrated Device Tech--$32.34; +3.40; optionable (ITQ)): Electronics: Semiconductor, Broadline
STATUS: Looks ready to roll back up at least for a short term play. The stock showed a tight doji previous session and moved up from there on a shot of volume (7 million; avg. 4 million). We are looking for a continued move to the 18 day MVA (37.44), the level of the stock's strongest resistance for the month of February. Watch the 10 day MVA at 35.14 for potential resistance.
BUY POINT: Aggressive: On further upward movement on the strong volume.
POSITION: Stock is preferred to avoid having to overcome the time spread in the options. Options: May $30 calls to buy (ITQ EF).
http://www.investmenthouse.com/cd/idti.html
(Click to view the chart)
VTSS (Vitesse Semiconductor--$41.81; +2.37; optionable (VQT)): Electronics: Semiconductor, Integrated Circuits
STATUS: The chips rallied, and after hitting a low of 34.75 (for the put play) VTSS reversed and closed near the high of 42.25 on great volume (22 million; avg. 6.7 million). We'd like to see a run up to the 50 range if the stock can break resistance at 45-46. VTSS broke ahead of the November low of 41.75, and needs to take about 41.88, the January low, so watch the latter for resistance. The stock is trading down just slightly in after hours trading (less than a point), so it may test 40-41 before heading back up tomorrow in a continued rally. We will look for subsequent opportunities to play the stock back down if the rally fades.
BUY POINT: Aggressive: Up from here on continued strong volume.
POSITION: Stock and/or July $40 calls to buy (VQT GH). Options have 29 open interests, so take care if using them.
http://www.investmenthouse.com/cd/vtss.html
(Click to view the chart)
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: Software was hit on the ORCL news, so we will be watching those stocks once we see what they are doing after the open. 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.
New Put:
VRTS (Veritas Software--$70.69; +5.75; optionable (VUQ)): Computer Software & Services: Application Software
STATUS: The stock in regular trading made a nice move up to close above its 10 day MVA (69.67) as volume dropped back slightly but remained high at 17.7 million (avg. 12.4 million). The 18 day MVA is at 74.06. Would like to see the stock carry higher, but the ORCL news after the bell resulted in a slaughter of software after hours, VRTS trading down to 65.06 at the time of this writing. Likely to gap down on the open; we are going to let the stock test the opening price, then take positions on the way down.
PLAY: On a move down after a test of the opening price on continued strong volume, April $90 puts to buy (VUQ PV).
http://www.investmenthouse.com/cd/vrts.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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