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Begin part 2 of 3
SUBSCRIBER QUESTIONS
Q. When you look at charts, do you prefer 3 month or 6 month charts? When you refer to a pattern, are you looking at a daily chart, hourly, other? Why do you use candlestick charting as opposed to other types like line or bar charts.
A. We look at charts from all different time frames: 1 year, 6 months, 3 months, 1 month because it keeps us from getting tunnel vision with respect to what has just recently happened. We need to put it all in the perspective of the big picture, but we also need to see the subtleties of the more recent moves. Looking at various time frames gives us the bigger picture. Sometimes you can find yourself focusing on the last two weeks, but when you back up, you see the stock is about to breakout of a base or is approaching resistance, etc. Looking at a longer term chart allows us to make a useful count of accumulation and distribution weeks, too, an important indicator that illustrates the character of institutional involvement in a stock.
As for patterns, it is important to note that whether you are looking at a daily chart, a weekly chart, or a 5-minute chart, the patterns are the same. When we are watching a stock during the day with a 5-minute interval, we look for the same type of pattern that we would look for when looking at a pattern that spans several days, weeks, months. When we see volume dry up as the trading range narrows, for example, it is a sign that the stock could be ready to break out to the upside, whether it's a pattern of weeks or just hours, or less.
We use Japanese candlestick charting because it gives us more information more quickly than other chart styles. When combined with volume and pattern, it's a powerful tool as it becomes a very accurate measure of a stock's momentum. Once one is comfortable with what these charts show, the momentum of a stock is revealed much more quickly. We like it especially with respect to helping determine when a stock may be turning up or down. Candlestick charts don't show different data from bar charts; they just show it in a way that is much clearer to see at a glance, and it is easier to see those momentum shifts.
We teach candlesticks in our seminar series and there are several good books. One of them is by Gregory Morris called 'Candlestick Charting Explained.' Another is 'Japanese Candlestick Charting Techniques' by Steve Nison.
THE PLAYS
Good movers Friday: ALTI; CHU; CHL; CORV; CYD; MICU; OTE; VNWK; LOW
Best Plays:
1) CKP: Volume is surging as it prepares for the breakout from its nice base.
2) NOVA: Ready for the next leg in its breakout.
3) TARO: Failing attempt to recover over the 50 day MVA.
4) CYD: Chinese stocks are ready to rumble again.
5) KEA: Starting higher, just needs more volume.
6) BBY, LOW, RTH: These puts look ready to tank further.
NEW PLAYS:
Upside:
Play Date: 01/03/2004
CKP (Checkpoint Systems--$19.61; +0.7; optionable): Security & protection services
http://biz.yahoo.com/p/c/ckp.html
STATUS: Flat base. Volume surged Friday as CKP rallied above the 50 day MVA (18.68) as it works toward the breakout from its 9 week base that formed over the 50 day. Accumulation in the pattern is a strong 3 to 1 (3 up price weeks on rising volume to 1 down price week on rising volume). Money flow is shooting up ahead of price as CKP probes the breakout. Looks excellent and ready to continue its upside move.
Volume: 607.5K Avg Volume: 198.064K
BUY POINT: $19.85 Volume=300K Target=$23.82 Stop=$18.98
POSITION: CKP EW - May $17.50c (84 delta) &/or Stock
http://www.investmenthouse.com/ct/ckp.html
Play Date: 01/03/2004
NOVA (Novamed Eyecare--$3.61; +0.02; no options): Eye care service centers (laser, cataract)
http://biz.yahoo.com/p/n/nova.html
STATUS: Testing the breakout. NOVA formed a 4 month flat base from August to November, then blasted higher on a massive breakout to start December. It rallied form 2.50 to 4 and then spent that past three weeks testing that move, coming back to the 18 day MVA (3.47) on lower, below average volume. Accumulation in the base was an outstanding 7 to 0; very solid accumulation setting the stage for the breakout and subsequent run to come. We really like moving in on breakout tests; the breakout holds and is proved up and we still have a lot of room upside to make some good money. Excellent money flow moving up ahead of price. Outstanding move and now we move in on this test when we see volume jump back up on a move over 3.75.
Volume: 33.51K Avg Volume: 69.681K
BUY POINT: $3.78 Volume=105K Target=$4.74 Stop=$3.49
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ct/nova.html
Play Date: 01/03/2004
SKIL (Skillsoft--$8.38; -0.27; optionable): Multimedia and graphics software
http://biz.yahoo.com/p/s/skil.html
STATUS: Reverse head and shoulders. Looking at SKIL once again as it has continued to form up into a very nice accumulation base. Friday SKIL was racing higher on very strong trade, hitting 9.22 on the high before reversing and giving all the move back and more. It still held the pattern, an 11 week base showing outstanding 5 to 0 accumulation. Money flow is also very strong, racing up ahead of price. Looking for another breakout move and if it is holding towad the close that is when we move in.
Volume: 1.293M Avg Volume: 344.136K
BUY POINT: $8.85 Volume=518K Target=$10.72 Stop=$8.18
POSITION: QAG EU - May $7.50c (70 delta) &/or Stock
http://www.investmenthouse.com/ct/skil.html
Play Date: 01/02/2004
TRFX (Traffix--$5.73; +0.28; no options): Marketing services (online database marketing service)
http://biz.yahoo.com/p/t/trfx.html
STATUS: Breakout. Friday TRFX was surging on strong trade, breaking out of the 6 week flat base on very strong trade. Accumulation in the base is a solid 3 to 1. Strong money flow and a relative strength breakout are further indications of the strong move.
Volume: 247.439K Avg Volume: 114.125K
BUY POINT: $5.77 Volume=135K Target=$7.22 Stop=$5.28
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ct/trfx.html
Downside:
Play Date: 01/03/2004
CBRL (CBRL Group--$37.77; -0.51; optionable): Restaurants
http://biz.yahoo.com/p/c/cbrl.html
STATUS: Put. CBRL crashed through the 50 day MVA (39.06) in mid-December after its quick heand and shoulders formation. It rallied up to test that level on the intraday highs last week but could not make the break back over that key level. Friday it started to fall, breaking below the recent closing lows. Volume could be stronger, but it looks ready to test the October lows.
Volume: 280.14K Avg Volume: 519.409K
BUY POINT: $37.65 Volume=525K Target=$35.45 Stop=$38.62
POSITION: CBQ OH - Mar. $40p (-71 delta)
http://www.investmenthouse.com/ct/cbrl.html
Play Date: 01/03/2004
TARO (Taro Pharmaceuticals--$62.61; -1.89; optionable): Drugs
http://biz.yahoo.com/p/t/taro.html
STATUS: Put. After peaking at 72.50 in early December, TARO has solid off to the 50 day MVA (64.99). After moving laterally just below that level for a week it imploded Friday on extremely high volume. It managed to rebound off of the low (60.70), recouping much of its loss but still in trouble below the 50 day. Looking for a break below some support at 62.50 to move into positions.
Volume: 631.207K Avg Volume: 264.818K
BUY POINT: $62.32 Volume=300K Target=$58.25 Stop=$64.88
POSITION: QTT NM - Feb. $65p (-63 delta)
http://www.investmenthouse.com/ct/taro.html
CONTINUING PLAYS:
Upside:
Play Date: 01/02/2004
CYD (China Yuchai--$32.22; +1.62; optionable): Chinese diesel engine maker
http://biz.yahoo.com/p/c/cyd.html
STATUS: Flat base. CYD is making its move up off of the bottom of its 8 week base that formed over the 50 day MVA (27.92). Solid 3 to 1 accumualtion in the pattern. Volume has surged as CYD moved up off the 50 day the past week. After drying up the prior three weeks, this shows that more and more big money is moving into the stock. We picked up some Friday and are looking for more on a continued move higher.
Volume: 5.51M Avg Volume: 2.984M
BUY POINT: $33.64 Volume=4M Target=$40.45 Stop=$31.29
POSITION: CYD EG - May $35c (56 delta) &/or Stock
http://www.investmenthouse.com/ct/cyd.html
Play Date: 12/27/2003
CYH (Community Health Systems--$26.95; +0.37; optionable): Hospitals
http://biz.yahoo.com/p/c/cyh.html
STATUS: Double bottom w/handle. CYH is still in the handle of its short base, a 5 week double bottom. It is holding over the 18 day MVA (26.59) on continued below average volume. It held the 50 day MVA (25.67) on the lows of the base. Money flow continues to hold up above the stock price. CYH was rising Friday on low volume. Nice little pattern but need to see volume on a definiitve move.
Volume: 252.2K Avg Volume: 402.045K
BUY POINT: $27.25 Volume=550K Target=$32 Stop=$26.42
POSITION: CYH CE - Mar. $25c (73 delta) &/or Stock
http://www.investmenthouse.com/ct/cyh.html
Play Date: 12/20/2003
ENMC (Encore Medical--$8.19; +0.03; no options): Medical appliances
http://biz.yahoo.com/p/e/enmc.html
STATUS: Testing the breakout. ENMC continues to work laterally for the past 8 sessions on low, below average volume after breaking out from its 3.5 month base in late December. Accumulation is a solid 5 to 2 in the base. Money flow is strong and relative strength is ready to make a breakout. Just waiting for the next breakway move on above average volume.
Volume: 190.136K Avg Volume: 278.09K
BUY POINT: New: $8.62 (orig. $8.20) Volume=417K Target=$9.88 Stop=$7.88
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ct/enmc.html
Play Date: 12/27/2003
KEA (Keane--$15.25; +0.61; optionable): ITS Software
http://biz.yahoo.com/p/k/kea.html
STATUS: Cup w/handle. Friday KEA started its breakout move, rallying through the buy point as volume edged up but was still below average in the end. Solid 5 to 3 accumulation in the 16 week base. It is ready, now we want to see the volume pour in as the big money comes back to the market this week.
Volume: 245.5K Avg Volume: 337.636K
BUY POINT: $15.22 Volume=500K Target=$18.25 Stop=$14.32
POSITION: KEA EC - May $15c (56 delta) &/or Stock
http://www.investmenthouse.com/ct/kea.html
Play Date: 12/13/2003
MICU (Vicuron Pharma--$19.68; +1.03; no options): Drugs
http://biz.yahoo.com/p/m/micu.html
STATUS: Flat base. A great price breakout Friday, but volume could not follow, actually dropping off from earlier in the week. Again a very nice 10 week base with outstanding 4 to 0 accumulation (4 up weeks on rising volume to 0 down weeks on rising volume). Excellent money flow and relative strength ready to make the breakout.
Volume: 172.841K Avg Volume: 309.09K
BUY POINT: New: $19.78 (orig. $19.12) on strong volume. Volume=488K Target=$22.95 Stop=$17.98
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ct/micu.html
Play Date: 12/10/2003
OMCL (Omnicell--$16.35; +0.15; no options): Medication & supply dispensing systems (pharmacy, nursing units, operationg rooms, etc.)
http://biz.yahoo.com/p/o/omcl.html
STATUS: Reverse head and shoulders. The pattern has turned into a 14 week reverse head and shoudlers showing excellent 4 to 0 accumualtion. Money flos is surging up ahead of the stock price. Friday OMCL was edging higher as volume jumped up above average. Looks ready to continue the breakout move. It is right at its all-time high, a good place with no overhead resistance to push it back.
Volume: 208.966K Avg Volume: 196.863K
BUY POINT: $16.95 Volume=300K Target=$20.25 Stop=$15.85
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ct/omcl.html
Downside:
Play Date: 12/22/2003
BBY (Best Buy--$50.82; -1.42; optionable): Consumer electronics
http://biz.yahoo.com/p/b/bby.html
STATUS: Put. BBY continued its downtrend below the short term MVA (10 and 18 day MVA). It peaked in early December right before the holiday season was completed. It gapped below the 50 day MVA (53.70), tanked, and rallied back up to the 18 day MVA (52.34) last week. It failed to retake that level and dropped Friday on rising volume. It is ready for more downside.
Volume: 3.783M Avg Volume: 4.202M
BUY POINT: New: $50.54 (orig. $49.54) Volume=5M Target=$46.45 Stop=$51.82
POSITION: BBY NJ - Feb. $50p (-44 delta)
http://www.investmenthouse.com/ct/bby.html
Play Date: 12/10/2003
LOW (Lowes--$53.9; -1.49; optionable): Home improvement stores
http://biz.yahoo.com/p/l/low.html
STATUS: Put. After moving laterally between 54 and 56 the past three weeks, LOW gapped to the 50 day MVA (55.83) Friday and then rolled over on rising, average volume. It managed to hold some support at 54, but the higher volume rollover indicates it is ready to continue lower.
Volume: 3.268M Avg Volume: 3.337M
BUY POINT: $53.72 Volume=4M Target=$50.45 Stop=$54.75
POSITION: LOW NK - Feb. $55p (-58 delta)
http://www.investmenthouse.com/ct/low.html
Play Date: 12/17/2003
RTH (Retail Holders Trust--$88.60; -1.72; optionable): Retail holders trust
http://biz.yahoo.com/p/r/rth.html
STATUS: Put. Similar to BBY, this measure of the retail sector tried a recovery the last two weeks after tanking from a head and shoulders pattern that formed from October to November. It rallied back up to the simple 50 day MVA (91.03) on a Friday gap higher, but it reversed with the market and tanked, breaking the exponential 50 day MVA (89.94) as it turned lower on strong volume. Money flow is tanking as is relative strength. Ready for more downside.
Volume: 1.293M Avg Volume: 872.211K
BUY POINT: $88.35 Volume=2.5M Target=$85.02 Stop=$89.44
POSITION: RTH NR - Feb. $90p (-62 delta)
http://www.investmenthouse.com/ct/rth.html
End part 2 of 3
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