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trading strategy, top stock pick
Begin Part 2 of 2
TEAM TRADES
When it is given, take it. The QQQ, the OEX, DS, CIEN, etc. were all going to go solidly down. After the initial steep selloff, we looked for a bounce. Weak at best. The QQQ and OEX just moved laterally after a brief bounce, and then they rolled over. That was the first time to act and you could have let it ride all session to the close.
The second time to act to enter plays was after the lunch hour when the indexes hit the consolidation level of the morning. They tanked down to the lows of the days. The indexes then bounced up, but aha, a double top right where the previous top ran out of gas. That was the third time to enter. That one was a winner for all three entry points. The indexes tanked to new lows and made a modest bounce at the close.
Those watching the market could make three individual trades. You could also add to positions at these tops where it was clear it was going to roll back over. We love to do that to winning positions: add when it performs as we want it to do. This was playing the fear in the market: CIEN story in Baron's, ERICY earnings warnings, military accident in the Middle East, Dow breaking below 10,300. It was a classic fear-building session. We took advantage of these stages today, taking some profits at the close (after the selling there was going to be a bit of a late jump) and letting others ride until tomorrow to catch the morning downward thrust to start the session.
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: A rough day in the market, but the puts have been performing well, e.g., CIEN, VRTS, DS, FITB. The OEX puts we ran last week were trading at about $21 as it approached resistance. They are now at 68. The power of fear.
Best Plays:
1) OLOG: Ready to hit a new high after the breakout test.
2) POOL: Tight lateral movement.
3) AN: Still moving and trying to hit the buy point.
4) UCU: Moving up in its ascending wedge.
5) COO: In a short pennant that is testing the breakout.
6) ACS: Looking for a bounce.
7) Puts: LH, JPM, DJX, IMPH.
New Stocks:
OLOG (Offshore Logistics Inc--$24.63; 0.00; optionable (OOQ)): Transportation: Air Services
STATUS: Testing its recent breakout from a short cup with handle base. The stock has been in a more or less lateral consolidation for two weeks, and showed a stronger shot of volume Monday to 316,100 (average volume). Looking for a breakout over the recent high at 25.13 for potential stock and/or call to buy options. The stock has moved into its 10 day MVA (24.25) and after moving off the 18 day MVA (23.69), looks ready for the move up. Initial profit target: $30.
BUY POINT: Over 25.13, on volume in the range of 427,000 or better. Stop loss: 24.63-24.88.
POSITION: Stock and/or May $22.50 calls to buy (OOQ EX).
http://www.investmenthouse.com/ct/olog.html
(Click to view the chart)
http://biz.yahoo.com/p/o/olog.html
POOL (Scp Pool Corp--$35.44; -0.12; no options): Wholesale: Basic Materials
STATUS: Showed its fourth consecutive doji in a tight lateral pattern formed after gapping up Wednesday in an attempted breakout over the high of 35.75. It is pulling back very slightly toward its 10 day MVA (34.83), with volume cooling back from Friday's surge (65,600 today; average 96,400). Looking at possible positions on a move over the recent high. Outstanding money flow and high relative strength. Initial profit target: $41-$43.
BUY POINT: Over 35.75 on above average volume. Stop loss: 35.25-35.50.
POSITION: Stock.
http://www.investmenthouse.com/ct/pool.html
(Click to view the chart)
http://biz.yahoo.com/p/p/pool.html
Updated Stocks:
AN (Autonation Inc--$8.54; +0.13; optionable (AN)): Specialty Retail: Auto Dealerships
STATUS: Moved up again, though only slightly. Volume shot nicely above average to 1.65 million (avg. 1.2 million), taking the stock closer to the buy point of 8.61 (the weekend report's buy point was incorrectly stated as 9.61). We like the stronger volume, and will see if that momentum can carry the stock to and beyond 8.61 for a continued breakout. That is not impossible in this market, as we have seen with other plays. AN is in a 10-month cup with handle base, showing strong money flow and high relative strength. Initia lprofit target on the breakout: $10.
BUY POINT: 8.61, on volume of 1.8 million or better. Remains a buy on the breakout up to 10.09. Stop loss: 9.11 to 9.36.
POSITION: Stock and/or July $7.50 calls to buy (AN GU).
http://www.investmenthouse.com/cd/an.html
(Click to view the chart)
http://biz.yahoo.com/p/a/an.html
UCU (Utilicorp United Inc--$30.65; +0.91; optionable (UCU)): Diversified Utilities
STATUS: On the report March 8 as the stock was moving laterally on steadily declining volume above the 10 day MVA (30.04). The stock Friday dropped to a test of the 18 day MVA (29.84) on above average volume and bounced Monday as volume rose further (1 million; avg .496,000), making the move for which we were looking. The company will meet with analysts Tuesday morning to discuss the company's record results for 2000 and outlook for 2001 (26 percent increase in earnings per share and a 56 percent increase in sales). The stock is moving in an ascending wedge-type pattern (since late December) with a high at 31.31. We will look at taking positions with stock and/or options on a breakout over that high on strong volume. Strong buying, and relative strength has broken out ahead of price. Initial profit target: $36-$38.
BUY POINT: 31.44, on volume of 670,000 or better. Remains a buy on the breakout up to 33.01/ Stop loss 30.94-31.19.
POSITION: Stock and/or July $30 calls to buy (UCU GF).
http://www.investmenthouse.com/cd/ucu.html
(Click to view the chart)
http://biz.yahoo.com/p/u/ucu.html
COO (Cooper Companies Inc--$43.56; -0.04; optionable (COO)): Medical Instruments & Supplies
STATUS: Continues to test the recent breakout (the stock hit a high of 44.99 on that move; an all-time closing high of 44.60) as volume dropped further below average (82,900; avg. 109,181). The stock is in a pennant and moved up from the opening (and low) price of 43.25 on the lower volume, indicating that it is ready to head higher on a shot of good volume. We will look at positions with stock and/or options on a breakout over that recent high on stronger volume. COO is a stock with great money flow and a relative strength that has broken out ahead of price (a bullish sign), in addition to showing good buying. Initial profit target: $52-$54.
BUY POINT: 45.12, on volume of 147,000 or better. Remains a buy on the breakout up to 47.38. Stop loss: 44.62-44.87.
POSITION: Stock and/or May $40 calls to buy (COO EH).
http://www.investmenthouse.com/cd/coo.html
(Click to view the chart)
http://biz.yahoo.com/p/c/coo.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, but it is further out in the future. Indeed we still have investments in several of these. 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,
NATI (National Instruments Cp--$39.09; -8.54; optionable (SJQ)): Computer Peripherals
STATUS: NATI was taken out Monday, absolutely tanking below its 200 day MVA (45.15) after trying to move back over its 18 day MVA (48.86) twice last week. We introduced the stock as a new leader back on February 12, but the stock has been in a downtrend since then almost to the day. The low of 38.31 tested possible support at that level at the October and November lows, and after such a huge drop, it just might stop the carnage there. That, of course, may depend as well on the direction of the Nasdaq. We are not taking positions on the stock to the downside because of the huge move today; that may have been all NATI can offer for now.
http://www.investmenthouse.com/cd/nati.html
(Click to view the chart)
ACS (Affiliated Computer Svc--$65.19; -1.61; optionable (ACS)): Computer Software & Services: Information Technology
STATUS: ACS apparently needs a bit more consolidation from its 8-day run, cutting short the promising move up Friday that came after two tight pullback dojis that formed on the heels of the run. The stock saw much lower volume Monday (343,300; avg. 426,454), and pulled back along with it, holding above the 10 day MVA at 64.81 (the low was 65.19). It could continue down to test the moving average, if it doesn't stop in the 65 range (late January and early February prices can support it there). We will look for a bounce from the support, looking at taking positions on a move back over the February high of 68.59. Relative strength is still well ahead of price, a bullish indicator.
BUY POINT: Over 68.59, on volume in the range of 463,000 or better.
POSITION: Stock and/or July $65 calls to buy (ACS GM).
http://www.investmenthouse.com/cd/acs.html
(Click to view the chart)
LLL (L-3 Communications--$86.85; -3.15; optionable (LLL)): Telecom
STATUS: Dropped on slightly higher volume (349,100; avg. 386,454) to close right on the 10 day MVA. The drop was a bit steep, but it came right at the close when everything was being sold, and since volume remains below average, it is still in play. Otherwise, LLL can test the 18 day MVA (43.62), at the level of some February prices that reinforce that support level. LLL popped out to a high of 90.51 last week, and has seen lower volume since, resulting in this move back down.
BUY POINT: On a move back over 90.51, on a bounce from here or the 18 day MVA (44 range).
POSITION: Stock and/or July $85 calls to buy (LLL GR).
http://www.investmenthouse.com/cd/lll.html
(Click to view the chart)
CPN (Calpine Corp--$47.04; -1.11; optionable (CPN)): Electric Utilities
STATUS: Lost some ground though still holding above the 10 day MVA (46.70). The stock showed a loose doji on the move down, closing nearer the low of 46.50 than the high of 48.77. Though that is still above the 10 day MVA, the higher volume suggests the stock may test the 18 day MVA (45.79) once again (as it did in the first week of this month). The stock is holding up pretty well considering the sell-off throughout the rest of the market. We will watch for a bounce back up from here or the 18 day MVA on stronger volume. CPN hit a high of 50 Thursday. Relative strength remains ahead of price, a bullish sign.
BUY POINT: Back over 50 on a move up from the 46-47 range, on strong volume. Stop loss: 45.
POSITION: Stock and/or July $45 calls to buy (CPN GI).
http://www.investmenthouse.com/cd/cpn.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 for the weekend report. We are in the process of revamping this portfolio.
MEMBER PORTFOLIO: BRCM, CHKP, CSCO, EMLX, IDTI, INTC, JDSU, MVSN, NT, PWER, SUNW, VTSS
PUT PLAYS: We continue to look at stocks that are poised for moves down if this market cannot turn itself around. As always, keep reasonable loss cutting rules in place.
New Puts:
LH (Laboratory Cp Am Hldgs--$136.50; -5.90; optionable (LH)): Health Services
STATUS: Dropped back from its doji under the 50 day MVA (144.30), closing at last week's intraday low. Volume jumped back up after cooling off Friday, coming in at 434,300 (average 392,500). We will see if the stock continues to drop from here, or if it takes a weak bounce up to the 140 range; we will look at positions on a drop back after such a weak bounce, looking for the drop to be on increased volume. There is support from early January and the February lows near 130. That is the target.
PLAY: On the drop, April $155 (LH EK) puts to buy.
http://www.investmenthouse.com/cd/lh.html
(Click to view the chart)
JPM (JP Morgan Chase & Co--$45.49; -3.46; optionable (JPM)): Financial
STATUS: Broke below the 200 day MVA (51.30) on stronger volume (8.5 million; avg. 10 million). We will look at entering with put positions on a move below 44, potential support, since volume has not broken above average yet. Initial profit target: 40.
PLAY: On a move below 44 on above average volume, April $55 or $50 puts to buy (JPM PJ or PK).
http://www.investmenthouse.com/cd/jpm.html
(Click to view the chart)
AMRI (Albany Molecular Rsrch--$39.50; -4.50; optionable (EUK)): Drugs
STATUS: The stock broke its 200 day MVA (43.68) on stronger volume, falling from a two-day lateral movement as price tried to hold the support. On a continued move down on above average volume, we will look at taking positions for an initial drop to the 35 range.
PLAY: On a move down from here on continued rising, above average volume, April $50 puts to buy (EUK DJ).
http://www.investmenthouse.com/cd/amri.html
(Click to view the chart)
LNCR (Lincare Holdings Inc--$53.13; +0.44; optionable (LQN)): Health Services
STATUS: After moving below the 50 day MVA Friday (at 53.33), the stock tried to move back over the level but volume was unsupportive (498,300; avg. 791,000). If LNCR cannot make the move back over resistance, we are looking at put positions on selling from here with a target at 45-46.
PLAY: On a turn back down from the 50 day MVA (53.13) for a move below 50, April $60 puts to buy (LQN PL).
http://www.investmenthouse.com/cd/lncr.html
(Click to view the chart)
IMPH (Impath Inc--$45.00; -4.44; optionable (QPH)): Health Services
STATUS: Dropped to the 200 day MVA (45.18), actually, just below it, on stronger volume (286,400; avg. 365,000). On a continued move down from the support (the stock may try to test the breach before heading down), we will look at buying puts. The stock failed to break resistance at the 50 day MVA and long term down trendline (51).
PLAY: On a move down from here on continued rising, above average volume, April $55 puts to buy (QPH PK).
http://www.investmenthouse.com/cd/imph.html
(Click to view the chart)
DJX ($102.08; -4.37; optionable (DJV)): Options on the Diamonds (tracking index for the DJ-30)
STATUS: Opened at it 50 day MVA (106.69) and tanked from there. The index has support in the 100 range. We are looking for a test of 103 before the next move down. A failed test will be our entry point.
PLAY: On a move down from a test of 103 on rising volume, April $110 puts to buy (DJV PF).
Continued Puts:
CIEN (Ciena--$53.31; -11.82; optionable (UEE)):
STATUS: Punished on huge volume (45.7 million; avg. 16.8 million). The stock has already fallen a good piece, so we will be hesitant play it farther down unless the market continues to sell hard. This put play really paid off. Target for the put: $44-$41.
PLAY: Below 51.44 (intraday low) on continued strong volume, April $70 puts to buy (UEE PN).
http://www.investmenthouse.com/cd/cien.html
(Click to view the chart)
VTSS (Vitesse Semiconductor--$40.06; -1.38; optionable (VQT)): Electronics: Semiconductor, Integrated Circuits
STATUS: Hit our buy point with a test of the 10 day MVA today and then a fall on stronger volume (9 million; avg. 7 million). Showing a shooting star doji, however, VTSS might bounce back up from here. We can either ride the move up for the test of the 10 day MVA (44) and try it again, or exit on a rebound. Tough call; if we get a down open that catches its wind, we may just take profits when the selling slows and not take chances on a semiconductor rebound.
PLAY: On a move down after a move back up to test the 10 day MVA (44 range) April $50 puts to buy (VQT PJ).
http://www.investmenthouse.com/cd/vtss.html
(Click to view the chart)
VRTS (Veritas Software--$53.94; -4.37; optionable (VUQ)): Computer Software & Services: Application Software
STATUS: Showed a doji after the stock hit a low of 52.13, delivering for the put play. The stock may try to test the the 10 day MVA (63.02) after such a tumble, but we will then look for another move down from there to start it over again. Volume was lower at 17.1 million (still well above the average of 12.7 million). On a move up, the stock can meet possible resistance at the 60 level. Target for the move down from resistance: $52-$54.
PLAY: From the 10 day MVA (63) or 60, April $75 puts to buy (VUQ PY).
http://www.investmenthouse.com/cd/vrts.html
(Click to view the chart)
DS (Dallas Semiconductor Cp--$30.00; -2.54; optionable (DS)): Semiconductor: Integrated Circuits
STATUS: Broke support at 32 as volume rose to average levels (1.2 million). The stock closed right on the low, so we are looking for a continued move down from here. The stock hit 29.56 three times since October, a possible support level. If it is broken, 26 looks next. If it tests the 50 day MVA and fails (32.35), new positions can be taken. Target is still the 26 range.
BUY POINT: New positions: Move down from a failed test of 32.25.
POSITION: April $35 puts to buy (DS PG).
http://www.investmenthouse.com/cd/ds.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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