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Weekend Newsletter for
November 5, 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 manage to hold the line Friday, but cannot turn the tide.
- Improving jobs report, solid ISM services help stem the selling but can't change the week's character.
- Jobs report weaker but stronger
- ISM Services, largest part of economy, showing no chinks.
- September and October robbing from traditional year end rally?
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Market Summary (continued)
All week investors looked to the Friday jobs report, but frankly, the data ahead of that set the tone for the week. Friday the jobs report was again split with non-farm payrolls lighter than expected but the unemployment rate really on the fade (4.4%). With revisions to August and September, however, the report tilted much stronger than the October non-farms payrolls suggested. In addition, the ISM services report surged to a solid 57.1, countering much of the weaker data earlier in the week. Services are a much larger part of the US economy, and their resurgence as oil prices fall is a very good sign versus the slower ISM.
Nonetheless, all that news could do was slow the selling seen in the week. The slower ISM, construction, factory orders, and continued solid but less than spectacular earnings set the tone for the week, and the Friday news, while solid overall, could not turn the tide. Indeed, given the market mood for the week it only engrained some negative views: investors bemoaned the weaker economic data earlier in the week, but then viewed the stronger data as keeping the Fed in the pause cycle versus moving toward a rate cut. Investors were simply in a bad mood and did not want to view anything positive.
Over the past few weeks the market moved through earnings season, and given the move higher ahead of results it could not advance even with more overall solid results. Still, the indices did not sell, they just slipped sideways, holding their gains, setting up for the next move. Indeed, NASDAQ and SP600 were setting up well. Then that weaker data hit, but instead of getting things ignited it conjured visions of stagflation given the flat productivity reading and the rising unit labor costs. In Star Trek terms, it was a Kobayashi Maru, the no-win situation. With a good run already under the belt in the traditionally weak months of September and October, the news was enough to make the market stumble. Some distribution (high volume selling) hit the indices. They started to break down in their consolidations as DJ30 and SP500 fell below the 18 day EMA for the first time in months. Leaders, the backbone of the market, reported solid earnings but some were treated badly, tumbling down toward the 50 day EMA or worse. The results were not bad, just not good enough to send most stocks higher.
Read "The Daily" Entire Weekend Summary
Here's a trade from "The Daily" and insights into our trading strategy:
Company Profile
New issues are always worth watching, particularly when they have strong earnings growth. MA is one of those stocks. It came public in May, and when a stock does that we typically wait for its first base and then move in. MA didn't really base, just worked laterally and then rallied sharply through September. It then fell back and side-stepped for October on low volume. It didn't give up its gains, a sign of strength as it worked sideways along the 18 day EMA. When we started to see volume perk up again even as it moved laterally we got interested.
We put it on the report 10-28-06 and then waited for the break higher on volume. The next day it stalled on lower trade, but on Halloween it jumped higher on a big volume surge as it traded heavily ahead of its earnings. We moved into some stock positions at $73.14 and some April $75 strike call options at $7.10. It was an earnings play and there is some risk associated with those, but we knew MA's earnings would be strong. They were and the next session MA gapped higher to $81.75 and ran to $89 on the high of the session. When it started to fall back from that initial run we decided to take some of the gain off the table. We sold some stock for $85.45 (16.8%) and some of the options for $13 (102%), letting the rest run given the strong move. MA finished the week strong even in a weaker market, putting another $4.40 on the board for us. We will let it rally for us as far as it will on this run then book some more gain.
Learn more about "The Daily" with Stock Picks! - Issued 5 Times Per Week
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* * * SCOTTRADE * * *
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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).
We play pre-split plays as short-term plays. We get in when the technical indicators show us things look right, grab as much as we can, and get out, always being conscious of resistance and support. These stocks are highly volatile at this time, and can turn on you quickly. Don't let good profits disappear. Watch for turns, especially when a stock trades in a wide range and finishes off its high. That is a sign these stocks often give you that they are running out of steam. We usually get out and ask questions later. We can always get back in. We like to play in the money calls, preferably two strike prices in the money as this usually gives us a greater delta (the percent an option will mover versus the stock's movement). We prefer deltas of 75 or better. This means if the stock moves 1 point, the option should move three-fourths of that point. That means up or down.
Remember, wait to see the stock start to move up. Don't just blindly make a play and don't try to guess tops and bottoms. We can look at indicators to give us a clue as to what will happen, but we need the stock to confirm it for us.
Listen to Stock Split Report Editor Jon Johnson's
stock split interview on CNBC-TV [ Broadband | Dial-up ]
Here's a pre-split play and our current analysis.
Company Profile
STATUS: Double bottom w/handle. Another nice doji on top of the 18 day EMA (58.44) as STLD continues the excellent handle formation above near support. All we have to do on this one is let it show us the breakout move. To recap: Testing to form the handle the past week, holding near support as it forms the handle to its 6 month base. Solid upside volume to finish the right side of the pattern and now a nice lower volume fade to form the handle. Did not get much mileage out of the split announcement, but the pattern is solid and STLD can rip off a lot of real estate in a hurry when it gets moving.
Volume: 842.724K Avg Volume: 1.34M
BUY POINT: 60.05; Breakout: $62.22 Volume=2.1M Target=$72.45 Stop=$59.95
POSITION: RQL BL - Feb. $60c (60 delta) &/or Stock
Learn more about our Stock Split Report and how we have made gains of 321% with our powerful stock split plays!
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3) TECHNICAL PLAY Company Profile
EARNINGS: 11-20-06
STATUS: Test breakout. Big surge in mid-October to take AMAG out of its 6.5 month base. Nice test the past two weeks, coming back to the 18 day EMA (39.56) Thursday and Friday. Volume jumped Friday as it tested through the 18 day and then rebounded. Nice breakout to a new all-time high, riding that strong 7 to 3 accumulation (7 up price weeks on rising volume to 3 down price weeks on rising volume) to the breakout. That will keep it going after this test.
Volume: 347.378K Avg Volume: 204.173K
BUY POINT: $40.68 Volume=350K Target=$48.85 Stop=$39.07
POSITION: AVM BH - Feb. $40c (53 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 |
PREMIUM SERVICES
IH Alerts: InvestmentHouse.com's Best of The Best Plays!
Stock Split Report: Forbes.com Best of the Web
Covered Calls: 8 Tables with nightly updates - energize your portfolio!
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!
Block All Pop-Ups! Complimentary tool from Amazon.com.
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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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