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SUBSCRIBER QUESTIONS

Q: Could you please explain the significance of a pattern showing a doji on very high volume as opposed to the same doji pattern, but with light volume? How should the two differences in volume be interpreted on the same doji pattern?

A: A doji is a one-day pattern on a candlestick chart. It occurs when the open and closing price are the same or very close to one another. What it signifies is that the buyers and sellers were evenly matched: the stock ended where it started, so no one won the day. These symbols are the most important after a run either to the upside or to the downside has occurred. What we typically see in a stock that is moving higher is the open at a lower price and a close at a higher price. As the run continues, the gains become less and less; there are fewer and fewer new buyers on that run. Eventually there are equal numbers of buyers and sellers and you get the doji pattern. The same in reverse happens on selling bouts. When you get the doji, that means the side that was in control, either buyers or sellers, is now evenly matched with the other side. In other words, on a rally, the sellers have caught up with the buyers, and usually the doji signals some near term selling as the sellers then move into the majority.

What does high or low volume accompanying a doji mean? Well, lets look at some scenarios. If a stock is running higher and shows a pattern of slowing down on the move and then shows us a doji on very high volume and where the stock closes the session well off of its high, that is a sign of reversal. The stock tried to continue its run, but sellers jumped in big time and drove it back to where it started the day on high volume. That is usually a sign that some stronger selling is coming the next few sessions. If the same occurs but the doji is on light volume, it still means that move may be over. If a stock hits a high on low volume, that means not many buyers are supporting the move to the high; selling is most likely. However, it may not be as severe as if there is that high volume reversal where the sellers just jump onto the stock. You have to be careful, and doji's are not automatic signals; they are flags saying 'take note of me.' Wait for confirmation, but be ready; the doji was your warning flare. Low volume doji's may mean less virulent selling. Indeed, we like to see those low volume pullbacks to near term support as that means no share dumping and most likely a good buy point or 'add to' point is coming at near term support.

On the downside the results are similar. A high-volume doji that occurs after a stock sells way down and then recovers is good. We call that a doji with a long tail; how poetic. Anyway, what that means is that the stock sold way down, but then buyers jumped in to push it back up to where it opened. Perhaps we are being told a reversal just occurred and buyers now outnumber sellers. If this occurs at support, we get really excited. As for the low volume variety, it is not as strong a signal as that doji with a long tail on high volume, but if the sell off down to the support or the doji has been on low volume, the low volume doji is just fine; it can indicate that the move to the upside is just around the corner (the next day or two). Again, the pattern is just a signal and not a 'buy' signal. Let there be confirmation of the move the next day (it actually starts up), and then make the move.

We cover doji's, candlesticks, and all of the technical analysis methods and techniques we use in the online seminars. Do your self a favor and take these courses to be ready for this next move up that will inevitably come.

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.

IRIC powered ahead on strong volume. HDI broke out as well on strong volume. LUV is setting up for its next move. The small to mid-cap stocks are looking very solid again.

Best Plays:
1) IVX: You have to like it.
2) CMX: Very nice wedge
3) EBAY: Could run with earnings
4) DLIA: Looks ready.

New and Subscriber Request

IVX (Ivax--$38.51; +1.01; optionable): Generic drugs
http://biz.yahoo.com/p/i/ivx.html
STATUS: Lots of requests for this stock, and no wonder why. It has been a solid performer, and is now putting on the finishing touches of its 11-month cup with handle base. It is currently in the handle, and it is showing signs that it is wanting to break out. Friday it jumped higher on a strong shot of volume (1.59 million; average is 1.35 million) after volume has been well below average during the handle (just as it should be). Relative strength is very solid and ready to breakout while MACD is showing positive divergence (something we discuss in the seminars). Like it. Target: 47
BUY POINT: 39.72 on volume of 2 million or better. Stop: 36.55
POSITION: Stock and/or September 32 or 35 calls to buy (WMD IX and IVX IG, respectively).

http://www.investmenthouse.com/cd/ivx.html

CMX (Caremark Rx--$16.89; +0.39; optionable): Health services
http://biz.yahoo.com/p/c/cmx.html
STATUS: Well off of its old highs in the 30's, but that was a long, long time ago. Right now CMX is working well off of its lows ($4), and has formed an ascending wedge as it moves up its 50 day MVA. We love ascending wedges because they give explosive breakouts. That means we have to get in fast when the move comes, but it is usually a great move. Volume Friday was up, but still below average (1.28 million; average is 1.789 million). Money flow is excellent and relative strength is excellent. Initial target: 21
BUY POINT: 17.32 on volume of 2 million or better.
POSITION: Stock and/or September 12.50 calls to buy (CMX IV).

http://www.investmenthouse.com/cd/cmx.html

MRCY (Mercury Computer--$56.11; +4.26; optionable): Communication equipment
http://biz.yahoo.com/p/m/mrcy.html
STATUS: Massive breakout of a rather sloppy cup with handle pattern, but man did it fly Friday as volume swelled (473,400; average is 187,727) and the stock cleared some serious resistance at 55. Money flow has been flying while relative strength exploded on the move. Very strong; may test 55 and then take off again as it has had two strong moves back to back. Target: 66.50.
BUY POINT: A buy up to 58.27 on this breakout on continued strong volume. Stop: 52. Pullback: a test of 55.50.
POSITION: Stock and/or November $55 calls to buy (QYR KI).

http://www.investmenthouse.com/cd/mrcy.html

Revisited:

DLIA (Delia's--$7.00; +0.45; no options): Mail order retail
http://biz.yahoo.com/p/d/dlia.html
STATUS: Making a strong move on high volume (803,400; average is 591,772). DLIA broke out of a cup with handle pattern in early June, tested that move, and has been moving sideways in a flat base since. Friday it jumped up on that solid volume. Money flow is huge, and institutions have been buying. Initial Target: $10 (42%).
BUY POINT: 7.12 on volume of 700,000 or more. Stop: 6.62
POSITION: Stock; no option chain.

http://www.investmenthouse.com/cd/dlia.html

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: We have revamped this portfolio, dropping for now CPN, SGR, NATI and BRKS. Those stocks have, for the most part, dropped off and need to form bases or do some more work in ones already existing. To the New Leader section we are adding DGX, EBAY, FRX, PSFT, ADVS, and BMET. In the Previous Leader section, VRSN, VRTS, ADBE and SEBL are retained. Ones dropped include AMCC, ARBA, BEAS, BRCD, CIEN, EMC, EXTR, GLW, JNPR, NEWP, NTAP, PMCS and SCMR. All of these stocks will be kept on watch in context with improvement in their sectors and the market.

New Leaders: ESRX, LLL, ACS, NVDA, DGX, EBAY, FRX, PSFT, ADVS, BMET.
Previous Leaders we are still interested in: ADBE, SEBL, VRSN, VRTS

ESRX is making the move we were watching for. We are looking at additional positions on a move over 55.

ACS: also making the move we were looking for. More volume would be nice.

EBAY (Ebay--$67.01; +0.09; optionable): Internet auction
http://biz.yahoo.com/p/e/ebay.html
STATUS: Reports earnings on Thursday. Ebay has recovered well after a one-session move below the 50 day MVA (61). It gapped over that point on Thursday and tried to add more Friday, but Thursday's move was enough for the week. It recovered on above average volume though Friday's volume dipped lower (4.77 million; 5.88 million is average). Money flow is excellent. One of the few internet sites that is unique and can make money consistently at this juncture. It must breakout of this pattern and clear that resistance at 71, though it can be a pre-earnings trading play. Initial target on breakout: 85
BUY POINT: 71.35 on volume of 8.8 million.
POSITION: Stock and/or October 65 or 70 calls to buy (QXB JM and QXB JN, respectively).

http://www.investmenthouse.com/cd/ebay.html

UP & COMERS PORTFOLIOS: We have revamped the Up & Comers portfolio, and are dropping EXDS, TQNT, BVSN, SANM, PKI and GMST for now, adding BBBY, IGT, RCII, CHS, KG and AEOS.

LNCR, BJ, ANF, LOW, HI, THQI, BBBY, IGT, RCII, CHS, KG, AEOS.
ANF: Trying to recover.
CHS: wow

Thursday we left out stop points on a few of these plays:
THQI: 56.25
LOW: 34.88
CHS: 32.55

BBBY (Bed, Bath & Beyond--$32.07; +0.74; optionable): Home furnishings
http://biz.yahoo.com/p/b/bbby.html
STATUS: BBBY has given a series of breakouts, and is now trying to breakout of an 8-week flat base. It made great strides toward that on Friday with a close over 32 on above average volume (4.09 million; average is 3.2 million). Not a new high on the move (32.61 intraday on 6-21), but it is looking strong with a relative strength breakout on the move. Initial target: 40
BUY POINT: Over 32.65 on above average volume, preferably 4.5 million or better. Stop: 30.25.
POSITION: Stock and/or November 27.50 calls to buy (BHQ KF).
http://www.investmenthouse.com/cd/bbby.html

MEMBER PORTFOLIO: BRCM, CHKP, CSCO, EMLX, IDTI, INTC, JDSU, MVSN, NT, PWER, SUNW, VTSS

We should have the final results of the new portfolio next week. If you have any more requests, send them in this weekend!

Good Investing!
Jon L. 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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