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Weekend Newsletter for
March 4, 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
The week that got everyone talking.
- No relief move to end a harsh week.
- The economy is fine as long as we don't let our leaders wreck it.
- Weekend worry likely to lead to more selling to start the week but that will foster the interim rally.
- What to do when the panic sets in.
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Market Summary (continued)
There were many signs things were weakening. We talked about the extended run, the distribution that eroded the market foundation and tossed back every NASDAQ rally attempt, and the flattening trendlines. Each time things got the least bit dicey, however, new money flowed back in and propped up the advance. Of course that all ended last week when a confluence of events finally gave the buyers pause. The Greenspan misquote, China's threat to crack down on speculation, Japan warning the carry trade was going to end, and tanking durable goods orders brought it to a head and brought on the selling. The market was in a nice pullback, but when this news hit the buyers lost their appetite.
Friday started weak, unable to continue the Thursday rebound off of the early session knife lower. No specific news, just more malaise that later turned into some much more aggressive selling into lunch and into the close. Dell was down on its poor earnings but there were some upgrades (LUV, XLNX) and the Fed's Poole said there was no recession coming. Didn't help. The market was in a bad mood and was ready to continue its sulking.
Technically a weak week weakened further on Friday with the lower close, but it did not make a new low. It was an inside day on the main indices, and that can be a precursor to change. It all depends upon which way they break from this signal moves; guess that really makes this something of a non-signal.
Read "The Daily" Entire Weekend Summary
Here's a trade from "The Daily" and insights into our trading strategy:
Company Profile
EARNINGS: Announced 1-17-07
STATUS: Breakout test. CVNS broke to a new 6 year high in mid-February on the breakout run from its 14 week trading range. Strong volume and price surge on that move. It spent the past two weeks testing the move, holding the 50 day EMA (23.93) during last week's pullback. Strong volume Thursday as CVNS tested the 50 day and posted a gain. That shows buyers are still there, buying positions on the pullback. Looking for more of that strong volume as it bounces up off this support in an overall market relief rally.
Volume: 258.233K Avg Volume: 173.098K
BUY POINT: $25.41 Volume=300K Target=$30.45 Stop=$23.89
POSITION: CUC GE - July $25c (57 delta, low OI) &/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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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
EARNINGS: Announced 2-14-07
STATUS: Test 18 day EMA. Gapped higher on the earnings and the split in mid-February. It was testing back to start last week and then gapped sharply lower Tuesday as the retailers were thrown out en masse on fears the consumer would fold. It is not going to because jobs are solid and thus confidence is high. In any event, GES filled the gap on Tuesday and then rebounded the same session. It worked laterally to end the week, pretty much immune to the other issues. Looking for a hold here and then a bounce as the market starts its relief rally. GES is well-positioned to give us plenty of upside in that market move.
Volume: 614.6K Avg Volume: 779.598K
BUY POINT: $81.88 Volume=845K Target=$91.45 Stop=$79.45
POSITION: GES FP - June $80c (59 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
With the market showing signs the 7 month rally was stumbling there were stocks that were leading downside just as there are upside leaders that lead higher ahead of the overall market. We like to identify leaders, upside or downside, and get in as they set up and start to make their moves. Thus when the rest of the market joins in, we can sit back and watch the profits pile up and take some gains.
SHFL was one of these stocks. It formed a top in December and sold off, rebounding in January and February, but stalling at the 50 day EMA. It gapped lower from that level in early February, and after a rebound to test it started sliding lower once more. That failure once more below the key 50 day EMA caught our attention and we put SHFL on the report on the weekend of 2-24-07. Earnings were coming out the next week, and the way the market was treating those that disappointed we knew we stood to make some nice gain. SHFL's pattern was very bearish, and as is often the case, the pattern tells the story as to earnings as the insiders and the smart money sells out ahead of time.
SHFL started lower the following Monday and we moved in with some April $25 strike put options at $1.50 with the stock trading at $24.78. Given the delta and SHFL's typical $1.50 to $2 decline on each downside leg we figured a gain of 45% to 50% on a move to the target. As it typically takes just a week or so to make the move, that is some strong gain. There was also the wildcard of the earnings that could spice that gain up a bit.
Earnings were released and SHFL's outlook did not please the street. SHFL gapped to $20.66 on the open and bottomed at $20.04 before starting to rebound. With volatility spiking on the news our option value was pumped up to $4.70. Once the news disseminates volatility tends to drop and thus your option loses some value even if it holds steady. Given the news was out we took some gain, a nice $4.70 per option. That is a pretty nice $3.20 per contract, or 213%.
That earnings really did spice up the profit on this one, but then again, the pattern was weak heading into earnings and it gave us a great entry point. With those going for you that is when you gain an edge on the market. It requires you, however, to be ready to take what the market gives, and that means if the market shows signs it is running out of steam as this market did you have to be ready and able to take advantage of it. That means knowing how to play the downside, something we teach at our website at http://www.themarketbeat.com. A new options seminar will be posted in the next couple of weeks and we will let you know when it is so you can learn how to put options to work for you whether the market heads upside, downside, or just moves laterally.
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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