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Weekend Newsletter for
September 23, 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 doesn't sell off, forcing shorts into action again on expiration Friday.
- Expiration pumps up the volume, pumps up prices.
- Gold surging. May be inflation, may be as surprised as equity investors.
- The week after: financial markets adjust to life after a surprising rate cut.
- Market leaders are running in waves. Looking to catch the next one as well.
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Market Summary (continued)
After a day where the market paused to take stock after the surprise 50BP rate cut on Tuesday and the ensuing 2-day spring higher, stocks faced a rubber match of sorts. As noted Thursday night, there were many that considered the modest downside on Thursday as the resumption of the selling (one termed it a bear market rally). The market answered those characterizations, at least somewhat, on Friday with a higher start and a decent rebound. It was no affirmation in itself as far as the prior rally continuing, but Thursday and Friday were nowhere near approaching a resumption of the selling seen prior to the mid-August low after that hard selloff.
There was some good news to boost the futures early on. ORCL and NKE both announced solid earnings after the Thursday close, indicating, at least thus far, that the credit and mortgage issues were not spreading to technology and retail though NKE has substantial ties to the world economy as 60% of its sales now occur overseas. Moreover, Texas instruments announced an increase in its dividend as well as its share buyback program.
There was some bad news to go along with the good, however. Gold continued its move higher, indicating to some that inflation is baked into the market equation moving ahead, and inflation is always bad for the market. And the oil, while selling back modestly ($81.62, -0.16), is still very strong, and that is considered that it drags on stocks as well.
Nonetheless, stocks opened higher on expiration Friday, and continued to move higher through midmorning after some early choppy range trading. They peaked over lunch and sold as the afternoon session got underway. A late rebound attempt had some promise, but it fizzled as stocks approached the bell. At the close the indices held some pretty solid to bare minimum gains on some strong expiration volume.
Read "The Daily" Entire Weekend Summary
Here's a trade from "The Daily" and insights into our trading strategy:
Company Profile
EARNINGS: Early November
STATUS: Reverse head and shoulders. It is an interesting juxtaposition what with the domestic truckers and rails really struggling with their stock prices while the shipping lines are making great wake as they move higher. DRYS has been cruising, and it looks as if DSX with its 9 week base just about complete is ready to run again. It put in a nice breakout and run from 2006 to July, and this current base has given it a nice rest and foundation to put together another run. Volume exploded Friday after creeping higher all week as it bottomed for the right shoulder at the 50 day EMA. Ready to start moving in as it continues this break higher.
Volume: 9.365M Avg Volume: 1.258M
BUY POINT: $27.21 Volume=2M Target=$3295.00 Stop=$25.31
POSITION: DSX CE - Mar. $25c (68 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: 9-28-07
STATUS: Ascending base. LFC broke out of a very nice seven-month base in early July. The current five week pattern is the second test or consolidation of that initial breakout. The breakout has taken LFC to a new all-time high, and after a very strong break higher on Tuesday after the FOMC rate cut, it worked laterally on low volume to finish the week. A very nice low-volume test of near support. That is going to send it higher on the next leg of this breakout run. This is another strong stock in excellent technical position, combined with outstanding fundamentals growth rates.
Volume: 947.3K Avg Volume: 1.641M
BUY POINT: $77.05 Volume=2.2M Target=$92.95 Stop=$73.89
POSITION: LFC AO - Jan. $75c (60 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 were watching for an opportunity to move in on NILE even though it is in the retail sector, a sector that has been beleaguered of late. Unlike most retail stocks, NILE was showing excellent relative strength, coming off a second tap at the 50 day EMA on some solid, above-average volume. We put it on the report on 9/12/2007 when it showed strong volume bouncing off of the 50 day EMA, forming a short double bottom. The next session, it surged higher on another strong volume session, moving to our buy point. We entered some stock positions at $85.85, and some January $85 strike call options at $12.90.
NILE enjoyed a $6.10 move that session, putting us nicely in the money on the first day of the play. It tried to extend the move the next session, but faded to close flat. Another modest gain ahead of the FOMC decision, and then a surge higher ($8.05) on the breakout announcement. It continued higher Wednesday and Thursday, adding another three dollars. Friday it surged once more, rallying another seven dollars on the session high. It started to reverse the move, and after such a stellar short-term run we decided to take some of the gain off the table as it started to fade back. We banked a 20.91% gain on part of our stock position, and a 91% gain on our options ($1180/contract).
That's not bad for a week in the market, and of course the move was assisted by the FOMC decision. Nonetheless, it shows that good things happen to strong stocks that are in strong technical patterns. After such a strong run, NILE will likely test back to near support, and that will likely provide another entry point for the stock. That's the beauty of strong market leaders. You can enter them in several positions during that run, focusing on a winner and averaging up into a strong leader and at the same time banking some strong gain.
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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