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Weekend Newsletter for
September 17, 2006
Table Of Contents 1) MARKET SUMMARY 2) STOCK SPLIT PLAY 3) TECHNICAL PLAY 4) COVERED CALL PLAY |
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| | Stock Split Notices Investing Q & As Glossary |
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1) MARKET SUMMARY
> >From "The Daily" at InvestmentHouse.com
Stocks try to rally on the CPI but the afterburners can't kick in.
- CPI in line and stocks rally but come home mixed after a week of gains and a Fed meeting ahead.
- Core year/year CPI hits 10 year high, but indicators are still not showing inflation worries.
- September not looking like September for hurricanes or the market.
- Market needs a rest ahead of Wednesday FOMC meeting.
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Market Summary (continued)
Investors breathed a sigh of relief as the CPI came in as expected. Never mind the core year over year hit a 10.5 year high at 2.8%; the monthly figures were in line and some key components fell hard (e.g. gasoline), and will far even further in the next report. In line was just fine for an inflation weary market, particularly with oil still weak, gold going lower, and bonds still trending lower overall.
It was enough to jump stocks higher with NASDAQ gapping up at the open and all of the indices making a run at next resistance. After a week of gains, however, the stomp on the accelerator at the open emptied the tank. A quick test of the early move and stocks were back up at the session highs, but they could not carry it further. They then spent the rest of the day bouncing up and down but whittling away the morning gains all along. NASDAQ even turned negative and SP500 flat midday before an early afternoon bounce. The momentum could not sustain into the close, however, as stocks faded back in the last hour into the bell. Given the FOMC meeting on Wednesday and a week of gains already in the bank, it was hard to make much headway.
Technically the indices continued to lose some strength, unable to hold a morning advance on some decent news. NASDAQ cleared next resistance at the June high but fell back after bumping the bottom of the Q1 trading range. SP500 tapped the May high and retreated and DJ30 did the same. They managed to hold their gains but closed well off the highs. SOX rallied near its June high and then it too faded, and indeed turned negative at the close.
Read "The Daily" Entire Weekend Summary
Here's a trade from "The Daily" and insights into our trading strategy:
Company Profile
STATUS: Cup w/handle. Kind of skewed and could be called a reverse head and shoulders, but either way a nice base set up over the 200 day SMA (10.05; used it on the pattern low as support) and now in a nice lateral handle to its 22 week base. Positive accumulation and money flow surging higher ahead of price. It is ready, but needs to show strong trade as it makes the move higher.
Volume: 234.421K Avg Volume: 356.155K
BUY POINT: $12.48 Volume=525K Target=$14.35 Stop=$11.86
POSITION: KXQ CV - Mar. $12.50c (55 delta) &/or Stock
Learn more about "The Daily" with Stock Picks! - Issued 5 Times Per Week
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2) Stock Splits Playing stock splits can be very profitable, but it takes know-how. Our stock split service focuses on three main types of plays: 1) pre-announcement (where we forecast an upcoming split prior to the company making the announcement); 2) pre-split (these plays are made in the days leading up to the actual split day); and 3) post-split plays (plays made after the actual stock split where the stock is showing continued or renewed strength).
For post-splits, we can play them as we would pre-splits (very short term), but we prefer to stretch our horizons, playing the trend. When playing options, we look further out, 2 or more months at least. We let the trend carry us along if there is one, but we will also take profits if the technical pattern degenerates, e.g., breaks a trendline. The main difference between post-splits and pre-splits plays is that we really have to like the pattern. Pre-splits can run right before their splits even with poor technical indicators. For post-splits, we are looking at the stocks from more of a longer term "would I buy this stock at this juncture?" position. Now there are times when a hot stock splits and investors pile in to get in while the stock is 'cheaper.' We play those, but with more of a short-term, pre-splits mentality in that we will be ready to get out fast if the momentum fades.
Remember, everything we do has to pass muster with the market that day ... don't fight the market on these plays.
Listen to Stock Split Report Editor Jon Johnson's
stock split interview on CNBC-TV [ Broadband | Dial-up ]
Here's a play on a stock that split last December and our current analysis.
Company Profile
Semiconductors have been market leaders in the late summer to early September rally, and when we can match up a good sector and a good leader in a solid pattern we get ready to take advantage of it. It split in December, continued its run and then fell into a nice 17 week ascending base, making higher lows up the 200 day SMA. When it came off the 50 day EMA on strong volume on 9-8-06, we put it on the report that weekend. Monday it posted a modest gain but no volume. Tuesday is blasted higher on volume and we moved in with some stock at $39.64 and December $40 call options at $4.00. The stock closed that session out at $40.86, already building in a nice gain. It took a pause the next session after that breakout price and volume move, and then Thursday it put on the dog, gapping higher and posting a $3.62 point gain, hitting $44.81 on the high before closing at $44.01. It raised its Q3 guidance and shot higher on the news.
Some luck yes, but good news tends to follow good market leading stocks that are in sound fundamental and technical shape. DIOD met these criteria nicely. Whenever we get a big gap like that as a result of positive news we like to bank some gain. We sold some stock for $44.30 and an 11.75% gain. We didn't get the high or the low, just took some gain when we saw it start to pullback from its run after the gap higher. We also sold some options for $6.80, banking a very nice 70% gain in less than three sessions. We will let the other positions move higher for us if they will, but will have to keep an eye on that gap as stocks tend to fill gaps sooner or later
Learn more about our Stock Split Report and how we have made gains of 321% with our powerful stock split plays!
Details Here. |
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3) TECHNICAL PLAY Company Profile
STATUS: Reverse head and shoulders breakout. Volume moved up to just over average Friday as ADS started higher on the breakout from its 8 week pattern that formed at the bottom of its 10 week cup base; this pattern often forms at the bottom of a cup base and launches a stock up the right side. Positive accumulation in the base has set up the next move; not bad as the pattern has not fully developed. Volume has moved higher as ADS started this move toward a new all-time high. Strong fundamentals to go along with its nice technical pattern.
Volume: 1.029M Avg Volume: 951.209K
BUY POINT: $55.05 Volume=1.2M Target=$61.95 Stop=$52.89
POSITION: ADS CK - Mar. $55c (51 delta) &/or Stock
Learn more about our Technical Traders Report - Issued 5 Times Per Week | |
4) COVERED CALL PLAY Company Profile
Learn more about our Covered Call Tables - 8 Tables Updated 5 Times Per Week |
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Tech Traders: Breakouts, wedges, etc...focusing on stocks ready to move now!
The Daily: "The Daily" is a must read for all investors!
MARKETPLACE Investor's Business Daily: Complimentary subscription delivered to your doorstep!
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The foregoing is commentary for informational purposes only. All statements and expressions are the opinions of Online Investment Services, LP., or Split Ventures, Ltd. This information is 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 the related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolios of writers for this issue may, in some instances, include securities mentioned herein and on the related 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. No one associated herewith receives compensation in any manner from any of the companies that are discussed in this newsletter or on the related websites.
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