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Begin Part 2 of 3
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
1-28-02
New Home Sales, December (10:00): 946K (+5.7%) actual versus 923K expected and 934K prior.
1-29-02
Durable Goods Orders, December (8:30): +2% versus 1.3% expected and-4.8% prior.
Consumer Confidence, January (10:00): 97.3 actual versus 96.0 and 93.7 prior.
FOMC Meeting started
1-30-02
GDP-Adv., Q4 (8:30): +0.2% actual versus -1.1% expected and -1.3% prior.
Chain Deflator-Adv., Q4 (8:30): -0.3% actual versus 1.9% expected and 2.2% prior.
FOMC Meeting (2:15): FF rate unchanged.
1-31-02
Initial Jobless Claims, 1/26 (8:30): 376K versus 376K prior.
Employment Cost Index, Q4 (8:30): 1.0% versus 1.0% prior.
Personal Income, December (8:30): 0.2% versus -0.1% prior.
Personal Spending, December (8:30): -0.2% versus -0.7% prior.
Chicago PMI, January (10:00): 45.0 versus 41.5 prior.
Help-Wanted Index, December (10:00): 45 versus 45.
FOMC Minutes, 12/11
2-1-02
Nonfarm Payrolls, January (8:30): -60K versus -124K prior.
Unemployment Rate, January (8:30): 5.9% versus 5.8% prior.
Hourly Earnings, January (8:30): 0.2% versus 0.5% prior.
Average Workweek, January (8:30): 34.2 versus 34.2 prior.
Michigan Sentiment-Prel., January (9:45): 94.2 versus 94.2 prior.
Construction Spending, December (10:00): 0.2% versus 0.8% prior.
ISM Index, January (10:00): 49.5 versus 48.2 prior.
SUBSCRIBER QUESTIONS
Q. In your reports you will mention for some options whether there is low open interest or no open interest. How am I supposed to interpret this?
A. Open interest tells us how many options contracts are open. We look at open interest because it tells us the liquidity of a particular option. If there is low liquidity, there is typically not going to be the same opportunity to 'shave' the spread - that is, get a price inside the ask if you are buying or the bid if you are selling. Also, a major consequence of low open interest is the effectiveness of stop orders. We can use stop orders on options like we can with stock, but with an option with low open interest there may well not be a trade that will trigger your stop. This makes it advisable to manually enter your sell price when a target or stop price has been hit.
We point out that there is less than 100 open interest because we find that over 100 can provide the necessary volume to overcome the problems discussed in the preceding paragraph. The more the better, but when you get under 100 liquidity becomes a real issue. Moreover, even if there is over 100 contracts out there, we do not like to be more than ten percent of the market. Having a substantial amount of open interest is nice, but does not mean much if a large chunk of it is your own position.
TEAM TRADES
We took some profits when targets were hit on plays from the reports, e.g., ACFE, ACF, EAT, PCS and FRED. We also had some trailing stops hit that helped preserver some gain on stocks that had rallied but just had not hit the target (e.g., AMZN, CBR, BLL, ARX, AMTD).
GNSS: Were really ready for this stock to fall as it had broken below support, tested, and was heading lower. It was and we jumped on board about a half hour into the session when it moved below 57.25. The stock then tanked to 55. And then it recovered back to close at 57.70. Volume was strong but less than the selling; it is still below the 50 day MVA that has pushed it back the last two times it tested it. We still like it to the downside.
OEX: We were ready for this one when it crossed 556.95. It did that about 35 minutes into the session. It started down and hit 546 on the low just 2 hours later. A quick 10 points; we thought about taking some money off the table, but the selling was vicious and lots of distribution. When it bounced, we figured it was due for a bounce after such a hard selloff. It made it back to 550, a point where it has bounced down from and up from in the past. It moved sideways at that level for 45 minutes. We were thinking it would turn lower, then it moved higher. We never got the selling we were looking for late in the session. Still holding the positions because the index is still in trouble, but we HATE riding them back up like this. Still, the big picture as to why we took the position is still in place, and we will have to have patience to let it play out just as we did last time.
THE PLAYS:
Good movers: Upside: COST made a strong bounce from 43.60 hitting our buy point of 45.50 in the double bottom with handle and remains a buy up to 47.78 (stock and/or April $42.50 calls). Good, solid move! Downside: From the Tuesday update, MMM dropped to our initial target (105) intraday then bounced back up on strong volume. It closed just under the 18 day MVA. We said we would watch for weakness at 105 for a continued move down to 100, but no dice, at least for now (our other put from last night, INTC, bounced from the 50 day MVA on rising volume, closing above the 18 day MVA).
AFCE looks ready to top out, showing a hanging man doji at the top of its recent run; a good place to take money off the table (10% above the buy point at 26.34).
Stop Advisories hit today: ARXX (trailing stop=16.50 on buys at 15.13), AMTD (trailing stop=5.50 on buys at 4.13), RMG (25.70), BLDP (30.25)
Targets hit today (all puts): PCS (15.75), ABGX (22), APC (44)
Best Plays:
1) GOSHA: A tight ascending wedge.
2) CAKE: Making the bounce.
3) ACDO: Tight at support in the test.
4) INVN: Now looks good for upside.
5) CASY: Solid bounce from the 50 day MVA.
6) ECL: Breaking out!
New:
GOSHA (OshKosh B'gosh--$41.98; +0.93; no options): Kid's clothes
http://biz.yahoo.com/p/g/gosha.html
STATUS: Broke out of a cup mid-November and on the test has formed a tight ascending wedge with lows at the 50 day MVA. More immediate support is the 18 day MVA from which GOSHA moved up Wednesday on continued strong volume, though that was down to 68,400 (avg. 43,318). Looking for a breakout over upper resistance at 43. Given the better-then-expected economic numbers, some retailers like GOSHA that are in good patterns and not over-extended could give potentially good breakout. Target: 52
BUY POINT: 43.10 on rising volume (minimum breakout volume is 59,000). Stop: 40.08 (7%)
POSITION: Stock.
http://www.investmenthouse.com/ct/gosha.html
Back on:
ORI (Old Republic--$28.99; -0.06; optionable): Insurance
http://biz.yahoo.com/p/o/ori.html
STATUS: Pulling back in a tight test of the breakout; ORI broke from its 4-month ascending wedge. Showed a tight star doji Wednesday as volume continued to drop; now it is still high, but ORI tapped the 10 day MVA on the low (28.70) before bouncing back up. It can test the 10 day MVA again and still hold above the buy point of 28.58. Target on a move back over the January (breakout) high at 30: 35. Volume was 565,900 (avg. 331,000). Reported good earnings Tuesday.
BUY POINT: Aggressive: 29.50 on rising volume. Stop: 27.44 (7%)
POSITION: April $25 calls to buy (ORI DE; low open interests).
http://www.investmenthouse.com/ct/ori.html
CAKE (Cheesecake Factory--$34.95; +1.12; optionable): Restaurants
http://biz.yahoo.com/p/c/cake.html
STATUS: Made the move we wanted, bouncing from the 50 day MVA on strong and rising volume (523,300; avg. 497,000). CAKE looks like it is running into its earnings report, after the bell Thursday. The stock closed just above the 18 day MVA (34.85) and is ready to hit our aggressive buy point of 35.65. That would put it over today's intraday high (35.05). Money flow and relative strength are ahead of price. Target: 41. The January high is at 37.75.
BUY POINT: Aggressive: 35.65 on continued rising volume. Stop: 32.69 (7%)
POSITION: Stock and/or April $30 calls to buy (CFQ DF; 76 open interests).
http://www.investmenthouse.com/ct/cake.html
From the Tuesday update: TRI continued to pull back in the handle, tapping the 18 day MVA on the low as volume fell further. Good action; continue to look for a move up to breakout. IOM made a nice move up with volume rising, off of the 18 day MVA in its breakout test. Going to take on the 200 day MVA and the January high!
New from Monday:
USAI (Usa Networks--$28.30; -0.90; optionable): Media
http://biz.yahoo.com/p/u/usai.html
STATUS: Moved to a high of 30.11 on the earnings report then pulled back as volume fell Wednesday (8.5 million (avg. 3 million). The stock is holding above the buy point (27.95), and for a proper test will want to see that support hold for a strong move back up. The breakout move looked good but the pull off the high was a portent for today's action. Still okay if it can hold this support. Target: 33
BUY POINT: Aggressive: 28.50 after a test of the buy point range. Stop: 26.51 (7%)
POSITION: Stock and/or April $25 calls to buy (QTH DE).
http://www.investmenthouse.com/ct/usai.html
ACDO (Accredo Health--$48.05; -0.40; optionable): Health Services
http://biz.yahoo.com/p/a/acdo.html
STATUS: Still holding tight in the test of the breakout, showing its third doji (on a gradual pullback) above the 18 day MVA, and today, it just about can't sit any lower on the support without breaking it (47.92). Volume was up to 572,100 (avg. 533,000) and the stock showed a hammer doji (interesting; the 3 dojis started with a shooting star, then Tuesday a star, and today the hammer). The action weighs out to "bullish". Looking for a move back up soon. Strong money flow and buying. Target: 60
BUY POINT: Aggressive: 50.15 on volume in the range of 700,000. Stop: 46.64 (7%)
POSITION: Stock and/or March or May $45 (DZU CI or EI) calls to buy. Low open interests.
http://www.investmenthouse.com/ct/acdo.html
Put:
CELG (Celgene--$27.14; +1.31; optionable): Biotech
http://biz.yahoo.com/p/c/celg.html
STATUS: CELG hit the buy point (25.35) today after opening on a gap lower (24.30). Profits were good but analysts expressed concerns for the future. The stock tanked to 22.65 (our target is in the 20.50 range, at the September low) then bounced back up in a pretty strong moved since volume was so strong (4.7 million; avg. 1.4 million). Closed at resistance, the 10 day MVA, and has other resistance ahead at the 200 day MVA (27.75) and the coincidence of the down trendline and the 18 day MVA at 28. May drop again if resistance proves tougher than the stock, though the low (22.65) may be as far as CELG will fall for now.
BUY POINT: Aggressive: On the kiss good-bye, 27 on continued strong volume.
POSITION: April $35 puts to buy (LQH PG).
http://www.investmenthouse.com/ct/celg.html
Covered Call:
INVN (Invision Tech--$37.00; +0.15; optionable): Scientific & Technical Instruments
http://biz.yahoo.com/p/i/invn.html
STATUS: Showing its third consecutive doji above support at 35 (10 day MVA), and volume is falling back in what now looks like a handle to a small 5-week cup. The pattern formed off the strong December breakout. It does not look like INVN is going to make the drop to the 18 day MVA; instead it is looking bullish here (volume down to 1.09 million; avg. 2.9 million). This is a nice consolidation after the weaker bounce from the 10 day MVA several days ago (when we looked for a pullback for the covered call play), so look for a stronger move up from here. January high is 39.40 in the handle. The March $35 calls were selling for $6.20 before hitting the buy point (36.95 on Monday); they were selling for $6 at the close Wednesday. The stock may test down to the 10 day MVA again before heading out (it is at 35.34) for a lower exit point. Upside target: 47
BUY POINT: Upside: 39.50 on volume of 4.5 million or higher. Stop: 36.74 (7%)
POSITION: Stock and/or April $30 calls to buy (FQQ DF).
http://www.investmenthouse.com/ct/invn.html
TROW (T.Rowe Price--$36.28; +0.82; optionable): Financial
http://biz.yahoo.com/p/t/trow.html
STATUS: Financials had a bad day Tuesday, but TROW, after hitting the 50 day MVA on the low today, bounced back over the 18 day MVA (33.59). Volume was down but still strong on the move (665,500; avg. 570,000). The stock is in a 22-week cup with handle, and this move puts it back in better position in the handle. We look for a hold at the 18 day MVA for another day or two as the stock digests Tuesday's selling, then a move up toward breakout. Money flow and relative strength remain ahead of price. Target: 45
BUY POINT: Breakout: 37.75 on volume of 855,000 or higher. Stop: 35.11 (7%)
POSITION: Stock and/or April $30 calls to buy (RQW DF).
http://www.investmenthouse.com/ct/trow.html
CASY (Casey's General Stores--$14.89; +0.28; no options): Grocer
http://biz.yahoo.com/p/c/casy.html
STATUS: Good moves in food. CASY made the bounce from the 50 day MVA, the move we wanted, with volume backing the move at 280,300 (avg. 162,000). The stock is testing the breakout from its 4-month cup with handle base (December), and on this move looks ready to take on the breakout high (15.47). Showing excellent money flow and high relative strength, both ahead of price. Target: 18
BUY POINT: Hit aggressive buy point at 14.70. New positions on a move over 15. POSITION: Stock.
http://www.investmenthouse.com/ct/casy.html
End Part 2 of 3
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