trade stock, top stock pick

Begin Part 2 of 2

SUBSCRIBER QUESTIONS

Q: How many active positions at one time should I have?

A: That is a hard question to answer because there are many variables, the most important being do you have time to track and monitor what is going on. One of the problems less experienced and experienced investors alike have is too many outstanding investments that cannot be monitored properly: where should you sell, where put the trailing stop loss, what is the target, etc. With more experience comes the ability to look at things a bit less emotionally and just enforce your buy points, target points and stop points. You can handle more plays at that point.

One problem when the market is trending well one way or the other is the number of good-looking investments. You see them setting up and want to take advantage of each of them. While you can divide your money up and do that you have the problem of monitoring too many plays. If something happens in the market that changes the field a bit, you may not make the correct decisions to cut and run or you may not see it because you are stretched thin looking at the particulars of your own stocks. You need to do that, but you have to look at the overall market as well. I know. I have been there with a lot of option positions on many different stocks and indexes all at once. It gets hairy keeping up with them, and then emotion can start creeping back in. The market changed but I was focused on past patterns and not looking at the changing winds. I lost big time. Lesson learned.

One consideration is whether you are looking at long term investments or shorter term trades. You can run a number of longer term positions that you will hold for years if they will let you and at the same time have shorter term trades. You monitor the longer term positions to make sure price/volume action is good, the trendline is in tact, etc. You can still get spread too thin even with these however. Also, we like to focus assets in the bigger winners as they continue to prove themselves and give new buy points. That is one way we limit the number of long term positions: sell the laggards and put more into the winners. This goes against the dogma you are hearing from Congress about diversification, but if you hold a ton of stocks you are basically a mutual fund. Mutual funds usually insure mediocrity. "Investment professionals" as we hear from Congress keep no more than 10% in one stock not because of prudence, but because they fear being sued if something goes amiss and they do not cut their losses. I would rather have 50% of my money in ACS when it broke out and made its big run and then sell when it started to climb over its upper channel and then began to fall than have a mutual fund that lost 20% last year or gained 10% for the entire year.

In certain market conditions it is good to get to know a few stocks and trade them consistently. You know them and know the trend and can make money playing the trend over and over. That gets to be a problem, however, when the trend breaks, yet you are emotionally attached to your 'old favorites.' There is that emotion coming back in to the picture. Know your stocks well, but don't get emotionally attached. The stock does not love you; it does not know you. It is a tool to make money. Use it as long as it is doing so. When it starts to falter, jettison it.

With all of that in mind, try not to get too many irons in the fire at once. I run more trades because I have done it a long time. When I developed my system through all of the losses and bruises, I was best with a maximum of about 5 short term (days to weeks) trades. I would pick stocks that were in good patterns and/or in strong trends and play every move. Keeping up with them was easier, and I could watch the whole market. If a trend changed, I would take my money off the table or drop it if I had already done so and was waiting for the next move in the trend.

THE PLAYS:

Good movers: EMLX (put) was down $2.76 on rising volume. Target is the 50 day MVA at 39.81. SMTC (put) dropped another point with volume jumping up sharply and right above average; looks like more downside here. Took some money off the table, but looks as if more downside is coming (second target is 28-29 for another one to two point drop).

Targets hit today: SMTC put (30, initial)
Trailing stop advisories (to help preserve gains and limit losses): MROI (25), INVN (39), CDWC (52)

Continued plays that look solid; others on the report are holding up, but these are the best of the lot. Please see the Wednesday night report for more details:
VRST ($19.20; +0.21): Still tight in the ascending wedge and gave a little move up though volume still below average and just lower.
EGOV ($4.15; -0.02): Continuing the low volume consolidation above the short term MVAs in the test of the breakout. Having some trouble with the $4.30 level.
USAI ($28.56; +0.36): Made a move up from the 10 day MVA on continued strong volume in the test of the breakout. Still looks strong.
GOSHA ($41.58; -0.38): Tight in the ascending wedge as it holds the 18 day MVA and today got a stronger dose of volume (above average from Wednesday's very low levels). Could be getting ready.
DLTR ($31.35; -0.65): Still moving on low volume, holding the 18 day MVA in the handle.
PPG ($46.53; -0.18): Were looking for a test first of the 47-48 range then a move below 45.80 but the stock hit the range of the buy point first, then moved up. Still below resistance (10 day MVA, 47.11).
JPM ($30.07; +0.63): Moving up for 2 days on decreasing volume. Still weak though here can try to move up to the range of the 10 day MVA (32) before falling again. Just might not get that high.

From Wednesday's report:

BRCD (Brocade--$30.59; -2.75; optionable): Telecom Equip
http://biz.yahoo.com/p/v/brcd.html
STATUS: Opened just higher, then broke the 200 day MVA, moving back up intraday for the "kiss good-bye" test, then dropped to 30.42 on the low. Volume was slightly up at 16.8 million (avg. 15 million). On a move below 30 from here (at the level of the November consolidation), new or added downside positions for the drop to our initial target, 25. Breaking down from a double top pattern (December/January).
BUY POINT: 29.90 on continued rising volume.
POSITION: March $40 (UBF OH) or April $45 (UBF PI) puts to buy.

http://www.investmenthouse.com/ct/brcd.html

New upside:

RTN (Raytheon--$37.48; +0.86; optionable): Aeorospace/Defense
http://biz.yahoo.com/p/r/rtn.html
STATUS: Testing its recent breakout from a shallow cup/flat base pattern of 15 weeks. It has pulled back from 39.25 at the top of that run with volume decreasing properly. Wednesday the stock tried to sell back somewhat on a slight rise in volume, but with volume lower Thursday RTN held the 10 day again for a small bounce (2.48 million; avg. 2.2 million). Looking for a move up on some good buying. Strong money flow and buying. Target is 45.
BUY POINT: Aggressive: 37.60 on volume of 3 million or better. Stop: 34.97 (7%)
POSITION: Stock and/or March (RTN CG) or May $32.50 calls to buy (RTN EZ).

http://www.investmenthouse.com/ct/rtn.html

KROL (Kroll Inc--$18.68; +0.03; optionable): Diversified Services
http://biz.yahoo.com/p/k/krol.html
STATUS: Formed an ascending wedge as a test of the breakout from a larger, 8-week pennant type pattern. The 'double pattern' developed after KROL's September through mid-November strong uptrend. The stock bounced from the 50 day MVA at the first of the year, and made its second 18 day MVA bounce on Wednesday on rising volume. Stronger volume Thursday (162,400; avg. 264,000) did not break the stock out but it held with a tight doji on the small gain. Looking for a breakout; the stock has excellent money flow and buying, in addition to high relative strength. Target: 23
BUY POINT: 19.34 on volume of 356,400 or higher. Stop: 18 (7%)
POSITION: Stock and/or March $17.50 calls to buy (KRQ CW).

http://www.investmenthouse.com/ct/krol.html

OEX (Standard & Poors--$548.69; -1.51; optionable):
STATUS: Still trending downward, but at a point (after three days of tighter, consecutive dojis and little drop in price) where the index can turn back up for a run toward near-term resistance. For the OEX it is the 18 day MVA and the short term down trendline coinciding (at 566.57), so we will look for an initial target at that price. On a break through, up to the 50 day MVA at the 575 range. The index is holding support at the 547 range (the last three days and the January low). Lower volume (1.42 million; avg. 1.35 million) on the slight decline into a shooting star doji. Target: 566
BUY POINT: Aggressive: 550.25 on rising volume.
POSITION: March $540 or $550 calls to buy (OEB CH or CJ). Deltas unavailable.

DJX (1/100 Dj Indu--$96.25; -0.28; optionable):
STATUS: Looks like it is slowing down on the downside action, showing three consecutive dojis and just slight decreases in price. Holding at support just above 96, at the level of some the January closing low and the October high (in addition to a November lateral consolidation). With volume dropping back to 1.42 million (avg. 1.3 million), we are looking for a move back up and run to near-term resistance. An aggressive play from here to 99 (simple 50 day MVA at 59.19; has acted as resistance on moves higher).
BUY POINT: Aggressive: 96.50 on rising volume (preferably, though in a weak market we can get low volume moves up to resistance).
POSITION: March $92 or $94 calls to buy (DJV CN or CP).

New Puts:

SOX (Philly Semic--$515.92; -26.96; optionable):
STATUS: Broke below the up trendline (connecting November closing low - after the index moved back over the 50 day MVA - and December closing low) in a hefty drop. It is a short breath away from the January lows at 499, but enough room for a potential aggressive play. Once there, it can head on to 475, near the October highs and actual November closing low.
BUY POINT: Aggressive: 515.50 on rising volume.
POSITION: March $520 puts to buy (SJX OD).

MRCY (Mercury Computer--$32.73; -3.82; optionable): Telecom
http://biz.yahoo.com/p/m/mrcy.html
STATUS: Broke below the January lows (32.86) on sharply higher and strong volume of 1 million (avg. 363,000). The stock bounced off a low of 31.60 but did not move back over the January low. We are looking for a turn back down from here, for a drop to the 25 range, watching the 30 level for potential support.
BUY POINT: 32.45 on continued strong volume.
POSITION: March $40 puts to buy (QYR OH).

http://www.investmenthouse.com/ct/mrcy.html

NVLS (Novellus--$37.07; -3.79; optionable): Semiconductor
http://biz.yahoo.com/p/n/nvls.html
STATUS: Heading lower after breaking support of the 18 and 50 day MVAs on stronger, higher volume Thursday (12.7 million; avg. 6.3 million). It was a heavy drop, and the stock looks ready for move. Looking at an initial target at 31, watching the late November lows near 35. The January closing low is 36.23.
BUY POINT: Aggressive: Below 37 on continued strong volume.
POSITION: March $45 puts to buy (NLQ OI).

http://www.investmenthouse.com/ct/nvls.html

For a review of frequently asked questions, please use the link below:

http://www.investmenthouse.com/1questions.htm

Good Investing!
Jon L. Johnson and the Technical Traders Team

All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Online Investment Services, LP or its paid consultants and are 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 our related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of Partners of Online Investment Services, LP or its paid consultants may, in some instances, include securities mentioned herein and on our 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.

trade stock
top stock pick