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SUBSCRIBER QUESTIONS

Q: My question is concerning the relative strength of a stock. I have read that this is a good indicator for a stock, and that it should be 80 or above before you buy. Is this true? And what if the stock is below that, does that mean I shouldn't buy it? I would also like to know if there is a formula for coming up with that number. If so is it possible for you to explain it to me.

A: Relative strength is an important indicator, and typically we will want to see it strong (over 80 as published by Investor's Business Daily). That indicates that the stock has performed beftter than 80 percent of the other stocks it is being compared to - for IBD, that would be all the other stocks in its tables. On our charts we chart relative strength versus the S&P 500.

However, we need to keep it in context of all the information about a stock. We use it as a confirming indicator - that is, if the chart is good - a nice pattern with good price/volume action - we will always consider a play on the stock even if relative strength is not great. If relative strength is good, that further supports our analysis of the price/volume chart. One way we really like to look at relative strength is to see if it is actually 'breaking out' with the price. It is a strong signal if a stock's price is set to break out, and the relative strength line on the chart is also set to break over prior highs, or does so just ahead of the price. The RS line can also give us other signals. For example, if the price is moving laterally or moving up and down in a range, if the RS line is actually making lower highs that is a sign of growing weakness. If RS is getting higher, that is a sign of growing strength.

The computation is to compare the stock's price change over a given period (typically 12 months) to an index or other stocks. I have seen the actual mathematical computation, but it is best left to computers.

PLAYS TO LOOK AT: Great breakouts from RYL and YUM! Also some great moves by our bonus plays!

BONUS PLAYS: Nice breakout moves by RMCI and WTSLA, although they need volume (as does SEE, which made a nice bounce). UPS is still set up well for a move.

ROST (Ross Stores--$36.29; -0.27; optionable): Apparel stores.
http://biz.yahoo.com/p/r/rost.html
STATUS: Revisiting ROST, which has set up nicely in its pennant, holding support over its 18 day MVA (28.51). It is tightening up with the 18 day pushing it up to resistance at 37, and today ROST pulled back as volume dipped to 669,300 (average 952,500). Good price volume action, and solid relative strength and buying. Target: 40.50.
BUY POINT: 37.20 on volume of 1.3 million. Stop: 22.59.
POSITION: Stock and/or May $30 calls to buy (REQ EF).

NCOG (Nco Group--$24.51; -0.08; optionable): Business services.
http://biz.yahoo.com/p/n/ncog.html
STATUS: Recovering from a huge drop that took it down from 34.50 to below 12 in June-September. NCOG made it over the 200 day MVA (22.34) in December, trying to form the right side of a cup. However, after hitting 25.89 it dropped back to move along the 50 day (22.17), but formed a smaller cup as it made a strong move recently, running back up hard and on big volume. The last week NCOG has pulled laterally, forming a handle on much lighter volume. Monday the stock closed with a tight doji, with volume at 165,500 (average 335,000). We could see a test back toward the 10 day MVA (23.74), but are looking for a breakout over the handle high (25.37). Showing excellent money flow and relative strength. Target: 30.
BUY POINT: 25.47 on volume of 500,000. Stop: 23.69 (7%)
POSITION: Stock and/or June $22.50 calls to buy (GCQ FX - low open interest).

MARKET FAVORITES: Several of the techs have moved back up toward the first level of resistance (typically the 10 day MVA), including and AMD.

PRIA (Pri Automation--$23.23; +1.24; optionable): Semiconductor equipment.
http://biz.yahoo.com/p/p/pria.html
STATUS: We had recently looked for PRIA to take off on a breakout with some of the strength we saw with semiconductor equipment. However, it reached up and did not quite make our buy point. We have kept an eye on it, and one of our mottos is to take what the market gives you. PRIA has fallen back, and Friday took out its 50 day MVA (22.67) on big volume. In the market bounce today, PRIA pulled back over the 50 day, but closed before the short-term MVA's (23.65), moving on much lower volume (506,300; average 383,000). Looking for the bounce up to fail and for the selling to kick in for a put play. Target: 200 day MVA at 18.
BUY POINT: After a failure at 23.65 or slightly higher, a drop through 22 on increased volume.
POSITION: May $25 or $30 puts to buy (UXQ QE or UXQ QF - no open interest at this time for the $30's).

CHKP (Check Point--$29.90; +1.47; optionable): Computer Software.
http://biz.yahoo.com/p/c/chkp.html
STATUS: A steady downtrend. CHKP has been drifting down under the 10 day MVA (23.51). It found support on the last drop at the 27.50 range (low was 27.03), moving up the last two sessions. Monday saw CHKP close just under the resistance of the 10 day and its down trendline (30.25, from the December high), with volume slightly up from Friday's move but continuing to be low (5.4 million; average 8.29 million). With the weak bounce, we look for CHKP to fail at the 10 day (it could sneak over it in a continued market move up to 31.50 at the 18 day MVA), and give us more of a move down. We will watch the recent low at 27, but will target 25.
BUY POINT: After a failure of the move up in the 30-31 range, a drop through 29.50 on increased volume.
POSITION: April $35 puts to buy (KEQ PG).

PRE-ANNOUNCEMENTS: ESI is still set up well, and SLM moved up in the pattern. MUR moved up, but it was on weak volume and it closed just below resistance. BMS and DRI have been moving up, but could be topping.

CYN ($50.10; -0.05): Researching a split date for this stock. CYN has formed an ascending wedge since bouncing from the 50 day, first challenging its high but pulling back to support at its 18 day MVA (50), where it closed with a doji Monday. Volume spiked very high at 344,000 (average 196,000), so we will see if CYN is ready to make a move. 51.75 on volume of 260,000, with stock and/or May $45 calls to buy (CYN EI - under 100 open interest).

AZO ($70.36; +0.35): Forecast to announce a split with earnings on Tuesday after the close. Broke out of its ascending wedge last week, but the selling have caught up with the buyers, as AZO showed another loose doji Monday as volume remained strong (slightly down to 1.68 million; average 1.19 million). We will see what it does going into forecast tomorrow, and if it can hold over the prior pattern highs (68.30; today's low: 68.77), we can look at catching it on a move back up. On that move, stock and/or June $65 calls to buy. (AZO FN).

DHI ($37.26; +0.95): Forecast to announce a split with a board meeting on 2-26-02. Another residential construction company looking good, and in the familiar pattern of a narrow pennant over the 18 day MVA (36.28). DHI moved up from that level today on sharply reduced volume (1.19 million; average 1 million). Still looking for a breakout, with the buy point 38.09 on increased volume, with stock and/or May $35 calls to buy (DHI EG).

XL ($93.55; +0.73): Working on an announcement date, but are looking at a board meeting the first week in April. Still holding the 18 day MVA (92.14) on its test, tapping that level again today at its low of 92.12. Looking for a sharp bounce, and on a move over 94 on volume of 1 million or better, stock and/or July $90 calls to buy (XL GR).

EXPD ($53.92; +0.93): Bouncing back after the strong move down on the put play, but Monday's move was on much weaker volume (358,800; average 350,600). The resistance of the 200 day MVA (with the 10 day) is just ahead at 54.88, and could set up new positions on a drop back through 53 on increased selling volume. Targeting 48 with April $60 puts to buy (URP PL).

PRE-SPLITS: PMI still could move.

WLP ($125.90; -0.26): Splits 2:1 effective March 15. Another doji just under the 18 day MVA (126.10), with volume dipping a bit more to 396,400 (average 521,000). Still looking for a bounce, but we also need to be wary of a test of the 50 day, at 122.76. From here, on a move over 127.50 on above average volume, April $120 calls to buy (WLP DD).

DF ($71.79; +1.60): Splits 2:1 effective 4-25-02. Continued its nice move, bouncing up after a brief rest. We are watching here for another possible rest and perhaps the formation of a longer handle. With current positions, watching the high at 72.47 as resistance. The aggressive can play a strong move over that level, with stock and/or April or May $65 calls to buy (DF DM or DBZ EM).

CONTINUING CANDIDATES: Great breakouts from RYL and YUM! THC could be set up again for a put, and FLIR made a strong move on the breakout test! GNSS bounced back with strong volume, so we will see if there is any more downside.

RARE ($26.43; +0.31): Holding over the short-term MVA's (25.78) now, settling out a bit after its bounce from the 50 day MVA (24.66). We will need volume of 400,000 on a move over 27.15 for the breakout, with stock and/or May $25 calls to buy (QRH EE - low open interest).

HB ($59.25; -0.50): Pulled back on low volume today (92,200; average 139,800), holding its 18 day MVA (59.10). That level has been support in the pennant, and the aggressive play is a move over 60 on above average volume. The breakout is a move over 60.95 on volume of 190,000. Stock and/or June $55 calls to buy (HB FK - under 100 open interest).

APPB ($34.50; +0.70): Continued up but is at the resistance of the 50 day MVA (with the 18 day, at 34.57). It is making a classic weak bounce, moving on much lower volume today (258,600; average 452,000). Looks like a fall back, and we are targeting the 200 day MVA (31.16) with positions. We can pick up new positions on a drop back from there through 34 on increased volume, with April $35 puts to buy (AQB PG).

POST-SPLITS: CHBS could be ready to head back down, and HTLD continued its strong 50 day MVA bounce.

XRAY ($34.02; 0.00): Split 3:2 effective February 1. Made a nice bounce from the 50 day (32.93) last week, and has held up since, showing consecutive loose dojis as volume drops (154,600; average 290,000). Looking for XRAY to hold up and make a break over the high of 34.69 on above average volume, with stock and/or July $33.38 calls to buy (RHE GX).

Good Investing!
Jon L. Johnson and the Stock Split Report Staff.

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.

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