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us stock market, stock strategy
Begin part 2 of 2
SUBSCRIBER QUESTIONS
Q: Isn't it better to recommend a stock when it just starts to resume it's trend after a consolidation than on the breakout. Seems like most of the move is over when you buy after a breakout.
A: Assuming that what you refer to is when a stock, while basing, moves up from the 'bottom' (consolidation) and begins to trend higher, forming the right side of the base. This occurs in patterns like a cup with handle, saucer, reverse head and shoulders, and even flat base when initially a stock reaches a high, falls off to lows in a 'bottom' consolidation then begins to rise again once many of the previous (and frustrated?) holders of the stock have sold off their shares. Volume will start building at this point as new buyers start to show up in more force, pushing the stock higher if all goes well, and the uptrend begins. This looks like a good time to buy, and there are times that we will move in at this point if we see something in the overall market we like or if the stock can give us a nice return simply by making the run up the right side of the base before it peaks out and forms a handle. Because the stock has the previous high at the start of the base to overcome, however, our preference is to wait until the stock actually breaks through that level. Why? This previous high is usually a strong resistance level: the stock will have to break through that remaining overhead supply before it can move higher. Until it does, we can't be sure that the move up the right side will continue on and out of the base.
We like to put our money into stocks that are making a breakout or continuing a breakout after a test as these are stocks that prove to us they have the strength to earn our investing dollars. For example, in a cup with handle pattern the stock traces out the cup, showing good price/volume action, gets close to the previous high when the last weak holders of the stock take their money and get out when it starts to stall and form the handle, getting out close to the breakeven point (the stock failed to move over the previous high in the base and starts to falter). The stock begins to fall back gradually into a handle, and this is where we begin to get interested, because if volume is falling off, it means that the last weak holders are selling off but most of those that bought in on the rise are holding onto it. Thus a breakout through the resistance may be imminent once the last sellers are gone. Once it makes the breakout on strong, above average volume, the stock has proven it's ready to post higher gains because it has finally overcome the resistance, having shaken out the last sellers throughout the formation of the entire pattern. The stock usually falls back, then, to test the breakout (buy or pivot) point, shaking out some short term profit-takers, then surges again as buyers keep it from falling below the pivot point. This one of our favorite entry points as it 'proves up' the base and the breakout, and usually starts a nice run up the 10 and 18 day EMA if the market stays solid.
Putting our money into stocks that are making or testing a breakout allows us to make bigger gains with fewer positions. We don't want to have a lot of our cash sitting in stocks are sitting below major resistance levels. Too, as a stock travels up the right side of its base there usually aren't clear patterns other than bounces off of support, and these tend to be riskier plays. We will play them if there is enough upside before the pattern indicates the stock will encounter that old overhead supply, but we prefer the less risky strategy of betting on breakouts from solid patterns; the stock has proven that it has shaken out the sellers. That is why we search for the best signature patterns that show technical merit and wait for them to reach the pivot point (the point just above the highest resistance in the base). Thus, we like to 'buy high' in a stock that is strong and moving out of a great pattern. For us that is a more sure way of making money.
Thanks for the question it was a great one!
THE PLAYS
Good movers Wednesday: AAP; DNA; MSSN; ZMH; ENR
New Leader Plays: May not turn into a split play but a solid stock.
Play Date: 05/05/2004
MUR (Murphy Oil--$69.98; +1.53; optionable): Oil & gas refining, marketing
http://biz.yahoo.com/p/m/mur.html
STATUS: Test breakout. MUR is a past splitter, and is moving up well having just made the breakout from a 4 month cup base and is now ready to move higher after a test. Super 6 to 1 accumulation (6 up price weeks on rising volume to 1 down price week on rising volume) in the base, setting up a good foundation of solid accumulation. Volume started surging last week as MUR broke higher. It has moved laterally below 70 this week, with volume spiking Wednesday. Super money flow and relative strength is ready to make the breakout as well, a good confirmation to any break higher.
Volume: 1.145M Avg Volume: 472.181K
BUY POINT: $70.98 Volume=750K Target=$81 Stop=$67.42
POSITION: MUR HN - Oct. $70c (54 delta) &/or Stock
http://www.investmenthouse.com/cs/mur.html
Play Date: 05/05/2004
IDSY (I.D. Systems--$9.81; -0.26; no options): Telecom equipment
http://biz.yahoo.com/p/i/idsy.html
STATUS: Breakout test. IDSY exploded out of its 6.5 month base on Monday, jumping off the 10 day EMA (9.26) on huge trade. It eased back the past two sessions on lower trade, holding much of the breakout gain. Accumulation in its base is a strong 10 to 3. Money flow is still running higher ahead of price. It may come back to tap at the 10 day before it is ready to resume the move, but we really like these solid breakout tests that hold.
Volume: 52.799K Avg Volume: 81.772K
BUY POINT: From here: $10.22. Test 9.50: 9.78 on the way back up. Volume=123K Target=$12.32 Stop=$9.48
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/cs/idsy.html
Downside:
Play Date: 05/05/2004
$SOX (Philly Semiconductor Index--$452.25; +3.94; optionable)
http://biz.yahoo.com/p/$/$sox.html
STATUS: Put. This low volume bounce in the indexes has set them up for further selling if the jobs report does not evoke strong buying. We are going to be ready for the downside contingency, and the SOX can dump in a hurry. It is coming back up to test the break below the March low (453.23). We anticipate it will tap at the 10 day EMA (458.86) and fail. Given the jobs report Friday we will be cautious about jumping into this one unless the market is very negative Thursday. Then if the jobs report hurts stocks we will be ready to find an opening for this play. A failed test of the 10 day EMA would be good.
BUY POINT: From Wednesday close: $448.12. 10 day EMA test at 459: 454.95 on the way back down. Target=$427 Stop=$452.25
POSITION: SXX RJ - June $450p (-45 delta)
http://www.investmenthouse.com/cs/$sox.html
CONTINUING PLAYS
* * SPREADSHEET DOWNLOAD * * *
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http://stocksplits.net/ssr/table.php
You will need your password. If you need help click on this link and our automated system will email it to you immediately once you fill in your email address:
http://www.investmenthouse.com/rescue/rescue.php3
LEGEND FOR CONTINUING PLAY TABLE
DATE: date play first appeared on report.
PLAY: Denotes the type of pattern or play.
Upside play types: A Wedge=Ascending triangle/wedge; BO=Breakout; Cup=Cup base; Cup hdl=Cup w/handle; DB hdl=Double bottom w/handle; Dbl btm=Double bottom; Flat=Flat base; FlyPlat=Flying Plateau; Pennant=Pennant; Rv H&S=Reverse head & shoulders; Saucer=Saucer base; Test 18=Testing 18 day MVA; Test 50=Testing 50 day MVA; Test BO=Testing the breakout (could be 10 day MVA test, etc.)
Downside play types: CCall=Covered Call; DWedge=Descending triangle/wedge; Dbl Top=Double top; H&S=Head & shoulders; Put (generic downside);
PIVOT=Buy point
Tgt=Target stock price for the play. Applies to stock and options.
Vol=Volume for the most recent session.
TgtV=Target volume to enter the play.
Stop=Stop advisory point. This is advisory and we may or may not exit a play if it hits this level depending upon market conditions.
PLAY STATUS: Buy not hit (stock has not hit buy point); Buy not issued (stock has hit buy point but did not enter due to weak volume, poor intraday action, poor market action); Current (ongoing play already entered); Entered today (entered the play that session); Exited (closed the position); Target hit (play hit initial target; will note if took all or partial gain or let run further); Trailing stop (exited using a trailing stop loss).
Upside Plays
Stock Date Play Close +/- Pivot Tgt Vol TgtV Stop
AAP 05/01 Test BO 43.88 +1.13 43.68 50 532K 625K 42.65
Current.
ACV 03/23 PreSplt 47.87 +0.45 45.48 53 416K 700K 46.12
Current.
AGN 04/15 Test 50 88 -0.62 88.22 100 1M 1M 87.62
Current.
ALOG 04/29 Cup hdl 48.1 +0.22 50.28 57.85 47K 159K 48.05
Buy Not Hit.
AMT 04/27 Test BO 13.51 -0.04 13.12 16 1.6M 4M 12.44
Buy Not Issued.
APOL 01/24 Test 18 92.39 +0.68 73.25 82 1.1M 3M 90.95
APOL 12/01 DB hdl 92.39 +0.68 70.72 82 1.1M 2.9M 90.95
Current.
APOL 11/22 DB hdl 92.39 +0.68 66.54 82 1.1M 2.9M 90.95
Current.
ARIA 05/01 Test BO 11.93 +0.19 12.12 14.55 770K 1.4M 11.27
Buy Not Issued.
AVO 03/30 Flat 34.3 +0.01 24.98 29.42 1.6M 334K 29.88
Current.
BCR 04/29 Test BO 109.01 +1.81 107.25 120 313K 600K 103.22
Buy Not Issued.
BCR 04/16 Test BO 109.01 +1.81 98.93 115 313K 522K 104.96
Current.
BCR 12/17 Rv H&S 109.01 +1.81 80.93 92.95 313K 500K 104.96
Current.
BIIB 04/17 Cup 58.93 +1.18 60.49 72.88 3.4M 7.5M 58.04
Current.
BIO 05/01 Cup hdl 57.99 -0.3 60.22 67.45 96K 156K 59.18
Buy Not Hit.
BKST 05/04 Test BO 20.05 0 20.25 23.25 109K 200K 18.98
Buy Not Issued.
BKST 04/17 FlyPlat 20.05 0 18.52 21.32 109K 145K 19.02
Current.
BMET 04/03 Dbl btm 39.51 +0.97 40.72 47 2.1M 2.6M 38.38
Buy Not Issued.
BR 03/30 Dbl btm 68.39 +0.1 63.15 68.15 1.6M 1.7M 66.04
Current.
CECO 04/28 Test BO 68.8 +1.31 65.15 75 1.1M 3M 63.42
Current.
CNC 04/27 Cup hdl 32.75 -0.42 34.68 40 71K 166K 32.25
Buy Not Hit.
COH 04/27 Test BO 43.86 +0.37 45.48 53 755K 2M 43.25
Buy Not Hit.
COH 02/28 DB hdl 43.86 +0.37 41.66 47.88 755K 2.5M 42.05
Current.
CRDN 04/28 Test BO 30.8 +0.35 32.55 37 630K 1.2M 30.18
Current.
CRL 04/24 FlyPlat 46.5 +0.1 46.83 55 592K 495K 45.12
Current.
CWTR 04/27 FlyPlat 19.85 -0.05 23.12 27.75 106K 170K 21.82
Buy Not Hit.
DGX 03/20 Cup hdl 86.42 +1.26 86.32 100 603K 973K 82.98
Current.
DHR 04/27 Flat 94.52 +0.26 96.22 104 631K 1.1M 89.48
Buy Not Hit.
DIOD 04/20 Cup hdl 22.37 -0.14 24.62 29.38 93K 145K 22.94
Current.
DNA 04/29 Test BO 125.29 +3.99 124.84 135 2.3M 4M 120.88
Entered today.
DNA 03/13 Test BO 125.29 +3.99 110.79 120 2.3M 4M 119.78
Current.
DNA 01/03 Test BO 125.29 +3.99 95.44 102 2.3M 3M 119.78
Current.
DRTE 04/20 Flat 17.86 +0.31 18.09 21.45 247K 325K 18.48
Current.
EAT 03/09 Test BO 38.6 -0.02 39.06 46.88 761K 950K 37.88
Buy Not Issued.
EBAY 03/06 Flat 82.87 +0.14 71.78 82.25 5.6M 10M 78.02
Current.
EBAY 08/02 PreSplt 82.87 +0.14 53.78 60 5.6M 9M 78.02
Current.
EBAY 03/08 BO 82.87 +0.14 40.04 46 5.6M 8M 78.02
Current.
ECOL 04/01 Dbl btm 10.24 -0.15 9.89 11.32 29K 150K 10.22
Current.
EPIX 04/19 Cup hdl 24.62 -0.67 24.58 29.52 535K 300K 23.48
Current.
ERES 04/29 Test 18 33 +0.71 32.95 37.92 662K 1.3M 31.18
Buy Not Issued.
ESRX 03/24 Cup hdl 76.74 +1.04 77.43 87.88 642K 1.4M 77.08
Current.
FLIR 05/04 Test BO 46.4 +0.29 46.62 53.62 247K 577K 45.22
Buy Not Issued.
FOSL 04/01 FlyPlat 24.54 +0.04 23.52 26.97 157K 310K 24.48
Current.
FWRD 04/24 Cup hdl 33.01 +0.04 34.38 41.25 265K 175K 32.88
Buy Not Hit.
HSY 04/29 Test BO 90.09 +0.3 89.58 98.75 437K 708K 87.48
Current.
HUG 05/01 Test BO 56.7 +0.66 56.88 65 200K 314K 54.88
Buy Not Issued.
HUG 03/02 Flat 56.7 +0.66 54.12 62 200K 314K 56.88
IDXX 02/02 DB hdl 63.14 +0.56 50.22 58 176K 500K 59.58
IEX 05/01 Test BO 47.15 -0.43 47.78 53 167K 218K 46.32
Buy Not Issued.
KFY 03/18 Cup hdl 14.85 -0.56 14.46 17.35 176K 300K 15.42
Current.
LTD 03/22 Test 50 20.81 +0.06 21.16 25.15 3.2M 3.9M 20.48
Current.
LXK 12/30 Rv H&S 92.25 +0.29 83.65 94 919K 2M 92.88
Current.
MIK 02/21 Cup hdl 50.24 +0.34 50.41 57.52 300K 815K 50.48
Current.
MSSN 04/27 Test BO 4.92 +0.36 4.89 5.92 687K 615K 4.48
Entered today.
NSM 04/22 Test 50 41.26 +0.77 46.18 53.12 4.6M 6M 44.88
Current.
OCLR 05/04 Cup 29.32 -0.52 30.12 34.55 141K 160K 28.01
Buy Not Hit.
ORLY 04/26 Dbl btm 44.97 +0.35 45.62 52 332K 450K 43.45
Current.
OSIS 04/17 Test BO 22.69 -0.15 24.68 29.62 124K 312K 22.88
Buy Not Issued.
POOL 05/01 Test BO 40.87 +0.76 41.38 48 138K 300K 38.88
Buy Not Issued.
QCOM 04/17 Test 50 65.01 +0.36 66.35 79 7M 14M 66.12
Current.
RMD 04/13 Cup hdl 50.72 +0.87 47.84 54.55 225K 382K 48.12
Current.
RS 04/03 Cup hdl 35.18 +0.14 36.24 42 177K 255K 35.38
SBUX 03/22 Test 50 39.82 +0.22 39 47 3M 4.5M 38.12
Current.
SBUX 07/30 Cup 39.82 +0.22 30.35 36.75 3M 6M 38.12
Current.
SBUX 07/01 Cup 39.82 +0.22 26.3 30.94 3M 6M 38.12
Current.
SCSC 04/09 Cup hdl 54.28 -0.52 56.36 65 127K 175K 52.41
Current.
SPAB 02/10 A Wedge 3.97 -0.52 3.49 4.35 233K 451K 4.35
Current.
SSTI 05/04 Test 50 14.42 +0.12 14.58 17.52 1.6M 3M 13.56
Buy Not Hit.
STJ 04/15 Cup hdl 76.35 +1.25 75.66 88 1.1M 2.2M 75.88
Current.
STJ 01/13 Cup hdl 76.35 +1.25 64.68 75 1.1M 2.2M 75.88
Current.
STN 03/11 Test BO 46.39 +0.54 42.49 49 510K 550K 46.12
Current.
STRA 05/01 Test BO 124 -1.63 127.25 130 82K 165K 122.22
TBL 05/03 Test BO 65.7 +0.85 65.42 74 270K 588K 62.88
Buy Not Issued.
TRMB 05/04 Cup hdl 26.94 -0.08 27.32 31.42 461K 670K 25.41
Buy Not Issued.
TSCO 01/24 Cup 39.35 +0.17 45.22 55 257K 719K 42.05
Buy Not Hit.
TSCO 07/29 Test BO 39.35 +0.17 28.06 31.44 257K 494K 42.65
Current.
TSCO 07/05 Test 50 39.35 +0.17 26.62 30 257K 500K 42.65
Current.
TSCO 06/03 Rv H&S 39.35 +0.17 23.42 27.62 257K 603K 42.65
Current.
TSCO 04/24 Cup hdl 39.35 +0.17 21.88 26 257K 603K 42.65
Current.
TSCO 04/03 Rv H&S 39.35 +0.17 19.3 22.19 257K 577K 42.65
Current.
UBET 04/01 Cup hdl 4.7 -0.2 4.43 5.54 278K 325K 5.62
Current.
UOPX 05/01 Test 50 86.66 +0.32 90.25 103 116K 285K 89.12
Buy Not Hit.
UOPX 11/03 Test 50 86.66 +0.32 71.12 84 116K 315K 89.05
Current.
UOPX 10/25 Test 50 86.66 +0.32 68.95 82 116K 315K 89.05
Current.
URBN 03/29 Flat 48.62 +0.69 49.85 56.68 445K 725K 46.68
Current.
WFMI 04/20 Cup 78.66 -0.18 79.58 91 817K 1M 78.22
Current.
YHOO 04/07 Cup hdl 53.16 +0.31 55.18 62.75 7.7M 15M 54.48
Current.
ZBRA 03/06 Test 50 75.67 +1.05 73.48 86.55 522K 517K 70.65
Buy Not Issued.
ZMH 04/17 Rv H&S 83.83 +1.62 82.09 94.48 1.7M 170K 79.38
Current.
Downside Plays
Stock Date Play Close +/- Pivot Tgt Vol TgtV Stop
ENR 05/03 Put 44.05 -0.37 44.45 42 404K 500K 45.25
Entered today.
PSTIE 04/13 Put 10.87 -0.04 10.62 8.05 141K 275K 11.42
Buy Not Hit.
Good Investing!
Jon L. Johnson and the Stock Split Report 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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