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Begin Part 2 of 2
SUBSCRIBER QUESTIONS
Some questions about how to take positions to the downside. The plays to the downside are very similar to upside plays were we look for a break over resistance: we get the breakout we can play and we may get the test of the breakout we can play when the stock tests the new support and moves up. Downside is the same way when not in an established downtrend: play the break below support (50 day MVA or price consolidations) as it happens, or wait for the rebound up to that support level and then a fall back down from there. When it fails the test, i.e., when it taps at the old support level (now resistance) and fails and starts to fall, that is the entry point. We then play that move down to the next support level, or until we see the stock show signs of bottoming such as a doji on the candlestick chart (basically a lower low intraday and then a close for the session very close to where the stock opened for the day), a higher volume down day but the stock does not lose much ground (as many buyers are stepping in as there are sellers), or just a bounce back higher on better volume. Those are cues to close out the positions and bank the profit. We then wait for the next opportunity either on that stock (if it starts to form a downtrend) or on another stock breaking support.
If the downward action was short lived (as it often is), we could then see the action back to the upside. That is partly what we were talking about in the summary when we discussed the indexes possibly finding a trading range. We can use that to make some very handsome profits as the indexes and stocks set up fairly regular rolling ranges. Identify what the market is doing and then take what the market is giving you.
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
THE PLAYS:
Reading 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. Please click on the Yahoo and chart links for company and charting information.
All prices reflect prices at the close on Wednesday.
BEST PLAYS: A mixed bag today, as some stocks got hit (MSCC, KOSP, PVTL, MRCY, PRGN, PSFT, MIL, HD) and others continuing to hold up nicely (SDS, HB, DGX, UNFI). Balancing that are the best plays listed below, and there are some good ones. We have sprinkled in a few new plays as well.
Best Plays:
1) BMET: Heading for a new high on this momentum.
2) SDS: A doji at support on low volume.
3) RE: Ready to break resistance on this solid move.
4) IRM: Moving up in the handle.
5) BLPG: Can break out here.
6) WFMI: Ready to move up in the handle.
7) LTBG: Ditto.
8) Puts: OEX, SRCL
READY TO BREAK TO A NEW HIGH (or just did):
New Play:
BMET (Biomet--$45.50; +1.88): Health services
http://biz.yahoo.com/p/b/bmet.html
STATUS: Has been testing its recent break to a new high (and its 18 day MVA, at 43.38), and after gapping down to that support on the opening price (43), shot back up on big volume (2.2 million; average 1.8 million). A solid move that puts it just under its all-time high of 46, and we look for a move over that level.
BUY POINT: Over 46 on continued strong volume. Stop: 42.78.
POSITION: Stock and/or July $40 calls to buy (BIQ GH).
TESTS OF THE BREAKOUT: Some of these stocks are moving back on low volume to test the breakout. We often take profits on option plays when they start to pullback on the breakout move and then get back in when the stock bounces up off of the breakout point. This second move is where some of the biggest gains are made.
New Plays (from the weekend):
SDS (Sungard Data--$59.05; -0.07; optionable (SDS): Software
http://biz.yahoo.com/p/s/sds.html
STATUS: Sitting right on top of its 18 day MVA in a continued test of its recent cup with handle breakout. Volume maintained at 398,900 (avg. 881,000). As long as that remains low, expect the stock to hold support until a rally. The high tested the 10 day MVA at 60; potential resistance above that at 63. Target: $71-74.
BUY POINT: Aggressive: Over 60 (intraday high) on volume of 539,000 or better. Stop: 55.63 (below the 50 day MVA, 55.88).
POSITION: Stock and/or July $55 calls to buy (SDS GK).
MSCC (Microsemi--$52.47; -6.73; optionable (QMS): Semiconductor
http://biz.yahoo.com/p/m/mscc.html
STATUS: Sold back to the 18 day MVA (tapped on the low of 52) on strong volume (734,000; avg. 391,090). May get a bounce, but the stock is unlikely to immediately recapture its intraday high of 58.75, at the level of its previous two closing prices. The stock was testing its recent strong breakout from a cup with handle.
BUY POINT: Over 59 on strong volume. Stop: 54.87 (10 day MVA, 54.98).
POSITION: Stock and/or September $55 calls to buy (QMS IK).
A stock trading on volume of less than 100,000 average daily volume:
KOSP (Kos Pharmaceuticals--$24.75; -1.85; optionable (KQW): Drugs
http://biz.yahoo.com/p/k/kosp.html
STATUS: Heading for the 18 day MVA (24.06) after breaking the 10 day MVA (25.38) on strong volume, up to 91,600 (avg. 58,000). The stock lost the consolidation pullback that formed as it tested its breakout. No new positions until the stock breaks back over the intraday high of 25.45. It may bounce from the 18 day MVA to initiate that move.
BUY POINT: Aggressive: Over 26 on strong volume. Stop: At or near the 18 day MVA at 24.06.
POSITION: Stock and/or August $25 calls to buy (KQW HE).
Continued Plays: OCLR is still holding at its 10 day MVA, selling down a bit as volume rose. It can test the 18 day MVA if it does not hold here.
WEDGES, PENNANTS, and FLYING PLATEAUS (AND FLAGS): These are some of our favorite patterns as the moves can be explosive. In this market, however, we need to see the move on the breakout on strong volume.
New Plays (from the weekend):
PVTL (Pivotal--$20.02; -1.80; optionable (QFK): Business Services
http://biz.yahoo.com/p/p/pvtl.html
STATUS: Lost the pattern, beginning with a break of the 18 day MVA Thursday and continuing below the 50 day MVA Wednesday (at 20.64; our buy point was 25.83, so the stock is out of range). Volume was stronger as the stock sold down. No new positions.
HB (Hillenbrand--$51.29; +0.01; optionable (HB): Diversified services
http://biz.yahoo.com/p/h/hb.html
STATUS: Tried for a breakout from the ascending wedge (hit a high of 52.25 vs. the buy point of 52.83) but volume, while higher, was still below average at 84,900 (avg. 121,500). The stock is showing its second doji and holding above the 10 day MVA (51.12), and on the low volume, still looks decent in the pattern. We look for a hold here until volume rallies. Target: $58-61 after a breakout.
BUY POINT: 52.83, on volume of 164,000 or better. Stop: 49.13 (below the 50 day MVA at 49.98).
POSITION: Stock and/or September $45 or $50 calls to buy (HB II or IJ; low open interests).
MRCY (Mercury Computer--$47.70; -3.11; optionable (QYR): Telecom
http://biz.yahoo.com/p/m/mrcy.html
STATUS: The expected pullback was steeper than we would have liked, though volume remained low the last 2 days, indicating the stock can hold at the 50 day MVA (tested on the low of 45.80 before the intraday rebound). Still is below the 18 day MVA (49.55) so look for a move over that and the intraday high of 51.20 on a volume surge. Still can make the breakout, perhaps not as quickly as we were expecting. Big money flow. Initial target: $60 on a breakout.
BUY POINT: Aggressive: Over 52 on volume of 228,000 (down slightly Wednesday to 168,900; avg. 210,272). Stop: 48.36. Breakout: 55.63, on volume of 284,000 or better. Stop: 51.74.
POSITION: Stock and/or August $50 calls to buy (QYR HJ).
Continued Plays:
PRGN (Peregrine Sys--$27.55; -2.52; optionable (GQP): Software
http://biz.yahoo.com/p/p/prgn.html
STATUS: Sold below the 18 day MVA today (28.12) on strong volume (4 million; avg. 3 million). The stock tapped the 10 day MVA (29.08) on the previous day's low, but that support couldn't hold up in today's market. PRGN can test 26 or the 50 day MVA (25.76) before recovering back to Tuesday and Wednesday's range (30). We were looking for a breakout over the May high 33.25. No new positions, but we will watch it closely.
BASING/TRADING RANGES: Lots of stocks pulling back to support. Make sure of the breakout (watch volumes) and then set stops just below the pivot point. Follow gains up with trailing stops. Watchlist: SNPS
From last night's update:
RE (Everest Re--$68.00; +1.35; optionable (RE): Insurance
http://biz.yahoo.com/p/r/re.html
STATUS: Made a solid move up in its 5-month base as volume shot higher to 594,900 (avg. 326,409). The stock looks ready to break resistance at the April high (69.30); we are looking ultimately for a breakout of the base. Shows decent money flow and buying.
Initial target: $76-80.
BUY POINT: Aggressive: Up from here on continued strong volume (intraday high hit 68.47). Stop: 63.24.
POSITION: Stock and/or July $65 calls to buy (RE GM).
New Plays (from the weekend):
PSFT (Peoplesoft--$39.09; -2.61; optionable (PQO): Software
http://biz.yahoo.com/p/p/psft.html
STATUS: Broke out of a cup with handle Friday, but has lost the move, selling back below the 18 day MVA (39.93) on strong volume of 9.6 million (avg. 7.2 million). The stock showed a loose doji and may move back up, but we aren't taking any positions from here. We'll keep in on a watchlist.
IRM (Iron Mountain--$40.52; +0.53; optionable (IRM): Diversified services
http://biz.yahoo.com/p/i/irm.html
STATUS: After testing the 18 day MVA for the last three days (including today's low of 39.66), the stock got a shot of volume and moved up, back over the 10 day MVA (40.22), volume at 142,200 (avg. 175,800). The stock is in a cup with handle base, and we look for the breakout over the handle high of 41.50. Strong money flow and buying. Target: $48-50.
BUY POINT: 41.63, on volume of 264,000 or better. Stop: 38.72 (or the 50 day MVA at 38.50).
POSITION: Stock and/or July $40 calls to buy (IRM GH).
BLPG (Boron Lepore--$13.27; -0.12; no options): Diversified services
http://biz.yahoo.com/p/b/blpg.html
STATUS: Showing its third consecutive tight doji in the handle, and this time the stock closed just under its 10 day MVA (13.30) on a strong shot of volume (155,200; avg. 85,000). We want to see a move up from here for the breakout from the cup with handle; if it does not, look for support at the 18 day MVA (13.05). Huge money flow and buying.
Target: $16-17. One of the better patterns of accumulation in the bases we have been watching.
BUY POINT: 14.01, on volume of 128,000 or better. Stop: 12.80 (below the 10 day MVA at 13.05).
POSITION: Stock.
WFMI (Whole Foods--$56.60; +0.50; optionable (FMQ): Retail
http://biz.yahoo.com/p/w/wfmi.html
STATUS: Continues to move laterally in its handle over the 10 day MVA (55.73). Today it moved up slightly as volume remained low (336,600; average 523,500). Looking good, and we could get the start of a pre-split run (June 5) that could lead to a breakout over the handle high of 58.83. Good buying and money flow.
BUY POINT: Aggressive: Up from here on average or better volume. Stop: 52.64.
Breakout: 58.96, on volume of 800,000 or better. Stop: 54.83 (18 day MVA, 54.02).
POSITION: Aggressive: Stock and/or August $50 calls to buy (FMQ HJ). Breakout: Stock and/or August $55 calls to buy (FMQ HK).
Continued Plays:
LTBG (Lightbridge--$15.36; +0.15; optionable (LKQ): Telecom
http://biz.yahoo.com/p/l/ltbg.html
STATUS: Looks good in the handle to the cup base, making a small move up as volume rose on a nice shot to 250,500 (avg. 275,000). We are looking for a breakout over the handle high 16.25, and this stronger volume just may start that move. Money flow and buying look great.
BUY POINT: Breakout: 16.38, on volume of 413,000 or better. Stop: 15.23 (10 day MVA is at 14.75).
POSITION: Stock and/or July $12.50 calls to buy (LKQ GV).
MIL (Millipore--$54.95; -2.21; optionable (MIL): Scientific & Tech Instr
http://biz.yahoo.com/p/m/mil.html
STATUS: Lost the handle to its 5-month cup base. The stock dropped to the 50 day MVA and may bounce, but for now we aren't looking at taking positions. Volume was higher but still below average at 399,300.
DGX (Quest Diagnostics--$121.65; +0.14; optionable (DGX): Health services
http://biz.yahoo.com/p/d/dgx.html
STATUS: The stock tried to make a strong breakout from the cup with handle in the previous week, but pulled back from the breakout high of 133.50 to the current support (18 day MVA, 120.35). The pullback has been on below average volume, but volume rose today, pushing DGX back up from a low of 116.66 (310,300; avg. 355,000). The stock is still below the 10 day MVA (122.30), but the stronger volume suggests a continued move up.
BUY POINT: Aggressive: Over 123 on continued rising volume. Stop: 114.39. Breakout: 129.63, on volume of 533,000 or better. Stop: 120.56 (18 day MVA, 120.35).
POSITION: Both: Stock and/or August $120 calls to buy (DGX HD).
UNFI (United Natural Foods--$17.41; +0.50; no options): Food Wholesale
http://biz.yahoo.com/p/u/unfi.html
STATUS: Made an early move up to the high of 18, then dropped to a low of 16.35 before closing above the 10 day MVA (17.22) as volume surged to a strong 503,000 (avg. 134,090). The stock is in a double handle to its 4-month cup, and is trying to break out here. Money flow and buying are solid. Target: $21-22 on the breakout.
BUY POINT: 18.25, on volume of 201,000 or better. Stop: 16.97 (or at or near the 18 day MVA at 16.88).
POSITION: Stock.
HD (Home Depot--$49.99; -0.55; optionable (HD): Retail
http://biz.yahoo.com/p/h/hd.html
STATUS: On stronger volume (today at 8 million; avg. 6.9 million) the stock sold down, closing near support but making a steeper (and less than healthy) drop in the handle to its 9-month cup base. The stock came up off a low of 49.50, closing below the 18 day MVA (50.68), and can continue higher, but we aren't looking at new positions until it can move back over 53 on stronger volume. We are keeping it on a watchlist for a move back into the range of the handle.
Puts:
SRCL (Stericycle--$41.25; -0.65; optionable (URL): Materials & Construction
http://biz.yahoo.com/p/s/srcl.html
STATUS: Is testing its break of support (50 day MVA, 42.32), moving up on stronger volume of 390,100 (avg. 240,000) but not making it to the 50 day, instead tapping the 10 day MVA on the high of 41.90. We are looking for a drop from here as the test fails. On a move below the low of 40.13, target is 37.50 or lower (200 day MVA, 33.99).
BUY POINT: Aggressive: Down from here (or from a retest of the 10 day or 50 day MVAs at the 42 range) on continued strong volume.
POSITION: June $45 puts to buy (URL RI; low open interests).
KMI (Kinder Morgan--$55.61; +0.11; optionable (KMI): Utilities
http://biz.yahoo.com/p/k/kmi.html
STATUS: Showing a tight doji on lower volume (546,100; avg. 642,136) after the stock broke the 50 day MVA (56.52) in some selling Tuesday. The doji suggests a retest of the broken support, so on a move back up to that level and subsequent move back down, we will look at playing it down to a target of the 200 day MVA (48 range).
BUY POINT: Aggressive: On a move back down from the 56-57 range (50 day MVA) on rising volume in a selling market.
POSITION: June $60 puts to buy (KMI RL; low open interest).
QQQ (Nasdaq 100--$44.43; -1.69; optionable (QQQ):
STATUS: Gapped lower on the opening price of 45.43 and hit a low of 44.08 on the day, making the initial move down on last night's put play: We were looking for a break of support at 45. Look for a continued drop from here on even stronger volume, which rose above average to 81.2 million (avg. 74 million). Target: $42.80, an interim high. Then $40.
BUY POINT: Below 44 (50 day MVA, simple is at 44.01) on continued rising volume in market selling. May move back up to test the break of support before heading back down, and that would be the entry point.
POSITION: June $53 puts to buy (QQQ RA). Please check with your broker in the morning for deltas; they are unavailable at the time of this writing).
OEX (Standard & Poors--$642.96; -9.94; optionable (OEY):
STATUS: Broke the 50 day MVA (644.91) on stronger volume (1.15 million; avg. 1.2 million). Looking for the put down to 625 in continued market selling. The index can move back up initially, in a test of the broken support. A move down from there would make the entry point.
BUY POINT: On a move back down from the broken 50 day MVA (644-645 range) in continued selling.
POSITION: June $660 puts to buy (OEY RL). Please check with your broker in the morning for deltas; they are unavailable for the index at the time of this writing.
Good Investing!
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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