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us stock market, trend trading stock
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Weekend Newsletter for
August 5, 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
Relief bounce short-circuited by Bear Stearns 'calming' conference call.
- Market was holding its own into the weekend until Bear Stearns stirred the bears.
- The interesting side of this volatility.
- Will the Fed try to nip the credit problem in the bud?
- Taking the jobs report with a healthy dose of salt.
- Rollover from a modest bounce paves way for another quick test lower, but will the Fed take that action?
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Market Summary (continued)
Stocks recovered Wednesday in a big way from further selling, making the shorts scream as loud as the longs prior to that bounce. Thursday was a modest but steady rebound, continuing the bounce back from the selling that took SP500 down to test its 200 day SMA. Friday started off modestly, but it continued the upside move as well with some back and forth trade that broke to the upside ahead of lunch.
Not bad as the market had to overcome some less than solid jobs growth and a weaker than expected ISM services report. Of course the jobs report was skewed: it reported education lower (summer break?) but no one believes there are fewer teachers out there. Thus the market saw through the lower numbers and recovered. Sure the sellers took their obligatory shot, sending the decent open to negative after the economic reports, but the indices set up an intraday reverse head and shoulders and bounced out of that weakness. Good move, but we noted in a midmorning alert that it was Friday, and the key for the market was how it held into the close on a Friday in a market with an inferiority complex.
Then BSC had its conference call, the one that was going to explain the problems with now its third hedge fund gone bad. It did that, reassuring analysts and investors the company had plenty of funds to ride out a 'perfect storm' of bad events. When an analyst then asked whether the company would buy back some of its stock, however, the CEO hedged, saying that the company wanted to preserve liquidity. Ouch. That was interpreted by many along the lines of 'if BSC won't buy its own stock then why should I . . .' It did not help that the reluctance to buy back shares was followed up with comments as to how the debt market was the worst it had been in 22 years (1985). Nice. Good job of allaying investor fears big guy.
Read "The Daily" Entire Weekend Summary
Here's a trade from "The Daily" and insights into our trading strategy:
Company Profile
When life gives you lemons make lemonade. That applies, but we prefer our trademarked motto: Take what the market gives. With the credit contagion taking over the market, financials were weak and after the last little rebound we were looking for financials to play to the downside. FNM, the home mortgage goliath, was a great choice because it was part of the housing sector and the credit market. It also had a great pattern to play to the downside. It formed an 8 week top and broke down in late July, gapping lower below the 90 day SMA. It sold further and undercut the 200 day SMA but then recovered it to test the 90 day once more.
That is what we were looking for: the breakdown and then the test that fails. We saw it rebound up toward the 90 day and then roll over on 7-31 and we put it on the report. The next session FNM gapped higher to start August but then rolled over. We moved in on that rollover, buying some September $60 strike put options (the stock was at $59) for $4. With a -50 delta on the options and the $3 decline we were looking for based on the chart and FNM's support, that would give us a gain in the range of 40%. Not bad.
FNM gapped a bit lower on Thursday 8-2, and then on Friday it collapsed lower after the BSC renewed scare. Right before the close it hit $56.19, just 9 cents above our target. With the big dump lower and fear selling ahead of the weekend, this was a perfect time to take some gain. The options were bidding $5.70 and we issued the target hit alert and then sold part of our position, landing a nice 42.5% gain in less than three sessions. The downside happens quite fast and delivers fast gains, but you also have to take gains fast because the turns can be quick as well, particularly with the FOMC meeting on Tuesday. In any event, FNM presented a classic downside play and we followed our motto and took the gain the market was dangling out there. Have to like that.
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: Announced 7-26-07
STATUS: Ascending base. Despite the market weakness, HSC broke higher off the 50 day EMA (52.52) Wednesday and Thursday, rallying on solid, above average volume. Thursday it made the breakout from its 13 week base that used the 50 day EMA as support, making higher and higher lows off that level. Friday it gapped higher, trying to continue the break but it rolled over and sold back some. Still looks super and ready to continue the breakout move.
Volume: 912.3K Avg Volume: 473.005K
BUY POINT: $55.35 Volume=700K Target=$63.75 Stop=$53.48
POSITION: HSC JK - Oct. $55c (49 delta, low OI) &/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
EARNINGS: 8-6-07 after the close
STATUS: Put. CXW formed a 7 week umbrella top in June and early July following a long run higher. It tried to make the next break higher but it faded to the 50 day EMA. It was not able to hold and broke sharply lower to end July. It fought back up to the 90 day SMA (30) on Friday, rallying intraday to the 50 day EMA. It could not hold, however, and rolled back down, closing below the 90 day as volume jumped back up well above average. That kind of reversal on volume shows the sellers moved in after the rebound, indicating that CXW is ready to turn back down and sell some more. Looking for a move lower to enter to the downside. A run to the target lands a 43%ish gain.
Volume: 1.304M Avg Volume: 846.722K
BUY POINT: $29.72 Volume=900K Target=$27.65 Stop=$30.62
POSITION: CXW UF - Sept. $30p (-42 delta)
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 |
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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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