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Begin Part 3 of 3
WEDGES, PENNANTS, and FLYING PLATEAUS (AND FLAGS): These are some of our favorite patterns as the moves can be explosive. In this market, however, we need to see the move on the breakout on strong volume.
Wedges:
New Play:
XOXO (Xo Communications--$22.00; +1.00; optionable (QNF)): Domestic Telecom
http://biz.yahoo.com/p/x/xoxo.html
STATUS: In a good-looking wedge at the bottom of its base (prior high of 66.25), the stock just broke above its 50 day MVA (20.82) and is currently moving on very strong volume (22 million; avg. 5.4 million). Look for a breakout over the pattern high of 25 on strong volume, a move that could be decisive in moving this stock up in its base. Decent money flow and strong buying.
BUY POINT: Breakout: 25.13, on continued strong volume (minimum breakout volume is 1.35 times average volume for ascending wedges). Remains a buy on the breakout up to 25.26.
POSITION: Breakout: Stock and/or April $25 calls to buy (QNF DE).
Continued Plays:
ORCL (Oracle Corporation--$30.13; -2.43; optionable (ORQ)): Software
http://biz.yahoo.com/p/o/orcl.html
STATUS: Tried to move out of the range of its former ascending wedge pattern Thursday, but dropped back to the 50 day MVA instead as the market pulled back. The stock is trying to hold the pattern, recovering beautifully in Wednesday's rally after getting hit with some selling the previous session. Volume was lower at 38.4 million (avg. 45.4 million), so we look for a bounce back in a rally. Continues with good buying.
BUY POINT: Aggressive: On a bounce on rising volume.
POSITION: Aggressive: Stock and/or February or March $30 calls to buy (ORQ BF or CF).
MEL (Mellon Financial Corp--$49.31; -1.44; optionable (MEL)): Banking
http://biz.yahoo.com/p/m/mel.html
STATUS: Continues in a wedging-type pattern on a pullback to support (20 day MVA) on lower, average volume (1.8 million). The stock moved up on strong volume in Wednesday's rally and added-to just a bit Thursday before the pullback. MEL tested the 50 day MVA on its low of 48.13. Look for a move up from here in a rally. Breakout point in the former pattern is 52.07. Continues with high money flow and relative strength.
BUY POINT: Breakout: 52.07, on continued rising volume.
POSITION: Aggressive: Stock and/or March $50 calls to buy (MEL CJ).
BASING/TRADING RANGES:
New Plays:
LEH (Lehman Bros--$76.00; -1.06; optionable (LES)): Brokerage
http://biz.yahoo.com/p/l/leh.html
STATUS: The Wednesday rally ran the stock up toward the top of its 4-month base; in fact, Tuesday's high of 81 was above the prior basing high of 80.50. However, the stock pulled back, showing a perfect (star) doji on volume that dropped back to average levels (2.5 million; avg. 2.3 million). That is a strong signal for a move up. Strong money flow and high relative strength.
BUY POINT: Aggressive: On a move up from here on rising volume. Breakout: 81.13, on volume of 3.4 million or better.
POSITION: Aggressive: Stock and/or April $75 calls to buy (LES DO). Breakout: Stock and/or April $80 calls to buy (LES DP).
Continued Plays:
From the Thursday TTR update:
MXT (Metris Companies Inc--$30.06; -0.88; optionable (MXT)): Credit Services
http://biz.yahoo.com/p/m/mxt.html
STATUS: Broke out of a type of pennant pattern in the bottom of its 14-week base to move over its 200 day MVA (29.39) on strong volume (to a high of 32.25). Pulled back Friday to test the moving average, making a small move up from there (despite the overall loss on the day) as volume pulled back to 989,200 (still well above the average, 638,000). We like the hold at support and look for a move up from here in a market rally. The stock shows rising money flow and decent buying. Prior basing high is 42.94.
BUY POINT: Over 33 on continued strong (and rising) volume.
POSITION: Stock. February and April options had insufficient open interests (too illiquid for this stock).
Continued Plays:
KEI (Keithley Instruments Inc--$38.56; -6.82; optionable (KEI)): Electronics (scientific and technical instruments)
http://biz.yahoo.com/p/k/kei.html
STATUS: Dropped back down below the short term moving averages (40), pulling back Friday from the 50 day MVA, tapped on the previous day's high (currently at 46.85). Volume pulled back to average (553,500), but remains strong, so the stock can pull back further (33). KEI was moving up in the right leg of its double-bottom pattern before the pullback Looking for a turn back up in a market rally. Buying continues to look good.
BUY POINT: On a move up after a further pullback to the 33 range, on rising volume.
POSITION: Stock. February and April options have insufficient open interests for the stock.
EDS (Electronic Data Systems--$55.06; -3.44; optionable (EDS)): Software (information technology)
http://biz.yahoo.com/p/e/eds.html
STATUS: Failed to break out of the cup with handle on Wednesday's strong move, instead pulling back below the 18 day MVA (56.01) to close on the up trendline (connecting October and December lows). The intraday low tested just above the 50 day MVA (53.44) as volume dropped back to average (2.2 million). This pullback is in keeping with the volatile nature of this handle (which has formed into an ascending wedge), so we will continue to look for a breakout as long as price/volume action looks good (as it has the last three days).
BUY POINT: Aggressive: On a move back up from here on stronger volume. Breakout: 60.13, on volume of 3.4 million or better.
POSITION: Aggressive: Stock and/or February or March $55 calls to buy (EDS BK or CK). Breakout: Stock and/or February $60 calls to buy (EDS BL).
MER (Merrill Lynch & Co--$71.56; -1.75; optionable (MER)): Brokerage
http://biz.yahoo.com/p/m/mer.html
STATUS: Finally saw a bit of selling Friday after Wednesday's outstanding move up on the rate cut, but not much. The stock pulled back to a low of 70.13 but climbed up from there to close as volume remained above average (5.6 million; avg. 4.5 million). MER is close to breaking out of its 4-month cup base, and is forming a possible handle now. Look for a pullback to 70 (or better) before the stock heads back up. Continued high money flow and relative strength.
BUY POINT: Aggressive: On a move back up after a pullback to 70. Breakout: 75.13, on volume of 6.5 million or better.
POSITION: Aggressive: Stock and/or February or April $70 calls to buy (MER BN or DN). Breakout: Stock and/or April $75 calls to buy (MER DO).
CYTC (Cytyc Corporation--$57.38; -5.56; optionable (YQK)): Electronics
(scientific/technical instruments)
http://biz.yahoo.com/p/c/cytc.html
STATUS: Saw a strong move Wednesday, but by Friday the stock had tanked back to the 50 day MVA (57.01). Volume was stronger at 997,100 (avg. 663,000), but we note that price moved up from below the support level to close, and is sitting right on its up trendline (connecting September and October lows). CYTC has used the 50 day MVA as solid support since mid-November as prices wedge up toward a breakout from the 7-month base. We will look for a bounce back up from here as a long shot.
BUY POINT: Aggressive: On a bounce in a market rally, on continued strong volume.
POSITION: Aggressive: Stock and/or February $50 calls to buy (YQK BJ).
JPM (J.P. Morgan & Co--$48.94; -3.06; optionable (JPM)): Banking
http://biz.yahoo.com/p/j/jpm.html
STATUS: Pushed a bit higher Thursday after Wednesday's strong rally move, pulling back Friday on lower volume, the low testing support of the 200 day MVA (48.31). Lower volume, but still high at 16.2 million (avg. 9.6 million). We are looking for the moving average to support the stock on a bounce back, but price may hit that level first before rallying back with the market. JPM is attempting to complete the upper right side of its 4-month base.
BUY POINT: On a bounce up from 48 on continued strong volume.
POSITION: Stock and/or February or March $45 calls to buy (JPM BI or CI).
PUT PLAYS: These plays are on some defensive stocks that look ready to move back down from resistance levels, some of which were tested Friday on moves up on lower volume.
New Plays:
CAH (Cardinal Health Inc--$92.25; +4.25; optionable (CAH)): Wholesale drugs
http://biz.yahoo.com/p/c/cah.html
STATUS: After breaking below the 50 day MVA (94.32) Thursday on very strong volume, the stock opened just higher and climbed back up but didn't make it back to the moving average as volume dropped back to just above average (1.5 million). The stock can move up to test the resistance level, but look for a move back down from there for a put play to 85 for the first possible level of support.
BUY POINT: On a move back down from the 94 level in a tech rally, on stronger volume.
POSITION: February $95 puts to buy (CAH NS).
UNH (Unitedhealth Group Inc--$53.94; +0.75; optionable (UNH)): Health care plans
http://biz.yahoo.com/p/u/unh.html
STATUS: Has sold off four days on steadily rising volume, but managed a small move up Friday, showing a doji. The stock can try a move back up toward the 50 day MVA (56.90) after the selling, as the doji suggests, though it may not move over the intraday high of 55.69 on the way up. Either way, we will let it try a run up to the moving average, and on a move back down from there, will look at playing the put (the "kiss good-bye" after testing the previously broken support level).
BUY POINT: On a move down from the 50 day MVA after the stock moves back up to test the broken support.
POSITION: Aggressive: February $60 puts to buy (UNH NL).
PFE (Pfizer Inc--$42.38; +0.57; optionable (PFE)): Drug manufacturers
http://biz.yahoo.com/p/p/pfe.html
STATUS: Another stock that showed a doji on a slight upward move, accompanied by lower volume (18.1 million; avg. 12.8 million), after selling off the previous two sessions. The high tapped resistance at the 200 day MVA (43.54), and the stock can run back up toward that level to try a move back over. We'll let it, and on a move back down on a failed effort to break back over the resistance, will look at playing the put.
BUY POINT: On a move back down from 43.54 after the stock runs up to test that level.
POSITION: February $45 puts to buy (PFE NI).
BMY (Bristol-Meyers Squibb Co--$64.31; +1.25; optionable (BMY)): Drug manufacturers
http://biz.yahoo.com/p/b/bmy.html
STATUS: Sold off as well in the latter part of the week, Friday making a small move up on lower, but still high volume (9.6 million; avg. 4.7 million). The high tapped resistance at the 50 day MVA (66.34) after closing below a resistance level at the opening price of 65. That resistance and the loose doji suggests a move down from here. The low tested support from a October/November consolidation at the 62 level, making a safer downside entry point below that level.
BUY POINT: Aggressive: On a move down from here on continued strong volume. Safer: Below 62, on continued strong volume.
POSITION: February $65 puts to buy (BMY NM).
CI (Cigna Corp--$115.00; +1.00; optionable (CI)): Health care plans
http://biz.yahoo.com/p/c/ci.html
STATUS: After breaking the 50 day MVA (122.57) on strong volume Thursday, the stock managed a small move up to close on a tight doji near the bottom of its intraday trading range. That signals that the stock may try a move back to the high of 120, or the moving average. On a move back down from either level, we will look at playing the put. Volume fell but remains high at 1.4 million (avg. 806,000).
BUY POINT: On a move down from 120 or 122 on continued strong volume.
POSITION: April $120 or $125 puts to buy (CI PD or CI PE).
CPN (Calpine Corp--$35.06; +2.56; optionable (CPN)): Utilities
http://biz.yahoo.com/p/c/cpn.html
STATUS: Sold down below the 200 day MVA (35.92) to reach a low of 29 on Thursday. The stock moved up to test just over the moving average Friday, but could not remain above the resistance and pulled back down to close. Volume was lower but still high at 7.8 million (avg. 3.5 million). CPN may try to test the moving average again if it makes it over the July string of prices that are posing some resistance. If so, look for a turn back down for a put play.
BUY POINT: On a move down from here, or down from the 200 day MVA after the stock moves up to test that level.
POSITION: April $40 puts to buy (CPN PH).
Good Investing!
Your Technical Traders Report 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 in 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.
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