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Begin Part 2 of 2
SUBSCRIBER QUESTIONS
Q: I was watching CNBC and heard several times that if/when it was announced Bin Laden was captured the market could probably expect a +/-500 point run on the news. Well, last night I heard several Military analyst's say they expect Bin
Laden to be captured more than likely within a week.
My question is, do you subscribe to the "victory rally" theory the financial analysts' are speaking of? If so what would be a good play for this? OEX ,SOX, QQQ? Furthermore, if indeed we did see this type of reaction from the market, how do you feel it would play out? 500 points over a span of one trading
session, two or three days? Thank you for your input.
A: Around the Thanksgiving holiday I opined that Bin Laden's capture was days away. At that time I believed that a big move would occur on the news. The market was giving signs of that as the QQQ traded up sharply on a story that his capture appeared imminent.
Now for the last week there has been ferocious fighting directed precisely at the Al Qaeda and supposedly Bin Laden is there. There have been those continued reports that you cited stating the end game is on and that capture or death is near. The market has had time to absorb that now. Thus, the impact is not going to be a surprise to the market in general other than a surprise at the exact timing of the news. That will bounce the indexes higher, but will it be 500 points (assuming that was on the Dow of course)? If it occurs after a bit of a pullback the bounce could be strong. Will it hold? Not all of it by a long shot; the news is being priced in with each bombing run. Right now I feel there is more risk to the downside if he is not caught or killed before Christmas. The market needs some good news from time to time to keep it moving forward. It has been pricing in the capture or death of Bin Laden, victory, and a stimulus package. Those need to come to bear or it could be a problem for the market as they are then priced out of the market.
The longer term aspects of his capture or death are the best story for the market longer term. While it does not mean the end of Al Qaeda and instant security, it will be a big confidence boost and that is good for the economy. That gets money spent, investments made, etc. that have been put off. Thus, we see a pop up on the news, but a 500 point rally in a day is a stretch. Maybe over two or three days, and not all of it will hold. Options would be a great way to play the news if you are nimble at getting in, riding the news, and then taking the profit. At the same time, we will have breakout points ready for stocks and indexes; clearing resistance is a good point to buy whether or not on news of capture or not.
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: SNUS broke out of its cup with handle! TMWD extended its breakout
Stocks/Indexes from the weekend report:
CORV (subscriber's choice): Continued to hold the 18 day MVA on low volume.
CLS (subscriber's choice): Falling back to the 45 level, support in the range of its 10 day MVA.
DELL: Continued the pullback as it tests the breakout, showing a tight doji off a lower test of the 10 day MVA support. Looking good.
SNUS: Breakout! Remains a buy on the move up to 8.43 (closed at 8.15).
TMWD: Another good-looking move as its breakout continued; beyond our limit for buying on the move (limit was 4.41).
PSSI: Retraced 100% Friday's nice move.
HGSI: Halted its downside move at 35, gapping down to the doji where it both began and ended the day. Not easy to find an entry point for the put on that move.
Continuing plays:
EMLX: Broke resistance at Thursday's high and moved up on rising volume. Looks ready to move up from here!
GDT: Moved up in the handle, though volume was even lower. However, the stock looks like it is getting ready. Buy point is 51.63 for a breakout (closed at 49.23).
OCLR: Tanked to the 50 day MVA, but held that support and made a very nice bounce back over the short term moving averages. Volume still strong though sharply lower, OCLR will still need some consolidation before it can take out the December high over 30.
UTSI: Trying to move back up after testing the breakout. Took out the breakout high but pulled back; volume was up and strong.
WEDC: After the nice run off the 50 day MVA last week (which was actually a failed attempt to break out of a 10-month cup with handle), the stock is pulling back the last 2 sessions, showing dojis and decreasing, low volume. Breakout is over the November high at 7.45 (buy point 7.58); aggressive positions over the December high at 7.25 (buy point 7.38). Setting up well for the move back up.
WMI: Up for the second day on a breakout from the double bottom with handle. Still a buy to 31.29 on this breakout.
Indexes: 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 sends it higher again.
SUBSCRIBER'S CHOICE:
RIMM (Research in Motion--$23.40; -0.08; optionable): Telecom
http://biz.yahoo.com/p/r/rimm.html
STATUS: Trying to form a handle to a 6-month cup base (that has formed at the bottom of a steep selloff that started in October 2000). RIMM tried to break out last week but halted at resistance at 25 (the 200 day MVA is at 25.84), pulling back the next 2 days with consecutive dojis and very low, decreasing volume (down to 785,000 Monday; avg. 2.5 million). Today the stock showed a 'shooting star' doji, a bullish indicator and one we have seen in many stocks that have made such lower volume pullbacks. RIMM looks like it is ready to try a breakout over the 200 day MVA. Showing decent and steadily uptrending money flow, and decent buying. Target: 31
BUY POINT: Aggressive: 24.73 (over the December handle high) on volume of 3.7 million or higher. Stop: 23 (7%). Breakout over the 200 day MVA: 25.97 on volume of 3.7 million or higher. Stop: 24.15 (7%).
POSITION: Stock and/or January $20 calls to buy (RUL AD).
http://www.investmenthouse.com/cd/rimm.html
Best Plays:
1) BZH: Forming a nice pattern in a well-performing sector.
2) MCHP: Close to support in the test of its breakout.
3) QQQ: A shooting star doji at the bottom of a pullback is bullish.
4) NVDA: Looks ready to head back up.
5) EBAY: Nice-looking pattern and looks ready to move.
New:
BZH (Beazer Homes--$71.76; -2.39; optionable): Materials & Construction
http://biz.yahoo.com/p/b/bzh.html
STATUS: One of the builder stocks that is forming a nice pattern, a cup with handle base of 19 weeks and pulling back in the handle with volume falling nicely (down Monday to 204,900; avg. 258,000). It has had a super run up from the September low to the present levels in just over a month. BZH has potential support at 70, in the area of the May high and some July and August prices, so if it continues to pull back, look there for a hold. The 10 day MVA is at 68.76 for support below that. We are looking for BZH to move back up from either of those levels, for a breakout over the December (handle) high at 75.50. The stock has excellent money flow and high relative strength. Target: 91
BUY POINT: Aggressive: 73 on rising volume. Stop: 67.89 (7%). Breakout: 75.63 on volume of 387,000 or better. Stop: 70.34 (7%).
POSITION: Stock only.
http://www.investmenthouse.com/cd/bzh.html
Update:
MCHP (Microchip Tech--$39.17; -0.94; optionable): Semiconductor
http://biz.yahoo.com/p/m/mchp.html
STATUS: Pulling back on steadily decreasing volume (down Monday to 2.1 million; avg. 2.3 million) off the breakout high of 42.43; MCHP broke out of a cup with handle 4 days ago and is now testing the move. Look for support at the 10 day MVA (38.58) if not in the range of the November high at 38.84. Additionally, 38 can offer support as well, at the level of some other November tops. Aggressive players can look at taking positions on a strong bounce from the support in a rally. Strong money flow and buying. Target: 51
BUY POINT: Aggressive: 39, on a bounce from the 38 or the 38.60 range, on volume of 2.5 million or higher. Stop: 36.27 (7%).
POSITION: Stock and/or January $35 calls to buy (QMT AG).
http://www.investmenthouse.com/cd/mchp.html
Index:
QQQ (Nasdaq 100--$41.00; -0.73; optionable):
STATUS: Hit our previous target at the 42.50 range when it broke out over the 200 day MVA last week, making the move we anticipated. Today the QQQ is back at support, the 200 day (40.74), showing a bullish shooting star doji and low volume (69 million; avg. 88.5 million). Look for a move back up from the moving average in a rally for taking aggressive positions. Initial target: 43
BUY POINT: Aggressive: 41.25 on rising volume in a rally.
POSITION: January $33 calls to buy (QAV 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
NVDA (Nvidia--$60.55; +0.60; optionable): Semiconductor
http://biz.yahoo.com/p/n/nvda.html
STATUS: NVDA is testing its recent breakout from an ascending wedge. The stock pulled back from the breakout high of 62.95 over the last 2 days with volume decreasing (excellent price/volume action), and Monday showed the slight gain with another doji, a loose shooting star on even lower volume (5.8 million; avg. 9.3 million). It looks ready to move up from here after this test, so we are looking for recent support at the 59 range to give it a launching pad. Setting up nicely, and money flow and buying look excellent. Relative strength is very high, too. Target: 76, though this is a long-term hold.
BUY POINT: Aggressive: 60.75 on rising volume in a rally. Stop: 56.50 (7%). New high breakout: 63, on volume of 9.5 million or higher. Stop: 58.59 (7%)
POSITION: Stock and/or January $55 calls to buy (RVU AK).
http://www.investmenthouse.com/cd/nvda.html
AJG: Hugging the 18 day MVA on low volume; want to see it hold there.
APPB: Tried to break out. It did post a new closing high but pulled off the new high of 36.18 on big volume.
FRX: Still in a down trend from the July high of 82.33, but was back over the 50 day MVA on strong volume today.
IDPH: Selling off, most likely collateral damage from PDLI; the stock needed a pullback but this was some heavier profit-taking today. We will look for it to hold the 50 day MVA at 63.20.
TARO: A nice low-volume pullback to the 50 day MVA. Look for a bounce and strong move up. December high is at 42.20.
UP & COMERS PORTFOLIOS: Here is the new portfolio list: BBBY, EPIQ, KKD, MMS, NDN, SRCL, CPRT, BJ, EBAY, THQI, KG.
EBAY (Ebay--$67.00; -0.95; optionable): Internet Software
http://biz.yahoo.com/p/e/ebay.html
STATUS: Finally, a possible decent entry point. Pulled back to support, its 10 day MVA, in a new handle to the 5-month cup base. Volume was down again, decreasing for the third day to 5.3 million (avg. 8.5 million) with EBAY showing a shooting star doji right at the support. That is a bullish indicator along with the very good price/volume action, so we will see if the stock moves back up from here. All the signs are certainly pointing toward that. EBAY has been a strong mover since early November, and we are looking for a breakout here too. High money flow. Target: 85
BUY POINT: Aggressive: 68.10 on rising volume in a rally. Stop: 63.33 (7%). Breakout: 70.50 on volume of 12.8 million or better. Stop: 65.57 (7%).
POSITION: Stock and/or January $60 or $65 calls to buy (QXB AL or AM).
http://www.investmenthouse.com/cd/ebay.html
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
BUD: Tried to break higher, and did make it back over the down trendline and its short term moving averages, closing just above that support off its high of 43.40 (closed at 42.95). Strong volume.
CHKP: Lower volume and a doji at the 18 day MVA.
MSFT: Another lower volume pullback to support (its 10 day MVA), showing a doji. Getting ready to try another move up. December high is 69.
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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