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Begin Part 3 of 3

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 Friday.

BEST PLAYS: After a strong breakout, ROOM is now pulling back. RCGI gave us a fine breakout, as did BORL and XOMA. We are watching for tests from those and covered call sales as they pullback. We will then buy them back when they hit support or otherwise start to move back up. We are also continuing to see the small and mid-cap stocks moving in certain sectors (insurance, software, construction, education, and others) and are looking at stocks from some of those areas.

Best Plays:
1) APOG: Breaking out and still a buy.
2) CRL: Ready to break resistance.
3) SLC: Ready for a breakout.
4) RDK: Ditto.
5) IVX: And another.
6) GSOF: Like this tight handle.
7) EFII: Looks ready to break resistance.
8) KEA: Breaking out of a cup with handle base.
9) EQR: Looks good here.

BREAKOUTS: Looking for a test from ROOM, EDMC, BORL, XOMA (watchlist). DFXI has had a good run; we will watch it for a pullback. OCLR is also on a watchlist.

New: This sector is looking better again.

APOG (Apogee Enterprises--$12.49; +1.39; no options): Materials & Construction
http://biz.yahoo.com/p/a/apog.html
STATUS: Broke out from a short consolidation that formed after the stock corrected off a big May run (from a low of 7.82 that month). The company reported strong earnings two weeks ago, and this looks like a delayed reaction (no other news). The stock took off from support at 11 and on outstanding volume (2.28 million; avg. 156,000) broke resistance at 12. We are looking for a run to 14 before the stock takes another breather. Money flow and buying spiked hugely, and relative strength broke out. In a big base.
BUY POINT: Up to 12.74 on the breakout (within 5% of the buy point of 12.13). Momentum is huge, however, so we may let it run to 14 (if it will) before looking for a pullback.
POSITION: Stock.

Continued Plays:

UNFI (United Natural Foods--$20.95; +0.94; no options): Food wholesale
http://biz.yahoo.com/p/u/unfi.html
STATUS: Broke out of its cup with handle base for sure Friday (beating the previous basing high of 20.38) but volume was low at 196,700 (avg. 167,454). The stock still needs to take out Tuesday's high of 21.15, which it tapped on the intraday high. We will see if volume sorts out and surges up to support this move. Great buying. New target (the stock hit our initial target of $21): $23-24.
BUY POINT: Over 21.25 on volume of 302,000 or better. Stop: 19.55 (just under the 10 day MVA at 19.62).
POSITION: Stock.

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.

Continued: FISV hit our target (64) and so we will look for a pullback after the strong 2-week run. Again, another candidate for covered call sales as it starts to pull back.

ELN (Elan--$61.00; -0.85; optionable (ELN): Drug delivery
http://biz.yahoo.com/p/e/eln.html
STATUS: Made a strong move Thursday, crossing back over the short term MVAs, then tried to follow up Friday but after tapping 63.20 on the high, dropped back and is heading for a test of the 10 day MVA (60.69). Volume was lower at 1.56 million (avg. 1.6 million). We will look for a bounce back from here, or from the 18 day MVA at 60, for a strong move back over the breakout high of 65. Target from a bounce: $70.
BUY POINT: Aggressive: On a bounce from 60-61 on rising volume. Stop: 55.20.
POSITION: Stock and/or October $50 calls to buy (ELN JJ).

EBAY (Ebay--$68.49; -1.47; optionable (QXB): Internet
http://biz.yahoo.com/p/e/ebay.html
STATUS: EBAY is still consolidating after the strong move up June 20. The stock is holding above the 10 day MVA (67.94), though on Friday it reached a low of 67.49 before closing back over that support level. Volume was up to 5.5 million (avg. 6 million), so we are watching for a break of the support for a test of the 18 day MVA (66.34). That support looks firm, with other price support just under it at the 65 level. We are watching the stock form a handle to its 9-month base. Target: $77-78.
BUY POINT: Aggressive: Up from the 18 day MVA (66.34) or higher, on average or better volume. Stop: 61.03 (50 day, 59.85). Breakout: 71.42, on volume of 9 million or better. Stop: 65.71 (below the 18 day MVA).
POSITION: Aggressive: Stock and/or October $60 calls to buy (QXB JL). Breakout: Stock and/or October $60 or $65 calls to buy (QXB JL or JM).

MOVING AVERAGE BOUNCES:

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.

Ascending wedges: RCGI is out of range for buying on a breakout, so we are watching it for a pullback.

Back on:

CRL (Charles River Labs--$34.00; +2.85; no options): Biotech
http://biz.yahoo.com/p/c/crl.html
STATUS: In a type of ascending wedge and really close to an all-time high. Shot off support (18 day MVA, 31.42) on huge volume of 1.4 million (avg. 183,363). The stock halted at resistance at the closing price, a level it has tried to get past twice since late May, and once back in the fall, at the start of the current base. This strong volume may do the trick. Money flow, buying and relative strength all broke out. Target: $42.
BUY POINT: Over 35 on continued strong volume (min breakout volume is 248,000).
Stop: 32.20 (just above 10 day MVA, 31.79).
POSITION: Stock.

Continued:

BBY (Best Buy--$63.52; +0.16; optionable (BBY): Retail
http://biz.yahoo.com/p/b/bby.html
STATUS: Still in the ascending wedge, though edging higher. Volume was up the last 2 days of the week (reaching Friday 2.6 million; avg. 2.6 million), with the stock showing a Friday doji after pulling off the high of 65.54. That high was a test of 65.60, hit in the previous week. The 10 day MVA (61.83) has proved good support over the last week; the stock may test that again before breaking out. Target: $70. Huge money flow and high relative strength as the stock has shown resiliency by overcoming the convertible offering news.
BUY POINT: Breakout: Over 65.60 on volume of 3.5 million or better. Stop: 60.35 (18 day MVA, 60.73).
POSITION: Stock and/or September $60 calls to buy (BBY IL).

Pennant:

New:

SLC (Sun Life--$23.75; +0.61; optionable (SLC): Insurance
http://biz.yahoo.com/p/s/slc.html
STATUS: Ready to breakout of its ascending wedge following the breakout of its cup with handle pattern in May. It broke out, fell back, but is now making that ascending wedge. We like those patterns a lot. Volume swung sharply above average (267,900; avg. 196,545). Looking for a breakout over the May (pattern) high of 24.35. Shows strong money flow. Initial target: $29-30.
BUY POINT: Breakout: 24.48, on continued strong volume (min. breakout volume is 265,000). Stop: 22.52 (below the 18 day MVA, 22.93). A buy on breakout up to 25.70.
POSITION: Stock and/or August $20 or $22.50 calls to buy (SLC HD or HX).

RDK (Ruddick--$16.95; +0.60; no options): Retail
http://biz.yahoo.com/p/r/rdk.html
STATUS: Ready to break out of a pennant following an earlier breakout of an 11-month cup base. Moved up on strong volume (124,500; avg. 67,000), approaching the overall pattern high at 17.20 and using the 18 day MVA (16.18) for a launch pad. The 18 day has supported the stock well since early May. The pattern is in the upper right side of a 19-month base (part of a larger base), and the stock shows huge money flow and good buying. Relative strength broke out. Initial target: $19-20.
BUY POINT: 17.33, on continued rising volume (min. breakout volume is 91,000).
Stop: 15.94 (16.18, 18 day MVA). A buy on the breakout up to 18.20.
POSITION: Stock.

BASING/TRADING RANGES: A reminder: We looked at XLNX week before last in its trading range between 40 and 50. It jammed up at resistance for a few days, but is still holding up above 40 and may be ready to make the move back up in the pattern.

New: Covering stocks in some improving sectors.

IVX (Ivax--$39.00; +2.20; optionable (IVX): Drugs
http://biz.yahoo.com/p/i/ivx.html
STATUS: Making a breakout move from an 11-month cup with handle (prior high 42.30). The stock moved up from support (18 day MVA, 36.84) Friday on a volume surge to 1.47 million (avg. 1.4 million). Looking for a breakout over the high of 39.60. The stock shows big money flow, and relative strength is breaking out. Initial target: $46-48.
BUY POINT: 39.73, on volume of 2.1 million or more. Stop: 36.55 (just under the 18 day MVA). Remains a buy on a breakout up to 41.72.
POSITION: Stock and/or September $35 or $40 calls to buy (IVX IG or IH). Please check with your broker Monday morning for deltas; they were not available for this stock at the time of this writing.

BZH (Beazer Homes--$63.49; +0.84; no options): Materials & Construction
http://biz.yahoo.com/p/b/bzh.html
STATUS: In a small double-bottom with handle pattern (prior high is in May at 69.50). The stock's handle hasn't behaved quite properly, with price gradually moving UP instead of down, but we like the strong volume spike Friday as the stock tested lower finally on the 18 day MVA. We look for a breakout over the recent high at 66.10. Volume 510,500 (avg. 182,181). Shows strong money flow and good buying. Target: $76-79.
BUY POINT: 66.13, on continued strong volume (min. breakout volume is 273,000). Stop: 60.84 (60.76, 18 day MVA, tested on the intraday low). A buy to 69.44 on a breakout.
POSITION: Stock.

PMI (Pmi Group--$71.65; +0.70; optionable (PMI): Insurance
http://biz.yahoo.com/p/p/pmi.html
STATUS: In an 8-month base (prior high 74.94), and trying to settle down off the June high of 74.50, into a volatile handle pattern. Looked ready to make its move Wednesday, but sold back to support next session (18 day MVA, 70.93). Friday saw volume surge to 612,900 (avg. 303,409) as the stock held that support for the small move up. We are looking for the breakout from here. Target: $86-90.
BUY POINT: 74.63, on continued strong volume (min. breakout volume is 455,000).
Stop: 68.66 (the 50 day MVA is at 68.30).
POSITION: Stock and/or September $70 calls to buy (PMI IN).

Two thinly traded stocks in good-looking sectors:

CPJ (Chateau Communities--$31.40; +0.47; no options): REIT
http://biz.yahoo.com/p/c/cpj.html
STATUS: Getting ready to break out of a flat base of 6 months. The stock Friday moved up from support (10 day MVA, 30.99) on strong volume (110,400; avg. 52,500). It pulled off the high of 31.75 that tested resistance at that level, so we will look for a breakout above that. The April high is 32.18, but if we see a strong move ahead of that we will look at taking positions. This base formed after the stock broke out of a similar base of last fall. Initial target: $36.
BUY POINT: 31.88, on continued strong volume (min. breakout volume is 71,000).
Stop: 29.33 (just under the 200 day MVA, 29.59).
POSITION: Stock.

A very thinly traded stock, but we like the pattern and sector:

GSOF (Group 1--$18.25; 0.00; no options): Software
http://biz.yahoo.com/p/g/gsof.html
STATUS: In a very tight handle to an 8-month cup base (prior high 23.44). Volume is drying up (down to 3,800; avg. 16,000) as the handle tightens above support of the 10 day MVA (18.20). Looking for a breakout over the handle high at 19. Huge money flow and high relative strength.
BUY POINT: 19.13, on volume of 25,000 or better. Stop: 17.60. A buy up to 20.09.
POSITION: Stock.

New plays continued:

EFII (Electronics For Imaging--$29.50; +1.95; optionable (EFQ): Software
http://biz.yahoo.com/p/e/efii.html
STATUS: Is in a flat base over the last 4 months, a base that is off the bottom (around 12) of a much longer cup with handle that it broke out of in March. A strong dose of volume Friday (2.2 million; avg. 973,090) shot the stock off support of its 10 day MVA (27.31), and it closed right at resistance. If it can break that, we are looking for a run up to the 33-36 range. This one is well off of its all-time high, but clearing 30 gives it room to run. Money flow is huge. Target: 35 is first resistance. If it clears that, we will let it run.
BUY POINT: Over 29.60 (intraday high) on continued strong volume. Stop: 27.23 (just under the 10 day MVA.
POSITION: Stock and/or October $25 calls to buy (EFQ JE).

JKHY (Jack Henry--$31.00; +1.16; optionable (JKQ): Software
http://biz.yahoo.com/p/j/jkhy.html
STATUS: Made the move out of an ascending wedge (buy point was 30.38), but volume was low (which fell back slightly to 362,100; avg. 505,000). JKHY is in a 6-month base with a prior high of 33.13, and we will look for volume to roll in to sustain the move. The stock shows decent money flow, and relative strength has broken out ahead of price, which is bullish. Target: $38-40.
BUY POINT: A buy on the breakout up to 31.90, but on minimum breakout volume of 682,000 or better. Stop: 28.52.
POSITION: Stock and/or September $27.50 or $30 calls to buy (JKQ IY or IF).

KEA (Keane--$22.00; +2.05; optionable (KEA): Software
http://biz.yahoo.com/p/k/kea.html
STATUS: Making a breakout move from a cup with handle pattern of 11.5 months, part of a much larger cup base of 18.5 months. Friday the stock launched from support (the 10 day MVA and other price support) on huge volume that rose to 813,700 (avg. 195,000). Another strong move from a smaller stock in a better-looking sector. Money flow and relative strength broke out to new high levels. Initial target: $24-26.
BUY POINT: Remains a buy on the breakout up to 22.71. Stop: 20.24 (just above the 10 day MVA, 19.69).
POSITION: Stock and/or August $20 calls to buy (KEA HD). Please check with your broker for deltas; they were not available at the time of this writing.

Continued: Watching WPI.

BVF (Biovail--$43.50; -0.50; optionable): Drug delivery.
http://biz.yahoo.com/p/b/bvf.html
STATUS: A cup with handle pattern of 4 months. Was pulling back fairly decently in a handle and made a nice move Thursday, but the low volume just didn't break the stock out, and Friday it pulled back. Volume was a bit higher at 544,400 (avg. 664,000), so we are looking for another test and subsequent bounce from the 10 day MVA (42.87). Initial target: $50-52.
BUY POINT: Breakout: 45.23, on volume of 996,000 or more. Stop: 41.61 (50 day MVA, 40.33).
POSITION: Stock and/or October $40 calls to buy (BVF JH).

SRNA (Serena Software--$36.34; +1.83; optionable): Software.
http://biz.yahoo.com/p/s/srna.html
STATUS: Moved higher Friday on still strong but lower volume of 1.3 million (avg. 643,409) after breaking out of a cup with handle Wednesday. Pulled off the high of 37.40 so we may get a pullback to test the 33-34.50 range before the stock heads back up. We like the move up from the Thursday doji, however; as the stock was tried to rally with the market. Initial target: $40. After that, $44.
BUY POINT: Aggressive: Up from here on stronger volume. Stop: 33.43. Pullback: Up from 33 or higher, on rising volume. Stop: 30.36 (under the 10 day MVA, 31.08).
POSITION: Both buy points: Stock and/or August $30 calls to buy (NHU HF).

LH (Laboratory Cp Am Hldgs--$76.90; -0.80; optionable (LH): Health services
http://biz.yahoo.com/p/l/lh.html
STATUS: Made a solid move Thursday (breaking over the short term MVAs) but as volume continued to rise Friday the stock dropped back to close just under the 10 day but above the 18 day MVA (76.61). We want to see it hold this support for a strong move back up in the handle, preferring not to see another test of the 50 day MVA (73.41). Volume came in at 892,700 (avg. 486,000), but the stock managed to climb back up from 75.88. Target on a breakout: $91-95.
BUY POINT: Aggressive: Up from the 18 day MVA (76 range) on average or better volume. Stop: 69.92. Breakout: 82.63, on volume of 729,000 or more. Stop: 76.02.
POSITION: Stock and/or August $75 calls to buy (LH HO).

EQR (Equity Resident--$56.55; +0.45; optionable (EQR): REIT
http://biz.yahoo.com/p/e/eqr.html
STATUS: After Wednesday's perilous-looking drop, the stock held at the 18 day MVA (56) as we wanted and showed a doji, then Friday got a volume surge (686,300; avg. 352,636) that pumped it back over the 10 day MVA (56.35). It did come off the high of 56.90, but we like the action (test and move back up) and continue to look for a breakout from the cup with handle. Money flow and buying are strong. Target: $63-66.
BUY POINT: 57.63, on volume of 530,000. Stop: 53 (50 day MVA is at 54.39).
POSITION: Stock and/or October $55 calls to buy (EQR JK).

ASN (Archstone Comm--$25.78; +0.31; no options): REIT
http://biz.yahoo.com/p/a/asn.html
STATUS: Formed a cup with handle of 6 months inside a longer, 11-month ranging pattern. Volume dropped off nicely in the handle but the stock sold off Wednesday, testing the 50 day MVA then bouncing back into the range of the handle by Friday. Volume was up to 1.45 million on the move back over the 10 and 18 day MVAs (10 day is at 25.68); average volume is at 526,000. Looking for a breakout over the intraday high of 26. Target: $30-31.
BUY POINT: Over 26 on continued rising volume. Stop: 23.92.
POSITION: Stock.

CNA (Cna Financial--$39.45; +0.25; optionable (CNA): Insurance
http://biz.yahoo.com/p/c/cna.html
STATUS: Still in that long handle to that long base (11 months). The stock is using the 18 day MVA as support, and after hitting a low of 38.79, moved back over that level and closed with a tight doji. Volume was higher at 208,000 (avg. 147,000). Looking for the breakout from here. Target: $44-46.
BUY POINT: Breakout: 40.37, on volume of 221,000 or better. Stop: 37.14 (just above the 200 day MVA, 36.80). A buy on the breakout up to 42.39.
POSITION: Stock and/or August $35 calls to buy (CNA HG; low open interests).

AVIR (Aviron--$57.00; +0.79; optionable (QCV): Biotech
http://biz.yahoo.com/p/a/avir.html
STATUS: Looked like its goose was cooked Friday, dropping to a low of 40.10 for one trade (most likely an aberrant trade given the circumstances of Friday). The stock ended the day over the short term moving averages (just over 56) to close with a doji. Volume was higher at 849,400 (avg. 487,000). We will see if the stock holds this support for a breakout over the handle high at 64.36. Target: $74-77.
BUY POINT: Aggressive: Back over the intraday high of 59.15 on continued rising volume. Stop: 54.42. Breakout: 64.49 on volume of 731,000 or better (minimum breakout volume).
POSITION: Aggressive: Stock and/or August $55 calls to buy (QCV HK).

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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