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Weekend Newsletter for
November 11, 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 starts to bounce on some short covering but even that cannot hold up.
- Financials provide the relief bounce, but no one else plays along.
- Import prices surge on oil and a weak dollar, but trade deficit tanks on high exports and a weak dollar: what is better?
- Looks as if a statement of intervention is coming from the Treasury this week.
- Big sell off, expiration week coming, huge volatility premium in put options; recipe for a solid relief bounce.
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Market Summary (continued)
The divergence between the haves and the have not's, i.e. technology and the stocks connected to the world economic boom versus consumer related and financial stocks, took another step towards resolving itself last week, and as is often the case and as we feared, the resolution involved the breakdown of a leading sector, namely large cap tech that had led the move higher. Those stocks were up big as they carried the entire market higher, and when they needed a rest there was too much weakness in other areas to pick up the slack, and with the worrisome economic issues all stocks became targets. The large cap techs were easy targets given their gains, and they were hammered lower. Their decline was the final blow to the market and the selling the last half of the week did serious damage to the market.
Friday was lower from the wee hours of the morning, unable to make anything of the Thursday afternoon rebound. Techs may have made out better but for QCOM warning of weaker times ahead. There were more retail downgrades, but that was nothing new; retail is so down it is already trying to boost holiday sales with 'special invitation' sales and the like (how many have you received thus far?).
There were some real kickers, however. The EU said its growth would slow in 2008 to 2.4% from 2.9%. Those tightenings by the ECB are choking off an expansion before it gets really moving. That is a recurring theme over the past 100 years in Europe. They fear inflation so much (or more accurately don't understand its relationship to economic growth) that they have decided to live with subpar economic performance to avoid it. That is like driving in 100 degree weather with the windows down and the A/C off because you think it saves gasoline, but try telling that to the French. And frankly, falling from 2.9% to 2.4%, while not good, is hardly earth shaking. It is not as if the EU was enjoying 4% GDP growth as say, the US. No matter. With the current mindset, any negative of any degree is considered forecasting major trouble.
Read "The Daily" Entire Weekend Summary
Here's a trade from "The Daily" and insights into our trading strategy:
Company Profile
When we saw the large cap techs start to crack and prepare to follow the NYSE stocks lower we looked around for some already weak techs to short with some long put buys. The big names such as AAPL and GOOG had huge, huge, huge volatility premiums in their put options so they were very risky to play. Instead we looked around for some less known stocks in weak position as their options would not be so hyper inflated.
We ran some scans and found A had just broken its 200 day SMA on Monday and was making a bounce to test. It rolled over on Wednesday 11-7, failing that test. We put it on the report that night, looking to move in as it continued lower. It did turn lower on Thursday in that heavy selling and we moved in with some December $35 strike put options as the stock was trading just below $35 and the slightly in the money options gave us a 45 delta at a reasonable price ($1.80). We were anticipating a move down near $33, and that would give us a solid 45% gain or so in pretty quick order.
Friday things opened very weak as we all know as QCOM added to the large cap tech woes. We let it sell, but before long it was flirting with our target. It was not crashing on through and looked as if it was going to try and hold up. Because the stock gapped lower and sold so hard, however, the option volatility jumped higher, and even though A had not tapped our target, the options were selling for $2.63. That was a 46+% gain. So we locked in some solid gain and will see if A can continue lower and make the rest of our positions run higher in price as well.
As you can see, when the downside strikes, it strikes fast. Greed is a powerful market mover, but fear is the king. There is nothing that makes a stock move like fear, and thus we can use nearer term options to give us better bang for the buck. It is important to not just buy any old option, however, because in a market where there is so much day to day volatility and option values are shooting higher, finding the right play and the right options is key.
Learn more about "The Daily" with Stock Picks! - Issued 5 Times Per Week
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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).
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 10-3-07
STATUS: Test breakout. We exited TISI last week with a modest gain in a precautionary move, but it managed to hold at the 10 day EMA (32.15) on the close. That keeps it in play for a move higher from this short but very nice 4 week base. A top rated stock in terms of fundamentals growth to go along with its good technical pattern. Looking to move right back in as TISI shows us the break higher once more.
Volume: 173.24K Avg Volume: 149.031K
BUY POINT: $33.37 Volume=200K Target=$39.95 Stop=$31.84
POSITION: - Stock (no option chain)
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: Announced 10-30-07
STATUS: Breakout test. BEAV is another aerospace stock that broke higher in late October and ran higher into early last week, then gave up some ground to end the week in the market selling. We took some gain off the table as it made the test, and now that it has come back to the 18 day EMA it looks as if the test is over. It came back to test the 18 day EMA on the Friday low (46.93) on lower, average volume and held. It also held the breakout from its 14 week cup with handle base. That puts it in excellent position to bounce back this week with some vigor, continuing its breakout as the market likely gives us a relief bounce. Aerospace is holding up very well in the selling, a good defensive sector so to speak. Looking for a bounce back up through the 10 day EMA (47.95) to give us a new entry point for this stock.
Volume: 893.87K Avg Volume: 1.016M
BUY POINT: $48.18 Volume=1.2M Target=$55.95 Stop=$46.78
POSITION: BQV DI - Apr. $45c (66 delta, 171 OI) &/or Stock
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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