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Begin Part 2 of 2
SUBSCRIBER QUESTIONS/COMMENTS
Q: I have just started following Brightpoint (CELL). The chart looks Impressive over the past 6 months. However, I notice that this stock went through a 1 for 7 reverse stock split when it was trading at less than 40 cents. Should this have any effect on the decision I make to invest in this company? I have experienced that rarely do reverse stock splits work, and over time the stock usually goes back to the same level it was trading at prior to the reverse stock split. It appears that Brightpoint is an exception to this rule. But after a reverse stock split, aren't there fewer shares outstanding, meaning higher volatility for the available shares?
A: Reverse splits have become much more common in the bear market as stocks fight to stay listed on the exchanges. In most cases that is a fight for survival; if a company is delisted it falls from the spotlight and loses its major source of capital. In 2002 there were 104 reverse splits, many of those in technology stocks. Nasdaq is loosening the listing rules as so many are trading so low, but it is still critical to keep listed so stocks can hopefully again attract that institutional money that can drive them higher.
Again, for most it is short term survival as the goal. The prices are low because earnings expectations are low. If they cannot turn that around or if there is no hope of turning earnings up, the price will sink right back down. Some people short stocks that do splits as the majority fall right back down as their future prospects have not changed.
There are some that have made a change. MSTR did that when it effected its reverse split in July. That came with other timely news as to growth in earnings and future prospects. CELL has been able to do the same thing, turning the split along with improving news to a sharply increased stock price. Both of these made their moves AFTER the split was effective. While it reduced the number of outstanding shares to 8 million and thus could impact the volatility, CELL trades 125,000 shares daily, enough to attract institutions and avoid a lot of wild swings based on the lack of liquidity.
Thus, a reverse split often is a red flag that something is wrong with a stock. The split won't reverse declining earnings, but if it comes in conjunction with positive news such as an increase in guidance it can propel the stock higher. It goes back to the same idea that drives stock prices: anticipation of rising earnings drives the stock price. This is a timely question and it is covered in an upcoming Bottom Line Personal where Jon Johnson provides some expertise regarding reverse stock splits.
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THE PLAYS:
Good moves: BSTE; ROST; VRTY
New Plays:
Upside:
Play Date: 02/25/2003
IDCC (Interdigital Communications--$14.22; +0.09; optionable): Wireless communications
http://biz.yahoo.com/p/i/idcc.html
STATUS: Testing the 50 day MVA. IDCC rallied nicely off the August low to the November high (19.50) and then started forming the current 2.5 month base. It is still forming the base, rallying off the 200 day MVA (11.65) to start the month, and now moving laterally the last 5 sessions after breaking over the 50 day MVA (13.78). Volume has moved back to below average during the lateral move as you want to see on a consolidation of a move over resistance. During the base accumulation is positive at 2 up weeks on rising volume to 0 down weeks on rising volume; that is very good given the stock is just coming off the bottom of the base as the strongest accumulation occurs when a stock moves back up. Money flow is also strong, moving up as the price moves laterally.
Volume: 354.254K Avg Volume: 574.954K
BUY POINT: $14.62 Volume=850K Target=$17.94 Stop=$13.58
POSITION: DAQ IV - Sept. $12.50c (73 delta) and/or Stock
http://www.investmenthouse.com/ct/idcc.html
Play Date: 02/25/2003
CRAY (Cray, Inc.--$8.23; +0.38; optionable): super computers
http://biz.yahoo.com/p/c/cray.html
STATUS: Breakout. A strong performer on the breakout from the 4-month flat base in October where CRAY doubled in value and made us a nice, tidy sum. We let it work through this new base, a 2-month cup base that is breaking out without forming a handle; that sometimes happens when a strong stock turns higher in market that has been trending lower then starts to rally. Accumulation in the base is positive (1 accumulation week to 0 distribution weeks), and relative strength is breaking out along with money flow. Looks ready to start the next leg higher.
Volume: 1.826M Avg Volume: 723.045K
BUY POINT: $8.32 Volume=1.1M Target=$9.97 Stop=$7.74
POSITION: HQC FU - June $7.50c (69 delta) and/or Stock
http://www.investmenthouse.com/ct/cray.html
Downside:
Play Date: 02/25/2003
CSC (Computer Sciences--$31.21; +0.36; optionable): Computer software ITS
http://biz.yahoo.com/p/c/csc.html
STATUS: Put. Moving in a downtrend since March 2002, CSC tanked in September and October and rallied up to the trendline in early January. Since then it has turned back in the downtrend. It tested the 50 day MVA in early February and has since started back down the short term MVA. Tuesday it tapped at 30 on the low (it hit there in early February and 8 sessions back) and rebounded. Volume on the bounce was lower, however, after stronger volume selling Monday. It looks as if it is going to test the 18 day MVA (31.73) to 32, and then turn lower again. A move down from there is where we pick it up.
Volume: 965.9K Avg Volume: 1.224M
BUY POINT: $31.38 Volume=1.8M Target=$27.15 Stop=$32.65
POSITION: CSC PG - Apr. $35p (-78 delta, low OI)
http://www.investmenthouse.com/ct/csc.html
CONTINUING PLAYS:
Upside:
Play Date: 02/24/2003
ADI (Analog Devices--$27.97; +0.11; optionable): Semiconductor
http://biz.yahoo.com/p/a/adi.html
STATUS: Testing the 200 day MVA. Tapped the 200 day MVA on the low (27.02) and rebounded to hold its move over the 200 day. Volume jumped on the move as it should. Again, ADI is one of those chips that is showing relative life, making a break over resistance and making the break stick. Money flow is leading the stock higher.
Volume: 3.3M Avg Volume: 3.072M
BUY POINT: $28.45 Volume=3.5M Target=$32.75 Stop=$26.46
POSITION: ADI FE - June 25c (72 delta) and/or Stock
http://www.investmenthouse.com/ct/adi.html
Play Date: 02/22/2003
BCGI (Boston Communications--$13.27; +0.41; optionable): Wireless communicaitons
http://biz.yahoo.com/p/b/bcgi.html
STATUS: Cup. Still working in the base, moving laterally below 13.50 on lower, below average volume. Tapped just below the 50 day MVA on the low (12.55) and recovered for a slight gain. Positive accumulation in int eh short base at 2 up weeks on rising volume to 1 down week on rising volume and money flow is racing up ahead of price ast the stock moves laterally. Looks ready to move as wireless continues to post some of the best patterns in the market.
Volume: 139.963K Avg Volume: 215.181K
BUY POINT: $13.63 Volume=215K Target=$16.35 Stop=$12.68
POSITION: QGB FE - June $12.50c (67 delta) and/or Stock
http://www.investmenthouse.com/ct/bcgi.html
Play Date: 01/10/2003
MDCO (The Medicines Company--$17.58; -0.11; optionable): Drugs
http://biz.yahoo.com/p/m/mdco.html
STATUS: 50 day MVA test. Moving laterally below 18, showing a tight doji at the 10 day MVA on very low volume. MDCO looks as if it is massing for the move higher.
Volume: 297.534K Avg Volume: 489.59K
BUY POINT: New: 18.08 (orig. $17.35) Volume=800K Target=$20.85 Stop=$16.15
POSITION: MQL DV - April $12.50c (64 delta, low OI) and/or Stock
http://www.investmenthouse.com/ct/mdco.html
Play Date: 02/22/2003
POWI (Power Integrations--$22.58; +1.07; optionable): Integrated semiconductor circuits
http://biz.yahoo.com/p/p/powi.html
STATUS: Cup w/handle. Starting to move out of the handle of its base, moving over 22 on stronger, above average volume. Solid 9 to 4 accumulation backing the move.
Volume: 1.075M Avg Volume: 519.272K
BUY POINT: $23.05 Volume=750K Target=$27.74 Stop=$21.28
POSITION: QPW GX - July $22.50c (54 delta, low OI) &/or Stock
http://www.investmenthouse.com/ct/powi.html
Downside:
Play Date: 02/18/2003
ESRX (Express Scripts--$50.73; +0.28; optionable): Mail order prescriptions
http://biz.yahoo.com/p/e/esrx.html
STATUS: Put. ESRX was falling Monday and again on Tuesday early, dropping fast but then rebounded to close fractionally higher on rising though still below average volume. Money flow is still in the tank and the stock continues to make lower highs and lows. It is at resistance and looks ready to turn back down after a test of 51.
Volume: 1.031M Avg Volume: 1.31M
BUY POINT: $49.94 Volume=1.2M Target=$46 Stop=$51.24
POSITION: XTQ QJ - May $50p (-45 delta)
http://www.investmenthouse.com/ct/esrx.html
Play Date: 02/22/2003
JDEC (J.D. Edwards & Co.--$11.29; +0.26; optionable): Application software
http://biz.yahoo.com/p/j/jdec.html
STATUS: Put. JDEC is continuing to move back up to give the test of 11.75 we are looking for, rising on declining volume. This comes after the big drop Friday that punched it through the 200 day MVA (11.75) on massive volume. We will continue to let it bounce and look for the rollover at resistance.
Volume: 1.323M Avg Volume: 1.159M
BUY POINT: After a test of 11.75, $11.60 on the way back down. Volume=1.5M Target=$9 Stop=$12.18
POSITION: QJD QV - May $12.50p (-63 delta)
http://www.investmenthouse.com/ct/jdec.html
WATCHLIST/ CONTINUING:
Stock Date Play Close +/- Pivot Tgt Vol TgtV Stop
$SOX 02/24 Put 289.99 -2.21 285.95 251 0 0 292
Current. Tanked but then rallied back with the market. Lagged and closed below the 50 day MVA and the down trendline. Needs to turn back, obviously.
ADI 02/24 Test BO 27.97 +0.11 28.45 32.75 3.3M 3.5M 26.46
Buy Not Hit.
AFFX 02/08 Cup hdl 25.27 +0.32 26.55 30.55 831K 1.5M 24.69
Buy Not Issued.
AIG 02/20 Put 50.32 +0.67 49.48 46 6.1M 6M 51.25
Buy Not Issued.
AMGN 01/22 A Wedge 53.86 +0.71 53.12 62 14M 20M 50.25
Current.
APOL 02/18 A Wedge 44.88 +0.21 46.25 52.88 1.5M 22M 43.35
Buy Not Hit.
APSG 12/28 Cup hdl 13.48 +1.18 13.25 15.55 173K 85K 12.04
Current.
ASKJ 12/26 Cup hdl 6.59 -0.4 2.89 8 2.5M 305K 6.08
Current.
ATRS 02/01 Test 50 13.64 -0.53 15.04 18 171K 218K 13.99
Buy Not Hit.
BCGI 02/22 Cup 13.27 +0.41 13.63 16.35 140K 215K 12.68
Buy Not Hit.
BEN 02/18 Put 32.33 +0.2 32.74 30 599K 600K 33.75
Current.
BLTI 02/10 Test BO 6.98 -0.09 7.2 9.15 333K 300K 6.55
Current.
BMC 02/19 Cup hdl 19.3 +0.21 19.29 23.15 2.2M 2.5M 18.15
Current.
BSC 02/15 Put 61 +0.8 60.45 56.45 1.1M 1.1M 62.04
Current.
BSTE 02/08 Put 31.51 +0.71 33.74 30.04 434K 500K 33.92
Target Hit.
CCMP 02/19 Put 41.9 -0.68 41.45 37.12 1.2M 1.2M 44.22
Current.
CCU 02/24 Put 35.38 +0.78 34.44 30.25 12M 4.8M 36.33
Buy Not Issued.
CGNX 02/04 DB hdl 22.15 +0.28 23.09 26.88 367K 525K 21.47
Buy Not Issued.
CKFR 01/28 Cup hdl 20.63 +0.08 20.85 25 1.1M 2M 18.94
Buy Not Hit.
CRAY 02/25 BO 8.23 +0.38 8.32 9.97 1.8M 1.1M 7.74
New.
CSC 02/25 Put 31.21 +0.36 31.38 27.15 966K 1.8M 32.65
New.
CTXS 02/08 Put 11.97 -0.25 11.55 9.05 4.2M 450K 12.75
Current.
CVD 12/21 Cup hdl 23.02 +0.09 24.75 29.74 312K 581K 24.25
Current.
CVD 11/05 Test BO 23.02 +0.09 23.65 28 312K 581K 24.88
Current.
DCX 02/03 Put 30.16 +0.1 31.15 26.55 802K 950K 31.35
Current.
ESRX 02/18 Put 50.73 +0.28 49.35 36 1M 1.2M 51.55
Current.
EV 02/15 Put 26.1 +0.1 26.9 23.35 253K 225K 27.45
Current.
EXC 02/13 Put 50.45 +0.25 49.65 45.55 1.6M 1.5M 50.85
Buy Not Issued.
FAST 02/01 Put 32.4 +0.1 32.29 29.15 574K 800K 32.94
Current.
FDS 02/19 Put 25.55 +0.49 25.45 22.12 345K 300K 26.45
Current.
GRMN 11/06 Cup hdl 33.6 -0.21 22.34 34 278K 198K 30.65
Current.
IDCC 02/25 Test 50 14.22 +0.09 14.62 17.94 354K 850K 13.58
New.
IRM 02/24 DB hdl 33.39 +0.38 33.55 38.55 241K 389K 31.75
Buy Not Hit.
JDEC 02/22 Put 11.29 +0.26 11.6 9 1.3M 1.5M 12.18
Buy Not Issued.
JEF 02/15 Put 36.5 +0.22 38 34.08 263K 210K 38.48
Current.
JPM 02/11 Put 22.55 +0.25 21.68 18 11M 12M 22.85
Current.
LGTO 02/22 A Wedge 6.16 +0.06 6.42 8.25 1.1M 2M 5.88
Buy Not Hit.
MANH 02/22 Put 21.25 +0.13 21.03 18 581K 700K 22.35
Buy Not Issued.
MDCO 01/10 Cup hdl 17.58 -0.11 17.35 20.85 298K 800K 16.28
Current.
MI 02/11 Put 26.46 +0.48 25.87 23.35 330K 350K 26.85
Buy Not Issued.
MSN 12/04 Cup hdl 6.65 +0.04 4.85 7.65 178K 150K 5.94
Current.
MSN 11/23 Cup hdl 6.65 +0.04 4.15 7.65 178K 150K 5.94
Current.
MWD 02/24 Put 36.17 +0.4 35.2 31.94 6.1M 4.8M 37.02
Current.
NATI 02/15 Test 50 33.9 +0.25 34.05 39 191K 425K 31.67
Current.
NFLX 01/25 Test BO 14.65 +0.61 14.3 17.96 331K 503K 13.35
Current.
NSCN 12/22 Pennant 20.25 -0.24 17.24 21.24 1.5M 1.8M 18.75
Current.
NSM 01/25 Put 16.68 +0.31 13.96 11.95 4.1M 2.8M 14.25
Current.
OSTK 02/22 Test BO 14.85 -3.26 17.15 20.45 2.9M 275K 16.65
Current.
PLCM 02/22 Put 10.19 +0.46 9.85 8.44 1.3M 1.5M 10.52
Current.
PNRA 02/12 Put 27.08 +1.47 27.48 24 2M 1.2M 29
Buy Not Issued.
POT 02/10 Put 57.11 +0.47 59.35 55 417K 175K 60.05
POWI 02/22 Cup hdl 22.58 +1.07 23.05 27.74 1.1M 750K 21.28
Buy Not Hit.
PRX 02/08 BO 34.25 +0.14 34.65 40.45 268K 435K 32.65
Buy Not Issued.
QCOM 12/04 Test 18 34.77 -0.41 40.85 50 13M 18M 37
Current.
QCOM 11/07 Test BO 34.77 -0.41 34.78 42 13M 18M 37
Current.
QLGC 11/07 Test BO 34.42 +0.13 41.4 50 8.2M 25M 39.88
ROST 02/05 Put 34.74 +0.53 36.75 33.45 1.6M 1.7M 36.35
Target Hit.
SBUX 02/15 Test 18 22.82 +0.31 22.74 25 4.2M 4.5M 22.28
SNPS 02/19 Put 40.92 +0.18 39.38 35.68 966K 1.5M 40.65
Buy Not Issued.
STK 02/19 Cup hdl 23.17 +0.26 24.65 28.45 640K 1M 23.05
Buy Not Hit.
VRTY 02/18 Cup hdl 16.57 +0.59 16.6 19.94 965K 500K 15.12
Current.
WB 01/29 Put 35.36 +0.28 35.28 32.05 2.8M 3.5M 36.05
Current.
YHOO 12/11 Test 50 20 +0.33 17.32 22.75 6M 20M 17.74
Current.
Good Investing!
Jon L. Johnson and your Technical Traders Report Team
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 in 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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