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us stock market, trend trading stock
Begin Part 2 of 2
Buying puts is the same as buying calls. You can do it with a broker or you can do it online. It is the same principle: you are buying puts to open a position. We place limit orders to buy the put at a price we want to pay for the option (index options are very liquid so we usually try to shave the spread). We have been covering several of these in the Team Trades, but basically we play either a move down after a stock hits resistance or breaks support on high volume. These are the reverse scenarios of a bounce up off of support or a breakout above resistance when we are playing stocks to the upside.
TEAM TRADES
DJX: The Dow was still looking weak, and one of our primary plays today was a put on the DJX that tracks the Dow. We were looking at a break below 95 to enter, but that does not mean we won't take another entry point if we see it intraday. That is just part of adjusting a play as the day unfolds. We will explain what we mean.
The DJX opened right at 97.20 and then fell to 95.40 and bounced right at the first half hour. That put the brakes on any put buy at that point because it had hit close to our buy point and bounced higher. It then spent the next hour rising and fighting its way back to right where it opened near 97.20. That always catches our attention when we check the markets because a double top is an intraday pattern that has frequently led to selling in the indexes in this weak market. It bounced down from that level and we decided to get aggressive as the index has broken support and is in a hard recent downtrend. It was before the break below 95, but felt that it was worth at least a partial position.
We were looking at the May 102 puts to get the better delta. We did not catch the top perfectly; we like to see the move, and waited a bit to see if it was going to continue down. It did so we attempted to pick up some of the options. When the DJX was right at 96.60, the options were trading around 6.2 by 6.7. The DJX trades at a wider spread than say the QQQ, but they are still pretty liquid. We put in a limit order at 6.6, not much of a shave, but the Dow was falling and we had been getting lucky on good fills. Did not want to push it. The fill came and the DJX went down to 95.50 and bounced again. That had us concerned, but not really as the trend was down. It rallied and then sold back to 95.40 and bounced. A double bottom that could rise, but still not devastating. It did bounce up to 96.60 and fell from there. That happened in the last two hours and received a call from the broker that it was falling again (learned from the QQQ play). We tried to get some more positions as we felt this would be the killer on the session: the double bottom was failing below session highs, so we tried for more. Got too aggressive on the spread and missed them. Foolish as we felt the fall would be severe. It continued to sell and when it broke below 95 (the next buy point), we were on it with more puts as that was the support level before the session and intraday. We are looking to ride these down more than a day or two, but we could get a bounce in the interim as noted in the summary. Thus we might take some profits in the morning in the first selling part of 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: Kind of a rough day to the upside, but several puts continued to perform. We are keeping an eye on some previously covered upside plays that continue to look good, such as RESP, forming a handle, and RDEN, at the top of its rolling pattern (not covered tonight), and continue to find good patterns for other upside plays (see APPB). We are also looking at a basket of chip stocks in light of that sector's strength seen today. The puts continued to perform, including such winners as the indexes (OEX, DJX) and others like JPM, IFIN, FITB, DS, IMPH, and LH. They have proved that money can be made in a bear market.
Best Plays:
1) APPB: A doji in the handle on low volume.
2) HSIC: Heading up on good volume.
3) ANF: Looking for a pop up.
4) THQI: Looking for a bounce from the 18 day MVA.
5) Puts: IVGN, HGSI, ADBE, MERQ, DJX
Semiconductor stocks: Most chips rose on stronger volume today, and are currently fighting between a bearish and bullish pattern. We have pulled some of the best-looking patterns in the sector for moves either to the upside if the market can rally, or, to the downside on a failure to break resistance as this appears to be the sector that will lead the techs one way or the other:
NVLS (Novellus--$41.13; +0.82; optionable (NLQ)):
http://biz.yahoo.com/p/n/nvls.html
STATUS: Formerly covered as a double-bottom with handle, NVLS is fighting with its 50 day MVA (41.97) and a bunch of overhead supply, the intraday high of 43.38 reaching over much of it to test the short term moving averages. Volume surged higher above average to 14.7 million (avg. 6.6 million) as the stock pulled back down below the 50 day. In a market rally, we will look for a strong move back up over the intraday high, which will also break NVLS back over the down trendline (connects Sept/Jan/Feb highs). Otherwise, the stock has potential downside to 35 for a possible put play, if it cannot break back over the 50 day MVA in another Nasdaq sell-off.
BUY POINT: Upside aggressive: Over 42 (50 day MVA) on continued strong volume. Safer: Over the 200 day MVA (45.47) on continued strong volume. Downside: On a move below 40 on continued strong volume.
POSITION: Upside aggressive: Stock and/or June $35 calls to buy (NLQ FG). Safer: Stock and/or June $40 calls to buy (NLQ FH). Put: May $50 puts to buy (NLQ QJ).
http://www.investmenthouse.com/cd/nvls.html
(Click to view the chart)
AMAT (Applied Materials--$44.88; +2.07; optionable (ANQ)):
http://biz.yahoo.com/p/a/amat.html
STATUS: Has been moving in a range, rolling a bit between 40-42 at its lows and 52 at the highs. The stock fell back Tuesday from an attempted move back over the 50 day MVA (46.41), but caught support at 43 and made an attempt back up today. The stock tapped near the 50 day at its high of 46.38 with great volume (27.9 million; average 21.2 million), but pulled back down to close. We will see if the stock can make a strong break back over the 50 day to ride up to the 52 range. If the market cracks back down, we can look at playing the stock back down from a failed move on the 50 day.
BUY POINT: Upside: A move over the 50 day in a rally on continued strong volume. Downside: A drop back in a weak market after a failed move on the 50 day, looking for strong volume on the selling.
POSITION: Upside: Stock and/or July $40 calls to buy (ANQ GH). Downside: May $55 puts to buy (ANQ QK).
http://www.investmenthouse.com/cd/amat.html
(Click to view the chart)
MU (Micron Technology--$42.01; +1.41; optionable (MU)):
http://biz.yahoo.com/p/m/mu.html
STATUS: The stock has tightened up, from February highs around 48 and a low of 34, now bouncing a bit over the support of its 50 day MVA (40.32). The stock pulled back to that level again Tuesday, bouncing back up and hitting 43.73 at its high today before pulling back to close. Volume was very strong at 12.86 million (average 8.6 million). We will look for a strong move in a decent market, back over 44, to ride toward the target at 48. We will also watch for a downside move, looking for a move through the 50 day on strong volume in a weak market, looking at a play down to 34.
BUY POINT: Aggressive: A move over 44 on continued strong volume. Downside: A move below 40 on continued strong volume.
POSITION: Aggressive: Stock and/or July $40 calls to buy (MU GH). Downside: May $50 puts to buy (MU QJ).
http://www.investmenthouse.com/cd/mu.html
(Click to view the chart)
New Stock:
Cup with handle:
APPB (Applebee's--$33.31; -0.25; optionable (AQB)): Restaurants
http://biz.yahoo.com/p/a/appb.html
STATUS: Has formed a short cup with handle pattern in the upper right side of its 11-month base. Volume dropped further below average as price pulled back to close on a doji, up from the low of 32.94 in a test of the 18 day MVA (volume was 162,800; avg. 265,000). The are looking for a breakout over the handle high of 34.31 on much stronger volume. APPB shows strong money flow, decent buying, and a relative strength that has moved out ahead of price (bullish indicator). Initial profit target on a breakout:
BUY POINT: 34.44, on volume of 398,000 or better. Stop loss: 33.94-34.19.
POSITION: Stock and/or May $25 (AQB EE) or August $25 calls to buy (AQB HE, 2 open interests).
http://www.investmenthouse.com/cd/appb.html
(Click to view the chart)
Update:
HSIC (Henry Schein Inc--$33.44; +0.81; optionable (HQE)): Medical Equipment Wholesale
http://biz.yahoo.com/p/h/hsic.html
STATUS: Rebounded back up from its 18 day MVA (32.57), tapping 32 at its low and moving up toward the highs in its handle of its double-bottom pattern of almost three months duration. Volume was excellent at 754,600 (average 421,200), and we are still looking for a breakout over the handle high of 34.63 for positions. Initial profit target: 38-40.
BUY POINT: 34.76, on continued strong volume. 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)
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 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,
CPN (Calpine Corp--$48.59; -3.41; optionable (CPI)): Electric Utilities
http://biz.yahoo.com/p/c/cpn.html
STATUS: CPN sold back down from Tuesday's exciting move up toward the previous high in its 6-month base (at the 53 level). Volume was stronger at 7 million (avg. 3.5 million). The low was 47.85, testing just below the 10 day MVA (48.13). The stock is likely to test that support level again, on this kind of volume. The 18 day MVA is at 47.17 should things go that far. Support, however, looks firm at that level and just above it (November and December tops, and some February prices). We are probably going to see more consolidation now, as CPN tries again at another handle. Initial profit target on a move back over 53: Initial profit target: 58-61.
BUY POINT: Back over 53 on strong volume. Stop loss: 40.50-40.75.
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: We have added some new stocks to this portfolio (LNCR, BJ, ANF, LOW, HI and THQI). We like the patterns and how they are holding up in this market. The currently existing members (EXDS, TQNT, BVSN, SANM, PKI and GMST) are on a current watchlist we will continue to monitor for recovery when the market finally emerges from the bear market.
LNCR (Lincare Holdings Inc--$57.81; +0.68; optionable (LQN)): Specialized Health Services
http://biz.yahoo.com/p/l/lncr.html
STATUS: Holding laterally for two days, as volume remains below average and dropping Wednesday to 470,000 (avg. 762,318). The slight move up on lower volume suggests a turn back down, and the 10 and 18 day MVAs are below at 55.99 and 55.69 (respectively), but we'd like to see a hold at the level of the closing price. Price support looks good here and at 57.50, just as 58 (hit four times since January) can resist a move up unless volume surges back in. We are looking for a move over 61.06, two prices hit consecutively in late December for possible positions with stock and/or calls to buy. Initial profit target on that move: 67-70.
BUY POINT: Over 61.06, on volume in the range of 634,000 or better. Stop loss: 60.56-60.81.
POSITION: Stock and/or May $55 calls to buy (LQN EK), or August $60 calls to buy (LQN HL).
http://www.investmenthouse.com/cd/lncr.html
(Click to view the chart)
THQI (Thq Inc--$32.38; -0.81; optionable (QHI)): Multimedia & Graphics Software
http://biz.yahoo.com/p/t/thqi.html
STATUS: Continues to pull back in the handle of its 16-month base as volume dropped back further below average to 184,900 (avg. 376,090). The low of 31.50 tested the 18 day MVA (31.88), and with the move below the 10 day MVA (32.56), the stock can pull back to test the lower support again before heading back up. This is a good-looking pattern, and we will be looking at positions on a move back up from the final test. Handle high is 34.50 (March high). THQI has strong money flow and buying, and relative strength has moved out ahead of price, a bullish sign. Initial profit target on the breakout: 38-39.
BUY POINT: 34.63, on volume of 564,000 or better. Stop loss: 34-34.38.
POSITION: Stock and/or June $25 calls to buy (QHI FE).
http://www.investmenthouse.com/cd/thqi.html
(Click to view the chart)
PUT PLAYS: On the Dow selling and the biotech hammering seen today, possible put plays continue to emerge. Already we have seen several of our puts work well, such as DS, JPM, DJX, IMPH, LH, OEX, and more; these plays have been the premier means of making money in this bear market. 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:
IVGN (Invitrogen Corp--$49.88; -7.06; optionable (IUV)): Biotechnology
http://biz.yahoo.com/p/i/ivgn.html
STATUS: The stock has been led to slaughter, really tanking the last two days after butting resistance at the 10 day MVA (currently 62.18) Tuesday. Volume on today's drop was very strong, at 2.7 million (avg. 774,227), and the stock looks ready to head lower on its likely break below the August low of 49.56. After two days of selling, it might try to pop higher to test 52-53 before falling again. Initial profit target below that low: 40.
BUY POINT: On a continued move down on strong volume or after a failed test of 52. May $55 puts to buy (IUV QK).
http://www.investmenthouse.com/cd/ivgn.html
(Click to view the chart)
HGSI (Human Genome Sciences--$40.38; -2.93; optionable (HHH)): Drugs
http://biz.yahoo.com/p/h/hgsi.html
STATUS: Began its move down Tuesday, and added to it Wednesday as biotechs were hit hard. Volume soared (5.8 million; avg. 3.3 million) as the stock halted just above the February low of 40. On the strong volume, we are looking for a continued move down, however, with a profit target of 30 (May 2000 lows).
BUY POINT: Below 38.56 (intraday low) on continued strong volume, May $40 puts to buy (HHH QH). Delta was not available at the time of this writing. Please check with you broker in the morning for options with a delta of .7 or better.
http://www.investmenthouse.com/cd/hgsi.html
(Click to view the chart)
Continued Puts:
ADBE (Adobe Systems Inc--$32.56; -0.25; optionable (AEQ)): Computer Software & Services: Application Software http://biz.yahoo.com/p/a/adbe.html
STATUS: Showing its second doji after running up the previous three days, ADBE continues to look ready to sell off. We will look at buying puts on a move down from here, watching the 18 day MVA (30.40) as possible support on a sell-off back down to the 25 range (March lows), unless selling is strong.
BUY POINT: On a move down from here on continued strong and rising volume in a selling market, May $40 puts to buy (AEQ QH).
http://www.investmenthouse.com/cd/adbe.html
(Click to view the chart)
ESRX (Express Scripts Inc--$75.25; -0.38; optionable (XTQ)): Specialized Health Services
http://biz.yahoo.com/p/e/esrx.html
STATUS: Again tested the 200 day MVA (76.01) again on the high of 76.75, showing a tight doji on the pullback on lower volume (483,800; avg. 725,045). The stock might mount a move back over the resistance, but if it can't, we are looking for a move down to the 70 range. Initial profit target: 70 (March low).
BUY POINT: On a move down after a failed test of 76 on stronger, above average volume (over 653,000), May $80 puts to buy (XTQ QP). Delta not available at the time of this writing, so please check with your broker in the morning.
http://www.investmenthouse.com/cd/esrx.html
(Click to view the chart)
SOX (Philly Semiconductor Index--$577.76; +36.50; optionable (SJX)):
STATUS: Bounced back up and even hit the 10 day MVA on the high of 578.68) on stronger volume. The index pulled back down, however, and we are going to continue to be ready for a break below the 535 level, at the neck of the head and shoulders pattern, which is a bear market pattern. A successful completion of the pattern can take the index down to the 307 level.
BUY POINT: Below 535 on continued strong volume, April $600 puts to buy (SJX PT).
DJX ($94.87; -2.34; optionable (DJV)):
STATUS: Continued down on stronger volume (1.3 million), and we will keep looking for downside plays on this index as the Dow sells off, but after two days of selling, we may get a bounce. On that move, we will look for the index to turn back down from resistance at 95-96.50. Initial profit target: 86-81.
BUY POINT: Test of resistance: On a move down from the 95 to 96.50 range on strong and rising volume. New low: Below 94.62 (intraday low)
POSITION: Test of resistance: May $104 puts to buy (DJV QZ). New low: May $102 puts to buy (DJV QX).
OEX (Standard & Poors 100--$569.97; -11.95; optionable (OEB)): S&P 100 options
STATUS: Moved down again as expected, but after two days of hard selling, it may try a relief bounce. In a market bounce after two days of hard selling, the index can move back up, but we will look for resistance at 588. On a move back down from there, we will look a buying puts.
BUY POINT: On a move back down from 588 on strong and rising volume.
POSITION: April $590 puts to buy (OEB PR).
MERQ (Mercury Interactive--$41.31; +2.18; optionable (RQB or RBF)):
http://biz.yahoo.com/p/m/merq.html
STATUS: Moved back up to retest the 10 day MVA (41.71) as volume dropped down slightly, still strongly above average at 6.4 million (avg. 4 million). This is the moved we were looking for. Be SURE to see the turn back down; the stock has made some higher lows, and if it breaks and holds over the 10 day MVA the play is over. If the test fails and it falls back down, we will look at buying puts for an initial target of the March low of 35.
BUY POINT: On a move down from here on continued strong but rising volume, May $55 puts to buy (RQB QK).
http://www.investmenthouse.com/cd/merq.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
trend trading stock
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