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us stock market, top stock pick
Begin Part 2 of 2
TEAM TRADES
ISSX is a stock we have been following on the reports that has really hit rough times. It has been an excellent downside play, and it keeps giving additional opportunities to enter. Friday it made a quick move down, and we were looking for it to take out its recent low at 35.88 for additional positions. It had closed at 37 after a strong drop Thursday, and gapped down to 36.56 to open, and then quickly dropped off to 35 in the first five minutes. We saw the stock take a quick bounce back up in the next 15 minutes, but it did not go back above our buy point. In fact, as we were reaching the half-hour point in the day the stock turned back down with a good spike of volume, and the market was experiencing a sizable drop of its own. We were looking initially at April $50 puts, but were getting screwy bids and asks on them, so focused on the 45's, which were showing a strong delta over 70. We were taken out on the options at 11.875 as the stock hesitated and climbed for a moment, and then and watched as the stock dropped to 33.50. It had us a bit worried when it edged back up over the next couple of hours, coming all the way back up to our buy point, but it then dropped off with the market the rest of the afternoon, with the options finally closing at a bid of 12.625. We decided to go ahead and ride them further as the momentum was down at the close and down Friday's often give us a down Monday, at least at the open. That should build another nice profit in to the downside.
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 continue to look at some plays from last week that are holding their patterns (PL, HSIC, AN), and RESP finally got the price/volume action headed in the right direction. We have another good-looking rolling pattern and some smaller stocks that look promising. CPN and SGR continue to hang in there. Of course, this market continues to offer juicy put plays. Please see our note on them in that section.
Best Plays:
1) SHW: Looks ready to roll back up.
2) TRA: Moving up in the ascending wedge on good volume.
3) RAD: A low-volume pullback in the handle.
4) HSIC: Another low-volume pullback in a handle.
5) RESP: Finally got the volume backing it needed.
6) SGR: Looking for a move back up on stronger volume.
7) Puts: SOX, DJX
New Stocks:
A rolling pattern:
SHW (Sherwin-Williams Co--$24.52; -0.38; optionable (SHW)): Materials & Construction
http://biz.yahoo.com/p/s/shw.html
STATUS: The stock is in a rolling pattern between 23 and 27. Currently showing a doji at the bottom of its most recent pullback to the lower support in the pattern, volume is lower and below average at 489,400 (avg. 592,090). We are looking for run back up from here, to the upper ranges of the pattern, our initial target (at some point the stock may break out of the pattern). The stock has a high relative strength rating.
BUY POINT: Up from here on stronger volume.
POSITION: Stock and/or June $20 calls to buy (SHW FD, 2 open interest).
http://www.investmenthouse.com/cd/shw.html
(Click to view the chart)
Some smaller stocks that look good:
Ascending wedge:
TRA (Terra Industries Inc--$3.72; +0.04; no options): Basic Materials Wholesale
http://biz.yahoo.com/p/t/tra.html
STATUS: Making a breakout move from its ascending wedge pattern, the stock closing at the pattern high, so the buy point is still $0.13 cents away. Volume however, looks good on Friday's move up, at 144,400 (avg. 138,000). Looking for the breakout over the buy point on continued rising volume. Initial profit target: 4.23-4.43.
BUY POINT: 3.85, on volume of 186,000 or better. Stop loss: 3.35-3.60.
POSITION: Stock.
http://www.investmenthouse.com/cd/tra.html
(Click to view the chart)
Cup with handle:
RAD (Rite Aid Corp--$5.64; -0.06; optionable (RAD)): Retail: Drug Stores
http://biz.yahoo.com/p/r/rad.html
STATUS: In a cup with handle of 8 months (previous high 8.50). The stock tried the initial move up from the base of the handle pullback Wednesday on good volume, then pulled back the next two days as volume dropped back below average (declining to 2.8 million Friday; avg. 4.5 million). The move up was fueled by news of company plans to slash debt. The pullback is a classic lower-volume drop to support (10 day MVA, 5.59). Looking for a move up to a breakout over upper resistance in the handle (6.25). Relative strength has moved out ahead of price, a bullish sign. Initial profit target: 7-7.25.
BUY POINT: 6.38, on volume of 6.75 million or better. Stop loss: 5.88-6.13.
POSITION: Stock and/or July $5 calls to buy (RAD GA).
http://www.investmenthouse.com/cd/rad.html
(Click to view the chart)
Updated double-bottom patterns:
PL (Protective Life Corp--$30.11; -0.38; optionable (PL)): Life Insurance
http://biz.yahoo.com/p/p/pl.html
STATUS: The stock has pulled back in the handle to its double-bottom, holding strong over its January highs at 30 and 50 day MVA (29.64). The pullback was more extended than we wanted, but is holding up well and volume has been generally low, though higher Friday (211,800; average 250,500). We are looking for a move up that has even more volume behind it (with a hold at support at 30), pushing up toward the handle high at 32.25. PL shows good buying and strong money flow. Relative strength has moved out ahead of price, a strong indicator for a move up. Initial profit target: $36-$38.
BUY POINT: 32.38, on volume of 375,000 or better. Stop loss: 31.88-32.13.
POSITION: Stock and/or July $30 calls to buy (PL GF).
http://www.investmenthouse.com/cd/pl.html
(Click to view the chart)
HSIC (Henry Schein Inc--$32.75; -0.63; optionable (HQE)): Medical Equipment Wholesale
http://biz.yahoo.com/p/h/hsic.html
STATUS: Continued pulling back in the handle of a double-bottom pattern of almost three months' duration. Volume has settled down the last couple of sessions, what we like to see in a handle, dropping back Friday to 195,300 (average 421,200) as the stock continues to hold its 10 day MVA (32.68). Looking good, and we are still watching for a breakout over the handle high of 34.63. Outstanding money flow and buying. Initial profit target: $38-39.
BUY POINT: 34.76, on volume of 632,000 or better. Stop loss: 34.26-34.51.
POSITION: Stock and/or July $30 calls to buy (HQE GF).
http://www.investmenthouse.com/cd/hsic.html
(Click to view the chart)
Other Updated Stocks:
AN (Autonation Inc--$8.44; 0.00; optionable (AN)): Specialty Retail: Auto Dealerships
http://biz.yahoo.com/p/a/an.html
STATUS: Pulling back in the double handle, testing support at the 10 day MVA on the last three days' intraday lows (8.32, Friday). Volume dropped back just like we like it on consolidations, falling to 423,700 (avg. 1.2 million). We continue to look for a breakout but over the new handle high of 8.71 as volume surges, popping price up from the tight doji that formed at the top of the intraday range. The stock is in a 10-month base (previous high 10.75). Strong money flow and high relative strength that has broken out ahead of price. Initial profit target: 10.
BUY POINT: 8.84, on volume of 1.8 million or better. Stop loss: 8.34-8.59.
POSITION: Stock and/or July $7.50 calls to buy (AN GU).
http://www.investmenthouse.com/cd/an.html
(Click to view the chart)
RESP (Respironics Inc--$27.06; +0.25; optionable (SBU)): Health Service
http://biz.yahoo.com/p/r/resp.html
STATUS: Volume picked up Friday, to average levels (196,500), pushing the stock higher and over the highs posted last week (just under 27). RESP is moving in an 11-week base, and over the last week has mounted a move up from a recent lateral consolidation, but volume has been a bit problematic, shrinking as price rose. Thus, Friday's change in character was welcome; we will see if the trend continues from here.
We will look at taking positions on a move over the January high of 29.13. Money flow is strong. Initial profit target: $33-$35.
BUY POINT: Over 29.13 on volume of 265,000 or better.
POSITION: Stock and/or July $25 calls to buy (SBU GE; 56 open interests).
http://www.investmenthouse.com/cd/resp.html
(Click to view the chart)
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: While we continue to keep the previous leaders in the portfolio (eventually the majority will rebound, but that is far out in the future), they are not and have not performed for taking long-term positions. Some of the new leaders have fallen under the pressure of the bear market and can no longer be considered top picks for such investments (ACS, LLL, NATI, ESRX). We continue to look to stocks like SGR and CPN as the new leaders, as they are holding up well despite everything. With this in mind, we must reiterate that while we are looking for any of these stocks to once again yield long-term investments when the markets turns, for now the plays for moves up in such stocks should only be considered short-term. We must 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: CPN, SGR (ESRX, NATI, LLL, ACS)
Previous Leaders: ADBE, AMCC, ARBA, BEAS, BRCD, CIEN, EMC, EXTR, GLW, JNPR, NEWP, NTAP, PMCS, SCMR, SEBL, VRSN, VRTS,
ACS (Affiliated Computer Svc--$58.34; -5.36; optionable (ACS)): Computer Software & Services: Information Technology http://biz.yahoo.com/p/a/acs.html
STATUS: The stock tanked when Computer Sciences Corp., the world's third-largest supplier of computer services, warned Friday that fourth quarter earnings would come in sharply lower. ACS dropped below the 50 day MVA (62.49) and its up trendline that connects October and January lows, on a huge gap down on the open. The stock hit a high near 60 before showing a loose doji on the close. Volume was quite strong at 970,800. The doji suggests a hold at this level (at the November top of 58) as the stock will need some consolidation and a better market to repair this damage. ACS closed Thursday at 63.70.
http://www.investmenthouse.com/cd/acs.html
(Click to view the chart)
CPN (Calpine Corp--$46.92; -1.60; optionable (CPN)): Electric Utilities
http://biz.yahoo.com/p/c/cpn.html
STATUS: As is typical in this market, many moves up are taken right back down, though CPN gave us what we like to see on pullbacks: lower volume and a hold at support, in this case the 10 day MVA (46.74); volume was 3.1 million; average 3.5 million). The stock shot up Thursday on some positive analyst comments. We are looking for a bounce and move back over the March high of 50 for taking possible positions. The stock is trying to break out of its 6-month base, and we like the strength it is trying to show in this market. Initial profit target on a move over the high: $57-$60.
BUY POINT: Over 50 on volume of 4.1 million or better. Stop loss: 49.50-49.75.
POSITION: Stock and/or July $45 calls to buy (CPN GI).
http://www.investmenthouse.com/cd/cpn.html
(Click to view the chart)
SGR (The Shaw Group Inc--$51.30; -0.50; optionable (SGR)): Manufacturing: Industrial Equipment & Components
http://biz.yahoo.com/p/s/sgr.html
STATUS: After the two-day move up from the 50 day MVA (48.17) that got the stock back over its 10 day MVA (51.41), SGR pulled back slightly to show a doji just under that level and above the 18 day MVA (51.10). Volume was lower at 445,300 (avg. 425,000). SGR can pull back to the 18 day MVA, and support looks firm at 50-50.50 as well. We are looking for a move back up and over the February closing high (54.91) for a break to a new high, but the aggressive can play a move up from here on strong volume. This stock is holding up well.
BUY POINT: Aggressive: Up from here on stronger, above average volume. New high: Over 55 on volume of 600,000 or better.
POSITION: Aggressive: Stock and/or July $45 (51 open interest) or $50 calls to buy (SGR GI or GJ). New High: July $50 calls to buy (SGR GJ).
http://www.investmenthouse.com/cd/sgr.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 tonight. Please bear with us as we are in the process of revamping this portfolio.
PUT PLAYS: We continue to look at put plays since sentiment is generally against a market bounce on the anticipated 50-point interest rate cut. As always, keep reasonable loss cutting rules in place, be ready to close positions quickly if necessary, and make sure you see the downside move, along with the market going down as well, and then enter.
New Puts:
SOX (Philly Semiconductor Index--$541.26; -30.15; optionable (SJX)):
STATUS: Has formed a bearish head and shoulders pattern, the right shoulder from its hump in early March. The right shoulder was lower than the left (formed in December), signaling a potential deeper plunge ahead. On a break below the neckline in the 535 range, the index can fall the height of the pattern, or about another 200 points. Not all at once, but that is the potential. On the break we will look at buying puts. The index hit 535.40 twice in December. Initial profit target: March low of 515.30.
BUY POINT: On a move below 535 in market selling, May $590 puts to buy (SJX PB).
Continued Puts:
DJX ($98.23; -2.08; optionable (DJV)):
STATUS: Headed down as the index broke below the 100 support as expected (the index moved up to test the break of support before heading down. Volume was higher, and we continue to look for a move down from here in a continued negative market, on a move below the October low (95-96 range). Initial profit target: $83-$78.
BUY POINT: Aggressive: From here on continued strong volume. Safer: Below 95 on continued strong volume.
POSITION: May $104 puts to buy (DJV QZ).
CIEN (Ciena Corporation--$52.81; -1.94; optionable (UEE)): Telecommunications: Processing Systems & Products
STATUS: Tapped a low of 50.63, testing support at that level (previous March low is 51.44), on lower volume of 24.1 million, which is still strongly above the average of 17.4 million. In a continued market downtrend, we will look for a strong move below the intraday low for taking further positions with puts.
BUY POINT: On a move below 50.63 on continued strong, preferable rising, volume, May $60 puts to buy (UEE QL).
http://www.investmenthouse.com/cd/cien.html
(Click to view the chart)
JPM (JP Morgan Chase & Co--$44.17; -1.09; optionable (JPM)): Financial
STATUS: Moved down on stronger, average volume (9.35 million), following Thursday's weak move up on lower volume. Looking for continued weakness and a drop, perhaps to October-December consolidation levels around 37.50, but we are first looking at 40 as our initial profit target.
BUY POINT: On a continued move down on stronger, above average volume.
POSITION: June $55 puts to buy (JPM RK).
http://www.investmenthouse.com/cd/jpm.html
(Click to view the chart)
LNCR (Lincare Holdings Inc--$55.00; +0.81; optionable (LQN)): Health Services
STATUS: Broke resistance at the 18 day MVA (54.93) by a few cents. Volume was stronger at 956,500 (avg. 748,000) as the stock hit a high of 56.44 before pulling back down. A move over that support, and strong volume, were our criteria for closing this put play.
http://www.investmenthouse.com/cd/lncr.html
(Click to view the chart))
OEX (Standard & Poors 100--$587.94; -12.77; optionable (OEY)): S&P 100 options
STATUS: Headed down on much stronger volume. The index shows a pattern of taking a day of rest between moves down, and has been slowing on the drops, even with Friday's stronger volume (1.5 million; avg. 1.2 million). So, we may see an attempted bounce higher. We can play either move. On a move down from here on continued strong volume, we will look at further put positions. The index broke below Wednesday's new 52-week of 589.89. Initial profit target on continued selling: $500-$470.
BUY POINT: On a move down on stronger, above average volume, May $590 puts to buy (OEB QR) (we will check our broker for spreads and deltas, not yet available at the time of this writing). On a failed test of 600 with May $600 puts to buy.
http://www.investmenthouse.com/cd/$oex.html
(Click to view the chart)
VRTS (Veritas Software--$55.13; +0.75; optionable (VUQ)): Computer Software
STATUS: Hit a low of 51.88 then moved up slightly on lower but still strong volume (19.2 million; avg. 13.4 million). The stock hit a high of 57.50, just under the 10 day MVA at 59.40; VRTS can try another test of the MVA; on the lower volume it is unlikely to move as high as the 18 day MVA at 63.43 (as it did Thursday before tanking back down) 60 looks like firm resistance for now. On a retest and move back down, we will look at puts, with a target of 52.
BUY POINT: On a move down after a retest of the 58 range, on strong volume in a selling market.
POSITION: Downside: April $80 puts to buy (VUQ QZ).
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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