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INVESTMENT HOUSE.COMTM |
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Weekend Newsletter for
February 25, 2007
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
Market tests back to close a week that saw some breakouts and a large cap pullback.
- Market ends the week on a cautious note as last move is tested.
- Economic worries rise as the market fades, and though slowing some, the data does not support worries of collapse.
- Can the Fed reduce healthcare costs by raising rates?
- Worries of a correction continue even as indices hold their trends in an orderly pullback.
- Pullback trying to again set up new buy points for market leaders.
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Market Summary (continued)
Friday started with more of the same the market has seen for several weeks: some earnings (LOW, RRGB posted solid guidance), some analyst calls (KO upgraded), and some intrigue (MSFT hit with a $1.5B patent infringement judgment). There was even more M&A activity though it came after hours (KKR buying TXU).
Futures were lower, however, as the Thursday decline in the NYSE large caps spilled over to Friday morning. Not much of a decline, and if the buyers wanted an opening, the modestly lower start would provide it.
In addition to the same old news there was a twist, something that was growing since the Wednesday release of the CPI. The traders and brokers we talked to before the open complained about inflation, rising mortgage defaults, and rising oil prices. Financial stations were talking correction. With the market (defined as DJ30 and to some extent SP500 by the financial stations) fading the 'market people' were playing pin the tail on the reason for the selling. Each time the market starts to struggle and the players are nervous, they play this game.
Many believe the market is overextended, and with earnings growth likely to slow they are pondering just when the correction will come. It inevitably will, but it won't come along just because the players get heartburn wondering about when. It will come when it is ready, when it simply gets too much baggage to push higher. It has shown some stress with the distribution sessions following strong upside moves, indicating sellers are taking control from time to time, but it has also responded to those by regrouping and making new highs. Even NASDAQ joined in with its own post-2002 high this past week.
Read "The Daily" Entire Weekend Summary
Here's a trade from "The Daily" and insights into our trading strategy:
Company Profile
EARNINGS: Announced 2-1-07
STATUS: Double bottom. Excellent action off of the 90 day EMA that CELG used as support for the two lows in its 9 week base. After a strong run in 2005 through mid-2006 CELG needed some rest and it has formed a couple of bases. Friday it started the breakout from its second, clearing the 'hump' in the middle of the current base on strong, above average volume. Ready to move in as it continues higher and then again when it tests and/or forms a handle for the next breakout. Excellent fundamentals to go along with the strong technical pattern.
Volume: 4.881M Avg Volume: 3.521M
BUY POINT: $56.54 Volume=4M Target=$64.95 Stop=$54.65
POSITION: LQH GK - July $55c (63 delta) &/or Stock
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).
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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 post-split play and our current analysis.
Company Profile
EARNINGS: Announce 2-14-07
STATUS: Test breakout. GRMN broke out from a 7.5 month ascending base two weeks back on a strong earnings report; those GPS devices they put out are quite cool. You don't think you need one until you actually use one (sound familiar? PC's, fax machines, cell phones, wireless - - who would ever need such things?). GRMN is testing that move higher, holding the breakout and refusing to give up any gains. Love a stingy stock. The range is pinching off, narrowing while holding the move. That indicates the next move is approaching. Looking to move in as GRMN makes the next break higher. Strong pattern, strong fundamentals.
Volume: 1.665M Avg Volume: 2.718M
BUY POINT: $58.05 Volume=3M Target=$66.75 Stop=$55.32
POSITION: GQR GK - July $55c (67 delta) &/or Stock
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
We always like combination plays, i.e. a combination of solid fundamentals growth rates and top technical position. VCLK fills the bill. It has some of the top fundamentals growth rates in the market, and its technical strength has been top notch as well, providing us several points to make money on its current run. We love to play the big runs of leaders as well as the smaller runs within the bigger moves. In this way we can use a strong market leader to rev up our returns versus playing just one move.
Case in point. VCLK broke out from a 10 month base in early November, screaming higher on the initial move and then climbing up the 10 day EMA to $25.50. That breakout was the first buy point. After four bounciness off the 10 day EMA it was tired and needed a deeper test. It spent most of December and early January coming back to test the 50 day EMA. That low volume pullback had us watching it closely and we put it on the report when it came within range of the 50 day EMA. On 1-12-07 it closed right on the 50 day. The next session VCLK exploded higher on the first above average volume in a month. That was our signal to buy and we moved in with stock at $24.34 and some June $22.50 strike call options at $4/contract.
We were looking at this move because when a strong stock breaks out, runs, and comes back to the 50 day EMA it will typically use that rest point to reload and then start another 4 to 5 runs up the 10 or 18 day EMA. That is the bigger move we were looking to play following the breakout. Sure enough, VCLK proceeded a nice, steady move up the 10 day EMA. Things really got going just over a week back when it jumped sharply on strong volume as it moved into earnings week. We liked that action as it suggests insiders know something solid is coming. We rode VCLK into its earnings and it paid off with a gap from $26.47 to $28.88. It ran further after that gap, and when it looked to have peaked for the day we decided to take some gain. After all, a solid run and then an earnings gap put in about as much good short term news as you can get. We sold some stock for $29.03, a 19.2% gain, and some of the options for $7.10, a 77.5% gain or $310/contract.
VCLK faded some Friday, and it is likely to test a bit more and fill some of that gap higher on earnings. When it does come back for a test near the 10 day EMA (it will rise to meet the stock price as well), that will likely trigger the next move higher. We are not just going to sit and watch that move, however. We are once again going to look at moving in with new positions and fully utilize this strong stock to concentrate our investments and really ramp up our returns.
Learn more about our Technical Traders Report - Issued 5 Times Per Week |
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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!
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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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