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Begin Part 2 of 2
SUBSCRIBER QUESTIONS
Q: At what point do you pull the plug as a rule of thumb on stock and/or options? [Is it] a point drop or percentage drop? Also, (guess that's two questions) when you give a price target on a position is there a time frame attached to those targets? [For example] XYZ's target you proposed is 20.00, is that for today, the next trading session, long term? Thank you so much for your help
A: As a general rule of thumb we pull the trigger on stock purchases when they fall 7% to 8% below our buy price. Now that is assuming we got in on the buy within 5% or so of the buy point. Usually what we are doing is trying to buy as a stock breaks some resistance or bounces up off some support. The resistance should become support, and the support should remain support. That gives us a buffer or firewall between our buy point and a stop point at 7% below that level. That way the stock can test down intraday below that support and not take us out of our position. When we send out stop alerts on the alert system, because investors do not all buy at the same point it is more of an advisory that the stock has fallen 7% below the buy point at X or it has broken through some strong support.
As for options, we have to look at the performance of the underlying stock. Up until very late in the expiration cycle, the price movement is the predominant factor in determining option movement. If the stock breaks key support we will give it a day to recover, but if it cannot we can be assured the option is not going to recovery either. That would be our signal to exit the option trade. If the stock still looks good we will hold the position unless we are in the window where the option starts to lose value more rapidly even if the price starts to move higher a bit. This usually happens in the last 30 days of the expiration. Up to 60 days before expiration time has little impact on the option price. It starts to bleed inside 60 days if there is no upside price movement. Inside 30 days it really starts to fade on you. Thus, if the stock still looks good but is not moving during the 30 day window, we will bail out if the option loses 25% of its value from the time we bought it. As a point of last resort, we will sell an option that gets down to 50% of the value we bought it. It has a long, long way to recover, and the odds are against it. We would rather keep 50% of our money to go look for a good trade than risk losing the whole enchilada on a trade that is not performing. That is part of using your money wisely and getting it to work for you in the right plays.
As for a time frame on targets, as long as the stock is holding the pattern that we are attempting to trade and as long as it is acting 'properly,' we will hold it. What do we mean by properly? Again, holding the pattern or the breakout and moving on good price and volume action. That means moving up on rising volume, and when it pulls back, doing so on lower volume. It also means holding support levels whether breakout points, moving averages, trendlines, or other price consolidations. Now if the market is roaring and this one trade goes nowhere, something may be wrong. We may be able to put our money into another trade and get the return as opposed to waiting around. Avoid getting happy feet, however. If everything looks right, if you would still buy into the position today, you should most likely follow your analysis and let the play work.
TEAM TRADES
One of my favorite trades is a pre-split play, i.e., where a stock has announced a split and is close to its acutal split date. We often see stocks make a move to the upside as the split date approaches, particularly in a market with good upside momentum. Thursday night we put SASR on the report as it was in a very nice ascending wedge with the rising lows riding up the 50 day MVA. It made a high volume move Wednesday that did not break it out, so we were looking for it Friday. We watched, and about 45 minutes into the session it made the breakout. It is a thinly traded stock, but we have had a lot of good trades on thin stocks in pre-split moves. It made the move we were looking for and since there was no option chain the play was stock. It ran well on good volume (for this stock), adding $2 over the breakout; we are looking for another $2 or so for this play. With pre-splits we get the move, and when it looks to be stalling, we take profits.
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 from the reports: ENTU blasted off! Others include HEPH, PENN, BPFH.
Stocks/Indexes from Thursday's report:
NTIQ (subscriber's choice): Pulled back with a doji on lower volume.
HEPH: Broke out of the cup with handle on a strong gap higher. Upgraded.
WMI: Up on rising volume in the handle.
PENN: Another cup with handle breakout!
AMAT: See the bottom of the report.
BRCM: Ditto.
Previous plays:
CIEN: Continued to pull back, closing barely below its 18 day MVA Friday.
GDT: Looks ready to move up the handle; buy point is 51.63 for a breakout.
MCHP: Topped out on the breakout run and fell back on decreasing volume. Testing the breakout.
OCLR: Sold off in a complete retracement of the breakout. No news available.
WMT: Pulled back again, holding support at the 18 day MVA.
Indexes: The QQQ sold back to the 200 day MVA then bounced back. We are looking for support there. The SOX fell back to test its 200 day MVA then bounced back up 9 points. Will look for a hold at the support until another rally.
SUBSCRIBER'S CHOICE:
CLS (Celestica--$47.40; -0.70; optionable): Computer Peripherals
http://biz.yahoo.com/p/c/cls.html
STATUS: CLS is in a base of 15 months but well off the lows from September around 25, having crossed back over a long-term down trendline (connecting February and May highs) late November. After the breakout that accompanied the move across that resistance (together with the 200 day MVA, 41.50), CLS is pulling back, showing a tight doji on decreasing volume by Friday (2.78 million; avg. 2.6 million). The stock can pull back further since volume is still high, but look for support at the 45 range, near the 10 day MVA (44.56), a possible handle to a cup that started earlyAugust. From there, a strong move up and breakout over the December high (at the top of the recent breakout) at 48.40. Money flow looking good. Target: 58
BUY POINT: 48.53 on volume of 4 million or higher. Stop: 45.13 (7%)
POSITION: Stock and/or January $40 calls to buy (CLS AH).
http://www.investmenthouse.com/cd/cls.html
CORV (Corvis Corp--$3.06; -0.07; optionable): Telecom
http://biz.yahoo.com/p/r/rimm.html
STATUS: Just off the recent lows (from September at $1.19; high at 115) in its 16-month base. Mid-November CORV made a nice move in a 4-day run back over its 50 day MVA, ultimately hitting 3.90 that month and from there initiating a pullback to the current level. Volume was huge on the breakout run but has fallen off appropriately in this pullback, in which price has fallen twice off a short term down trendline connecting the November highs and the recent December high at 3.35. CORV showed lower volume Friday (4.1 million; avg. 4.65 million), closing with a doji a hair under the 18 day MVA, 3.08. It can slip back down for another test (did the same a week ago) of the 50 day MVA, 2.79, but look for that support to hold. The pullback pattern, with that action, will continue to squeeze between it and the down trendline, and we'd like to see an upside breakout then. The 200 day MVA is at 4.81. Money flow is strong; buying has been so as well but tapering off over the last week in the pullback. Target on a breakout: 5.
BUY POINT: Aggressive buy point over 3.25.
POSITION: Stock; options currently out of the money.
http://www.investmenthouse.com/cd/corv.html
Best Plays:
1) SNUS: Making a move up in the handle.
2) TMWD: Breaking out and still a buy.
3) PSSI: Ready to break out of its handle.
4) HGSI: A put play.
New:
DELL (Dell Computer--$28.94; -0.47; optionable): Personal computers
http://biz.yahoo.com/p/d/dell.html
STATUS: The PC stock broke out of a cup with handle base last week in a one-day move that DELL immediately tested Thursday and Friday with volume falling off nicely on the pullback (down Friday to 19.1 million; avg. 27.8 million). It is now forming another handle to its larger, 7-month base. DELL can test the buy point at 28.10 (just above a level of potential sturdy support at 28 from July and August), or even higher than that (28.40 to 28.50) on continued decreasing volume. Wherever it catches, we will look for another strong move up after this test of the breakout. The stock may see some benefit if the Compaq-HP deal falls through. Target: 36
BUY POINT: Aggressive: 29 on volume of 28 million or higher. Breakout: 30.21 on volume of 41.7 million or better. Stop: 28.10 (7%)
POSITION: Stock and/or January $25 calls to buy (DLQ AE).
http://www.investmenthouse.com/cd/dell.html
SNUS (Sonus Pharm--$7.15; +0.39; no options): Drugs
http://biz.yahoo.com/p/s/snus.html
STATUS: Making a move up in a handle to a 21-month base (high 11.25). The stock has shown the gradual decrease in price and volume we like to see in a handle, and Friday made a move up from its 18 day MVA (6.85). Volume was up slightly but still well below average at 58,700 (avg. 106,000). We are looking for that to surge and break SNUS out over the handle (November) high at 7.90. Huge money flow and buying. Target: 10-11
BUY POINT: 8.03 on volume of 159,000 or higher. Stop: 7.47 (7%).
POSITION: Stock only.
http://www.investmenthouse.com/cd/snus.html
TMWD (Tumbleweed Communication--$4.24; +0.29; no options): Internet Software
http://biz.yahoo.com/p/t/tmwd.html
STATUS: A software stock that is still at the bottom of its 15-month base (highs at 70), but off the April low of $1.17. The stock broke back over the 200 day MVA mid-November as it moved up the right side of its 6.5-month saucer, then it pulled back in a handle that resulted in Friday's breakout move. Volume was high at 512,700 (avg. 173,363), and while the stock made the breakout point at 4.20, it remains a buy on this move, being yet inside our 5% limit for buying on breakouts. Money flow and relative strength are surging, and buying looks good. Target: 6
BUY POINT: 4.25 on continued strong volume. Remains a buy on the breakout up to 4.45 on continued rising volume. Stop: 3.95(7%)
POSITION: Stock.
http://www.investmenthouse.com/cd/tmwd.html
Update:
PSSI (Pss World Medical--$10.12; +0.58; optionable): Wholesale Medical Equip
http://biz.yahoo.com/p/p/pssi.html
STATUS: Making a strong move Friday with volume continuing to climb above average (1.16 million; avg. 640,136). The stock is ready to break out of a flat base that is a handle to a large 18-month cup base (handle high at 10.24 from October) and looks like it can follow through here. This is a stock we played back in September when it ran nicely from a breakout at 7; the top of that run marked the completion of the cup with handle. Strong money flow and good buying. Target: 12-13
BUY POINT: 10.37 on continued strong volume (minimum breakout volume is 960,000). Stop: 9.64(7%). A buy on the breakout to 10.89.
POSITION: Stock and/or January $5 calls to buy (PYQ AB; low open interests and no delta available).
http://www.investmenthouse.com/cd/pssi.html
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
NVDA: Falling back on decreasing volume from its breakout. We will look for a catch at support for the next move up.
IDPH: Testing the 18 day MVA.
CACI: Split 12-07. Moved up nicely on the day.
LOW: Super run since early November. Taking a breather with volume falling the last 2 days.
MYL: Continues the lateral consolidation with volume falling further below average.
AJG: Getting ready to move off of support; resistance possible at the October highs.
APPB: Testing the breakout.
UP & COMERS PORTFOLIOS: Here is the new portfolio list: BBBY, EPIQ, KKD, MMS, NDN, SRCL, CPRT, BJ, EBAY, THQI, KG.
BJ: Tapped 40 last week and moved up nicely Friday. If it can keep moving, look for a run up the last leg of a double bottom.
THQI: Held the 10 day MVA after Thursday's selling.
EBAY: Pulling back on lower volume. We will watch for a handle to form here.
KKD: Headed higher on strong volume, in a move contrary to the market.
CPRT: Testing the recent breakout attempt with volume falling back nicely. Held above the 10 day MVA.
MMS: Looking better since it broke over the 50 day MVA Wednesday. Strong volume Friday resulted in another move up. November high is 46.50 (closed at 43).
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
A put play:
HGSI (Human Genome Sciences--$36.09; -3.92; optionable): Drugs
http://biz.yahoo.com/p/h/hgsi.html
STATUS: HGSI moved below the 50 day MVA a week ago after falling out of an ascending wedge, and after testing that new resistance Thursday on strong volume and failing to move back over, dropped almost 4 points Friday on rising volume (7.4 million; avg. 3 million). The stock tapped potential support at 35 and bounce back up a point, but if it does not hold and moves back below that level on continued selling, it can drop to 30 or lower.
BUY POINT: 35 on rising volume.
POSITION: January $45 puts to buy (HHA MI).
http://www.investmenthouse.com/cd/hgsi.html
BRCM: Testing the 18 day MVA as expected; volume continued to fall.
CHKP: Held support at the 10 day MVA as the market pulled back. Volume fell again.
MSFT: Lower volume (below average) and a doji as the stock bounced from a tap at the 18 day MVA. It just broke over the November high Thursday but was back below it next day.
AMAT: Holding the 200 day MVA on lower, below average volume. Buy point is over Wednesday's high (46.58); aggressive over 45 on a bounce.
BUD: Managing to hold the 50 day MVA with volume falling off below average. Squeezing between that and the down trendline noted in previous reports.
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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yahoo stock
world stock market
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