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Begin Part 2 of 4

Support and Resistance

Nasdaq: Closed at 1880.50.
Resistance: 1930 to 1940. The 200 day MVA is at 1979.62, just below the upper channel at 2010.
Support: The 18 day MVA is at 1829.31, just below the up trendline at 1835.

S&P 500: Closed at 1142.66.
Resistance: 1150. The upper channel is at 1175. The 200 day MVA is at 1186.03.
Support: 1124 (prior consolidations). Then 1103 and the 50 day MVA at 1108.65. The up trendline is just below the 50 day at 1105.

Dow: Closed at 9901.38.
Resistance: 9992 held as resistance (former top and bottom). The upper channel is now just over 10,000 at 1025. After that, 10,200 (the 200 day MVA is at 10,194.10).
Support: 9870 was potential resistance, and the fact that it held on the low Monday makes it possible support. 9725 is possible, but not much is there. The 50 day MVA is just above that at 9546.87, and that is backed up by 9500, the first real level of support. The up trendline is now at 9500 also. That is a lot of support at that level.

Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.

11-19-01
Housing Starts, October (8:30): 1.60 M actual versus 1.515M expected and 1.574M prior.
Building Permits, October (8:30): 1.473 actual versus 1.49M expected and 1.528M prior (revised from 1.524M).

11-20-01
Trade Balance, September (8:30): -$18.7B actual versus -$26.0B actual and -$27.1B prior.
Leading Indicators, October (10:00): +0.3% actual versus 0.0% expected and -0.5% prior.

11-21-01
Initial Claims, 11/17 (8:30): 444K versus 444K prior.
Mich. Sentiment-Rev., November (9:45): 83.5 versus 83.5 prior.
Treasury Budget, October (14:00): -8.7B versus -11.3B prior.

SUBSCRIBER QUESTIONS

Q: I have started using options more. I am buying deeper into the money than you usually suggest. That way my premium is much less. It also appears that the option moves more directly with the stock. Obviously my leverage is not as good. Any thoughts?

When you use options, do you base your "Stop" on the cost of the option, or the cost of the stock?

A: You are right about paying less for the nonintrinsic or that portion of the option that is not in the money also known as intrinsic value. As we discuss in the seminars, the deeper you go into the money, you are buying intrinsic value, i.e., value that is equivalent to to real dollars because if the option expired that day it would be worth the amount of dollars it was in the money. The deeper you go into the money, the more intrinsic value you buy for relatively small increases in option price. Thus the volatility and time components make up less of the price you pay. If the stock goes nowhere you can get most of your money back on expiration because you can get $1 in value for the option for each $1 it is in the money.

You have to pay more for an option $15 in the money versus one at the money. But, it is NOT a dollar for dollar increase. Thus you could go another $10 in the money and not see a $10 increase in your option price over an option that was at the money or $5 in the money. You are buying more value at expiration if the stock goes nowhere, but you are paying less for that dollar.

Because you pay more, your leverage is decreased. But as shown above, that is not necessarily a bad thing with a wasting asset such as an option. In addition, you also correctly state that deep in the money options tend to move almost dollar for dollar with the stock's movement. That can give you quick moves, netting you a good gain dollar-wise. It may not be as big a percentage gain, but it is like a high percentage pass in football: you get the completion and accomplish your objective with lower risk.

These are less volatile than at the money options. Thus even though you get a higher delta, at the money options can jump when the stock jumps, giving you a big percentage move. You have to see the jump in those options AND it has to be timely. If it does not occur until expiration, your option will be pretty much worthless without a massive move that puts it deep in the money just to get your money back, money that was spent on time and volatility (for the at the money option). That is why we say at the money or out of the money near term options are for speculators hoping to hit the home run by timing things just right while deeper in the money options, the options we prefer, are for investors.

THE STOCK SPLITS REPORT HAS gone through many improvements over the past year. The major changes include the introduction of the "Best Plays" section, the change in the format of individual plays for easier reading, adding our projected stops and targets on each play, and the introduction of Bonus Plays. Last weekend, in response to member requests for an even more user-friendly and streamlined report, we have introduced the "Watchlist" for those stocks that have momentarily fallen out of a pattern, or need to pull back after a move, or have shown little change over a period of time. In the Watchlist we provide a brief description of the action and our expectations but when the stock starts to show us something, we will bring it to your attention with a full write-up. The response to the new format this week has been very positive, and we are excited about keeping you up to date on a large number of plays, but making it easier for you by keeping the focus on those that are ready to make moves.

IN ADDITION to the Watchlist, by popular demand we have added a new section of "MARKET FAVORITES," which are widely-traded stocks that are looking strong once more and are popular with our subscribers. Enjoy!

THE PLAYS: Check out the new Pre-Splits tonight! Also a new Pre-Announcement!

Targets and Stops: Remember in this market that targets, although set at generally conservative levels, are 'loose' and we are watching for topping signs on moves that would point to our taking profits. We will continue to point out those topping signs as we see them, and let you know when we are contemplating taking profits. The stops are initial stops that we place within 7% of the buy point, typically below support. In this market we are moving up the stops to protect profits as we realize gains.

BONUS PLAYS:

SCUR (Secure Comuting--$18.25; +0.88; optionable): Software.
http://biz.yahoo.com/p/s/scur.html
STATUS: SCUR has made a solid run back up post-tragedy, recently reaching the May highs that form the left side of a skewed cup and pulling back into a handle. It caught support on a low volume pullback at the 18 day MVA (17.19), and today made a solid bounce back up, moving on huge volume of 789,200 (average 247,700). The handle high is just ahead at 19.25 (today's high 18.73), and we are looking for a breakout. Target: 25.
BUY POINT: Breakout: 19.37 on minimum volume of 325,000. Stop: 18.25.
POSITION: Stock and/or January $17.50 calls to buy (UQU AW).

OEX (Standard & Poors--$590.03; -5.04; optionable):
STATUS: The current put play was written when the index was at 589.16 and appeared to be churning and ready for a move down. After moving laterally then popping higher Monday, today's market selling took the OEX down to close just above our previous buy point at 586. We are still looking for a move down, but are moving the buy point up to just under today's intraday low. Our target will be at the level of the 50 day MVA (570.30, up from its previous level at 566.62, a target from the earlier play), which converges with the up trendline connecting the September and October lows. The 18 day MVA is at 577.11, at the level of a 4-day lateral consolidation from earlier this month.
BUY POINT: 589 on continued rising volume.
POSITION: December $600 or $590 puts to buy (OEB XT or XR).

DJX (1/100 Dj Indu--$99.01; -0.75; optionable):
STATUS: The index is up just slightly from the level where the last put play was written (the index was at 98.72); it popped higher Monday but on rising volume began to sell back today. We are looking for a move down to the 50 day MVA (95.47 currently), which converges with the up trendline (connects the September and October lows). The 18 day MVA is at 96.35.
BUY POINT: Aggressive: 98.50, on continued rising volume.
POSITION: December $102 or $100 puts to buy (DJV XX or XV).

NEW PRE-ANNOUNCEMENT PLAYS:

TJX (TJX Companies--$37.50; -0.36; optionable): Retail. Forecast to announce a split on 12-5-01 in conjunction with a board meeting. The company will not confirm this date, but based upon our research this is the date for the board meeting.
http://biz.yahoo.com/p/t/tjx.html
BACKGROUND: Last announced a 2:1 split on 4-8-98 with a board meeting. The stock price was $43. The annual shareholder meeting was on 6-5-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: TJX has been on a steady uptrend the last 15 months, recovering quickly back to the trendline (connecting December, April and July lows) after September 11. It bounced from the 50 day MVA (34.94, with the trendline) last week and broke to a new high. It has been volatile on the move, immediately turning back from the breakout but bouncing again Monday before settling down to a doji today on much lower volume (797,600; average 1.35 million). Today it tapped down to 37.10, just over the prior high (August) at 37. We will see if this test of 37 can hold that level and continue the breakout move as we go toward the forecast. Target: 45.
BUY POINT: After a hold of 37, a move over 38.14 (closing high) on above average volume. Stop: 36 (18 day MVA currently at 36.02).
POSITION: Stock and/or January $35 calls to buy (TJX AG).

PRE-ANNOUNCEMENT PLAYS FOR THIS WEEK: After getting Friday's FLO forecast, we are not expecting announcements just before the Thanksgiving holiday.

BEST PLAYS: Besides the plays set forth below as best plays, there are some other stocks that also look good. These include Continuing Candidates THC and APPB.

PRE-ANNOUNCEMENT BEST PLAYS
1) EASI - Weak bounce sets up continuing put
2) MI - Rebound on solid volume

EASI (Engineered Support--$40.92; +0.60; optionable): Aerospace/Defense. Forecast to announce a split on 12-10-01 in conjunction with earnings. At this time, the company cannot confirm this date.
http://biz.yahoo.com/p/e/easi.html
BACKGROUND: EASI last announced a 5:4 split on 2-1-2001 with a board meeting at a price of $28.50. Before that it announced on 6-12-98 at a price of $26.50. The company has sufficient shares for a 3:2 split.
STATUS: After hard selling through its 50 day MVA (45.23), EASI has taken a bit of a bounce the last three sessions. It has tightened up a bit the last two days on low volume, today showing a doji on volume of 296,800 (average 463,400). It looks like it is primed to fall again, and we can look at new or additional positions on a higher volume drop. Still targeting the 200 day MVA at 35.04.
BUY POINT: A drop back through 39.50 on increased volume.
POSITION: January $45 puts to buy (UFE MI - no open interest).

MI (Marshall & Ilsley--$61.01; +0.94; optionable): Banking: Regional. We are researching a forecast date.
http://biz.yahoo.com/p/m/mi.html
BACKGROUND: Based upon our research it does not appear that MI has ever split its stock. The annual shareholder meeting was on 4-24-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: Bounced back. We were concerned about MI's "flying W" with handle breakout after MI fell hard on stronger volume Friday, especially after forming double tops on the breakout. However, MI showed a 'shooting star' doji over the 18 day MVA (59.81) Monday and bounced back up today on good, increased volume (330,800; average 231,000). From here, moving over the recent highs on solid volume is key, as a third failure could precipitate a more severe drop. Still, holding support at the 18 day and former handle highs is a good sign. If we can get the breakout, we are still targeting 70.
BUY POINT: 61.61 on volume of 300,000 or better. Stop: 57.25 (50 day MVA at 58.12).
POSITION: Stock and/or December $55 calls to buy (MI LK).

PRE-SPLITS BEST PLAYS: Remember, we try to grab these as they break out of good patterns or as they start a run right before the split. Not looking for home runs, but looking for those $3 to $4 moves running into the split, watching for topping signs and potential resistance. Not huge money, but it can be very steady. We set our initial stops at the 7-8% range below the purchase price (or just below obvious support), and move them up on a move to preserve our profits.
1) FLO - The consolidation continues
2) PSC - Ditto
3) CHBS - New play!
4) AMHC - New play!
5) KIM - Yet another!
6) MIKE - One last move?

FLO (Flowers Foods--$42.00; -0.15: optionable): Food & beverage. Announced a 3:2 stock split Friday, as forecast!
http://biz.yahoo.com/p/f/flo.html
STATUS: Got the announcement last Friday, and FLO has held solid in a lateral consolidation over its 10 day MVA (41.77). Volume has been low but gradually rising over the last several sessions, today dipping below the 10 day and rising over our buy point (of 42.50, high of 42.75) but volume was only up to 53,800 (average 66,600). Drifting up ever so slightly here, and we would prefer a lateral-to-downward drift, but it is still in a position here to make a solid move. With the strength of the announcement behind it we are looking for FLO to blossom into a solid move that will take it to the recent high and beyond. Excellent money flow. Target: 50.
BUY POINT: 42.50 on above average volume. Stop: 40.
POSITION: Stock and/or January $40 calls to buy (FLO AH).

PSC (Philadelphia Suburban--$29.07; -0.17; no options): Water utility. Splits 5:4 effective 12-3-01.
http://biz.yahoo.com/p/p/psc.html
STATUS: Continues to consolidate. PCS continues to pull laterally over its 10 day MVA (29.04), testing the 18 day (28.81) at its lows. Volume finally spiked up today, hitting 86,900 (average 79,000) as the stock pulled back slightly, recovering again to close after hitting its 18 day. Still looking good, and we will see if it can spring from support and take out the consolidation high. As it makes its move we are watching the recent (mid-October) intraday spike at 30.80, but if it can make it past that level, we are targeting 34. Money flow and buying are excellent.
PLAY: A buy point of 29.75 on increased volume, with stock only. Stop: 28.50 (50 day MVA at 28). The aggressive can jump in as the stock takes out the recent closing high at 29.50, still wanting above average volume. Stop: 28.50.

CHBS (Christopher & Banks--$36.75; +1.13; optionable): Retail apparel. Splits 3:2 effective 12-13-01.
http://biz.yahoo.com/p/c/chbs.html
STATUS: Turning into a consistent splitter, with four in two years. CHBS recently broke from its ranging handle to a cup (dating back to May, high of 47.50), and has now come back to test the break. It hit a high of 39.35 last week before selling back on increasing volume, but has held the 18 day MVA (35.43, former handle high at 35.70). Today it pushed back up from that level, moving on lower volume of 416,100 (average 423,800). Holding here is solid, so we are now looking for a move back up toward the breakout high and beyond. Target on a move over the breakout high: 48.
PLAY: A move over 37.25 on above average volume, with stock and/or January $35 calls to buy (URH AG). Stop: 35.

AMHC (American Healthways--$42.85; +0.25; no options): Health services. Splits 3:2 effective 11-26-01.
http://biz.yahoo.com/p/a/amhc.html
STATUS: Broke from a reverse head and shoulders at the beginning of the month and then pulled into a pennant pattern. It tightened up a bit on low volume over the 10 day MVA (41.44), and attempted a breakout today, hitting a new high at 45 before pulling almost all the way back to close. Volume shot up to 160,100 (average 122,600), so we will see if AMHC can hold the 10 day and try another move that it can hold. Target: 52.
PLAY: A move over 44.12 on continued strong volume, with stock. Stop: 41.

KIM (Kimco Realty--$49.20; -0.15; no options): REIT. Splits 3:2 effective 12-24-01.
http://biz.yahoo.com/p/k/kim.html
STATUS: KIM is in a large ascending wedge. It tried to breakout a couple of times recently, but was unable to hold moves over the high, hitting 50.20 on two occasions. It gapped down to close with a doji over the 10 day MVA (49.44), testing the 18 day at its low of 49.20. KIM has used its 50 day MVA (48.58) the last two trips down, so we will see if the stock can hold the short-term MVA's this time for a move back up and breakout. Target: 60.
PLAY: 50.32 on volume of 230,000 (average 173,000; today up to 144,800), with stock. Stop: 48.

MIKE (Michaels Stores--$59.60; -0.40; optionable): Splits 2:1 effective November 27.
http://biz.yahoo.com/p/m/mike.html
STATUS: Made yet another good move Monday, bouncing up again from its 10 day MVA (56.91). It has been a long, steady run, but we have been cautious of late as the stock has made four runs up since breaking out. Typically stocks need a more extended rest after four runs, but this one might not be over. Today we saw a perfect doji on much lower volume (491,200; average 520,000). While we need to watch for a possible drop, and we are closely protecting profits with stops at this point, we could get one last move out of MIKE after today's rest. An aggressive play going into the split, but it has been quite a performer.
PLAY: Aggressive: A move over 60 on increased volume, keeping stops close to protect profits. December $55 calls to buy (IKQ LK).

CONTINUING CANDIDATE BEST PLAYS:
1) STJ - Made the weak test, setting up a put
2) FLIR - Watching for another put chance

STJ (St. Jude Medical--$69.10; +0.86): Health Services.
http://biz.yahoo.com/p/s/stj.html
BACKGROUND: Based upon our research it does not appear that STJ has ever split its stock. The annual shareholder meeting was on 5-17-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: Set up for a put. STJ sold back hard through its 50 day MVA (69.82) Monday, and we were looking for a bit of a relief bounce to test back up toward the 50 day. It happened today, with the stock climbing back on reduced volume of 954,600 (average 633,500). Looking for the move to fail, and on a hard drop back we will look at playing puts down to a target of the 200 day MVA (62.81).
BUY POINT: A drop back through 68 on increased volume.
POSITION: January $75 puts to buy (STJ MO).

FLIR (Flir Systems; $41.68; +2.62; optionable): Electronics - Scientific
http://biz.yahoo.com/p/f/flir.html
STATUS: Setting up a put with a weaker move back up. FLIR managed to close back over its 50 day MVA (40.37) today, but the move was on much lower volume than on its recent selling back through that level, and the stock closed just short of more resistance at its short-term MVA's (41.96 and 42.72, respectively). Still looking for this move to fail, but we will watch and see if it holds the 50 day or crashes back through. The recent low of 33.75 would be our first target, with the August-September consolidation range at 28 being the next.
BUY POINT: A drop through 38.60 on increased volume (590,300 today; average 347,500).
POSITION: January $50 puts to buy (FFQ MJ).

End Part 2 of 4

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