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Begin Part 2 of 2
TEAM TRADES
Today was one of those days. We waited for the consolidation to run its course, looking at many stocks set up for their moves higher. We were also looking at index option plays to take full advantage of the start of the move higher. There were many, many to choose from.
We had our eye on NVDA as it has been a clear leader in the market for months, and while it had race ahead out of the September bottom, it had pulled back and was ready for a new high. New highs tend to lead to more new highs. We were not going to wait long on it once it cleared that level. It did that right after 9:00 CT, and we issued an alert and stepped in right at that point with stock. Nothing fancy here. We saw volume surge as it up to and over the breakout, and that was what we wanted. It moved laterally for four hours as they tend to do after breaking resistance, testing the move, but then it took off. Volume on the session was above averge, not huge, but a strong increase.
We also liked QLGC, and after it ran sideways it made the break around 1:15 CT. Volume was decent, but we anticipated it would build in the afternoon as stocks were starting to race higher. We issued the alert and stepped in on this one with a stock purchase as well.
All the while we were watching the indexes. About 35 minutes later the SOX hit our aggressive buy point as it moved up over some resistance at 535. We like to catch the option moves when they start, this was the first level of resistance. We moved in with January 530 options; the spread was varying between $3 and $4. It ran to 540 before we could really get our order together, and it fell back to 538 to test the move; beautiful. We were able to catch the spread when it was $3 on the pullback.
We also picked up some PMCS when the Nasdaq broke its 200 day MVA and when it moved higher late in the session. On top of that we had some BRCD as well. There were other breakouts we picked up on as well. It was one of those days.
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. A "prior high" refers to the high at the start of a base.
For conserving space on listings of stop losses, the symbol (7%) indicates that the stop is 7% below the buy point.
Good movers: UTSI surged with the market today, extending its breakout. Other breakouts include NVDA, CACI, THQI, BRCM, QCOM, CPRT, among others.
Stocks/Indexes from Monday's report:
GNTA (subscriber's choice): Moved up on strong volume in a solid move.
BLTI: Added to its breakout and is clear of the base.
CPWR: Added to its breakout as well.
SLNK: Was up again in the handle, halting at resistance with volume still well below average and just lower.
BBBY: Started a move up from the 3-day lateral consolidation; volume was up.
AMAT: Rallied with the chips; closed just under the November high with volume strong. 200 day MVA is ahead at 44.31.
Previous plays:
AMZN: Is making its move after holding the 10 day MVA and breaking back over the 200 day MVA on strong volume. See the weekend report for buy point for a break over the November high.
CATT: Strong volume and moved up but still could not break 25 resistance.
CMNT: Moving up in the handle on rising volume. See the weekend report for buy point.
Index: QQQ with another doji, this one lower but holding above the 18 day MVA with volume slipping even lower below average.
PENN: Pulling back in the handle; some selling today but the stock held the 10 day MVA on a bounce from 24.
PSFT: Moving up on rising volume. Buy point is over the November high 37.45.
Best Plays:
1) LUV: A tightening pattern from a perennial winner.
2) PII: Another tightening pattern.
3) KSS: Looks ready for a breakout.
4) QQQ: Watch it for a break of the 200 day MVA.
5) BRCM: Moving on better volume.
New:
LUV (Southwest Airlines--$18.84; +0.34; optionable): Transportation
http://biz.yahoo.com/p/l/luv.html
STATUS: The airline stock is moving in a tight lateral pattern above its 200 day (17.78) and short term MVAs (10 day, most immediate support in the pattern, is at 18.53). The pattern is part of a cup-type base - there is a sharp "v" bottom the week of September 17 - that started in early September (high at 20.23). The lateral pattern looks like an ascending wedge on a clothesline chart, and is functioning as a handle. This isn't the best combination of patterns (we don't like to see wedges as handles, preferring a smooth and gradual pullback instead), but the tight pattern looks very good here. We are looking for a breakout a target at 23. Volume was up to 3 million (avg. 4.2 million). LUV shows steady money flow, and relative strength it out ahead of price, a bullish sign. Looking for shorter (options) and long-term positions on the breakout.
BUY POINT: 19.10 on volume in the range of 6 million. Stop: 17.76 (7%).
POSITION: Stock and/or $17.50 calls to buy (LUV AW).
http://www.investmenthouse.com/cd/luv.html
PII (Polaris--$53.00; +0.26; optionable): Automotive
http://biz.yahoo.com/p/p/pii.html
STATUS: Formed a pennant after breaking out from a double bottom with handle base in mid-November. Upon reaching a breakout high at 55.70, PII is now in the pennant with volume steadily decreasing below average. Looking for a breakout on a strong move up from the 10 day MVA (52.33), above with the stock has tightened in the tail of the pattern the last three days, showing tight dojis. Today's volume was down to 76,100 (avg. 147,000). Target: 67
BUY POINT: Breakout (aggressive): 53.14 on volume of 198,000 or higher. Stop: 49.42 (7%).
POSITION: Stock and/or January $50 (PII AJ; low open interest and lower delta at this point), or March $45 calls to buy (PII CI; 0 open interests).
http://www.investmenthouse.com/cd/pii.html
KSS (Kohl's--$69.00; +2.60; optionable): Retail
http://biz.yahoo.com/p/k/kss.html
STATUS: This retailer is making a move up in a handle to a 10-month cup with handle base (highs at 72). Volume was rising and above average on the move up from the 10 day MVA (67.33), and the stock closed within cents of the buy point. The pullback in the handle was on decreasing volume with price showing the gradual descending fall that we like to see, and up sharply with today's pop in price to 2 million (avg. 2 million). Looking for this move to follow through with a breakout. KSS has huge money flow; relative strength is breaking out. Target: 83
BUY POINT: 69.48 on volume of 3 million or higher. Stop: 64.62 (7%). A buy up to 73 on the breakout.
POSITION: Stock and/or January $65 calls to buy (KSS AM).
http://www.investmenthouse.com/cd/kss.html
Updates:
MCHP (Microchip Tech--$37.35; +1.80; optionable): Semiconductor
http://biz.yahoo.com/p/m/mchp.html
STATUS: Last covered November 21. At that time the stock ran up to resistance at 38, then pulled back in a handle to its 4-month cup with handle (started early August). After testing the 18 day MVA, MCHP bounded back up again today as the chips rallied; we would have like stronger (not less) volume on the move, but like the falling volume in this handle. We will look for volume to catch up (was down to 1.6 million; avg. 2.3 million) to push MCHP into a breakout. Super money flow; good buying. Target: 47
BUY POINT: 38.85 on volume of 3.5 million or higher. Stop: 36.13 (7%).
POSITION: Stock and/or January $30 calls to buy (QMT AF).
http://www.investmenthouse.com/cd/mchp.html
Index: The SOX was up over 33 points today as the chips rallied. The 200 day MVA is ahead at 561.50 so on the closing price of 544.11, the index still has room to run, though it is getting close. We have another buy point in place for a breakout over the moving average resistance (550.33) but of course that needs to be changed with the shift in price of the MVA.
SOX (Phili Semiconductor--$544.11; +33.11; optionable):
STATUS: The index made its move today, hitting our aggressive buy point at 537 on a strong move higher. It is now getting close to the 200 day MVA (at 561.50). Breakout from the ascending wedge-type pattern from since mid-November is over the high at 553.60, so we will look for a move over 562. Aggressive players can look at getting in for the ride from here, watching the approaching 200 day resistance.
BUY POINT: Riding positions taken at 537. Aggressive entry point from here: 545 in a continued rally. Breakout: 561.63 in a continued rally.
POSITION: Aggressive: December $530 or $540 calls to buy (SJX LF or LH). Breakout: December $550 or $560 calls to buy (SJX LJ or LL).
QQQ (Nasdaq 100--$40.65; +1.86; optionable):
STATUS: The index rallied up to its 200 day MVA (41.07) today on stronger volume (79.1 million; avg. 86 million). We will look at taking positions on a break over the MVA, which would constitute a breakout from the ascending wedge formed since mid-November. The index hit our aggressive buy point at 40.50. Initial target on the breakout: 42.50
BUY POINT: Breakout over the 200 day MVA: 41.20 volume in the range of 114 million. Stop: 38.32 (7%).
POSITION: January $33 calls to buy (QQQ AG).
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 look ready to pick up a few shares.
THE LEADERS: New Leaders (new list): ACS, NVDA, DGX, FRX, LLL, CACI, AJG, KRON, MIKE, BMET, APPB, LOW, IDPH, TARO, MYL, IGT, VRSN
KRON: A new high on strong volume.
IGT: Moved up in the handle with volume rising. 12-01 report for buy point.
APPB: Broke out above the November highs!
ACS: After closing below the 18 day MVA yesterday, was back over the 10 day MVA and some resistance with volume rising (still well below average, however).
UP & COMERS PORTFOLIOS: Here is the new portfolio list: BBBY, EPIQ, KKD, MMS, NDN, SRCL, CPRT, BJ, EBAY, THQI, KG.
CPRT: Breaking out of a double bottom with handle-type pattern on strong volume. Remains a buy on the move up to 37.41 (closed at 35.38) on continued rising volume; stock and/or January $32.50 calls to buy. Check with your broker for delta.
THQI: Breaking out on good volume.
EBAY: Cannot be stopped lately. On a breakout over the highs at the start of the base (71.29), buy point is 71.42, stock and/or January $65 calls to buy, QXB AM.
SRCL: Making a solid move up from the 18 day MVA.
MEMBER PORTFOLIO: New portfolio as selected by the subscribers. Some of these stocks are still struggling to move higher in their bases, and will likely continue to trade in close ranges just like the market. We'll be ready to catch them when they are ready to move. The new list: BRCM, CHKP, AMAT, JNJ, MSFT, AOL, HGSI, BUD, PXLW.
Old members: BRCM, CHKP, CSCO, EMLX, IDTI, INTC, JDSU, MVSN, NT, PWER, SUNW, VTSS
BRCM (Broadcom--$46.35; +3.70; optionable): Semiconductor
http://biz.yahoo.com/p/b/brcm.html
STATUS: BRCM broke out of its cup base at the end of November but the market didn't support a good move up at that time; the stock pulled back in a test and by Monday had fallen below the 18 day MVA. We figured it might catch support and it did, moving back over the short term moving averages (10 day is at 45.55) with volume rising. This stock is a mover, so we can look at taking aggressive positions on a move up from here in a continued rally. We were looking at BRCM for a breakout and run then on weakness perhaps selling covered calls on stock purchases, planning to keep the stock, buying the calls back when it hit support and started up again. We like to do that on all of our stocks and we can continue to look for that on BRCM on any new buys and existing positions. We will take positions, let it run, and then look at selling some calls when the move peaks out. The first point to watch for is the recent high at 49.92 closing and 52.33 intraday.
BUY POINT: Aggressive: From here. Breakout: 50.12 on volume in the range of 20 million. Stop: 46.61 (7%).
POSITION: Stock on the buy points. On topping: Sell January $45 or $47.50 calls (RCQ AI or AJ). Breakout: January $47.50 calls to buy (RCQ AT).
http://www.investmenthouse.com/cd/brcm.html
CHKP: Moving up in the handle on rising volume.
MSFT: Another software stock hinting at another move up.
JNJ: Selling off below the 50 day MVA today on news that the company had warned about a side effect associated with one of its drugs for anemia.
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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