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Begin Part 2 of 2

With pre-splits, the idea is to find one just as it starts moving back up after a pullback or out of some type of consolidation. We also really like them within a week or so of the split as the interest starts ramping up. When we see it moving, we get in and ride the move until we see weakness as these stocks can be very volatile at this time. In a market that has good momentum, pre-splits can make us some of the most consistent money of all plays.

TALX gapped $1 higher Friday and then pulled back to 43. It immediately started back up from there, and as you know we like it when a stock tests a previous closing price early and then starts right up from there. At 9:30 CT it broke back over its opening price (43.50), and that was what we were looking for. Now if we had been on the ball we would have put in a buy-stop at say 43.75 or 44; that is a standing order to buy the stock when it hits that price. We didn't, and when the stock broke over 43.50 we were fumbling around trying to get an order ready (should have had one already prepared and ready to go). By the time we got things in order the stock was 43.81 by 43.88; no problem with the spread. Volume was light, and while that should not be a consideration on these plays, it was the big volume Thursday that caught our eye. So we decided to take a partial position. The stock had somewhat stalled at 43.88, but we put the order in anyway and it was filled. About three minutes later it jumped up to 44.25. No big trades, but it kept moving, and by almost 10:00 it hit 46.50. It pulled back to 45 three times over the next hour and one-half. It bounced finally back up close to 46.50 but then just moved sideways. We put in a stop loss at 45.50 and debated just closing the position. At 12:40 CT it moved up to 46.50 and could not break it. As that was the high for the session, we figured that was it for the day and moved the stop loss up to 46 to lock in the gain if the market started to sell. That would give us $2.12, not a great day, but for one day, not bad. Well, right before the close, a lot of 1,000 share trades started hitting, and the stock shot up from 46.50 to 49 before closing at 48.81. We were stunned. No news that we saw, just buying.

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THE PLAYS:

All prices reflect prices at the close on Friday.

SOME LEADERS TO WATCH:

A New Play:

JNPR (Juniper Networks--$131.50; -0.81; optionable (JUY)): Computer hardware
http://biz.yahoo.com/p/j/jnpr.html
STATUS: Holding above the support level noted in the previous report (18 day MVA at 125.07), tested on the low of 127.25. We are looking for a move up after a pullback to that support, and since earnings are out after the bell Tuesday, we could see a good run that day prior to the news, with some possible selling at the end of the day as the nervous investors bail out. 50 day MVA is at 141.40. Volume pulled back to 21 million (avg. 15.6 million).
BUY POINT: On a move back up after a pullback to the 125 level.
POSITION: Stock and/or April $120 or $125 calls to buy (JUY DD or DE).

Continued:

AMCC (Applied Micro Circuits--$71.63; +0.82; optionable (AZV, CMW)): Semiconductor
http://biz.yahoo.com/p/a/amcc.html
STATUS: Earnings are out Tuesday after the bell. The stock closed at its down trendline (connects October and January highs), after reaching a high of 75.75. Volume was below average but slightly higher at 14.7 million (avg. 16 million). The stock can move down to test the 200 day MVA again, as it did on the low of 69.13 Friday, but look for a bounce back up for a possible run up to earnings, watching the down trendline for resistance (72).
BUY POINT: Aggressive: On a move back up from the 69 range on continued rising volume. Safer: Over 72, to beat the down trendline, on above average volume.
POSITION: Aggressive: Stock and/or April $65 calls to buy (CMW DM). Safer: Stock and/or April $70 calls to buy (CMW DN).

EMLX (Emulex Corp--$87.75; +0.44; optionable (UEL)): http://biz.yahoo.com/p/e/emlx.html
STATUS: Ran up Wednesday and Thursday, slowing down Friday as volume pulled back below average to 6.7 million (avg. 4 million). The stock can pull back down to test the 84 level again in a market pullback (as it did Friday) before heading back up in a rally. Earnings are out Wednesday after the bell, so we may get a run up to those numbers, especially if the market heads back up that day. The stock appears to be ready to form a handle to a ragged double-bottom pattern.
BUY POINT: On a move back up from the 84 range after a market pullback.
POSITION: Stock and/or February or April $75 (UEL BO or DO) or April $75 calls to buy (UEL DO).

Best Plays: We are focusing on those sectors that should do well in Fed rate cutting.
1) TLB: A great-looking handle and base.
2) BJ: Making a breakout move.
3) CTX: Moving up in its ascending wedge.
4) AAS: Moving on solid volume.
5) AZO: Ready to break out of the wedge.
6) TGT: Moving up from the base of the handle on good volume.
7) MER, JPM: still ready to rock and roll.
8) XOXO, PSCA: Two telecoms pulling back on low volume.
9) SUB: Regional bank looking for a new high off of the 10 day MVA.

New Plays:

READY TO BREAK TO A NEW HIGH:

Continued Play:

FITB (Fifth Third Bancorp--$55.13; -1.18; optionable (FTQ)): Regional Bank (Midwest)
http://biz.yahoo.com/p/f/fitb.html
STATUS: Continued down, closing Friday on the 50 day MVA as volume dropped back well below average (1.3 million; avg. 2 million), the low testing lower support at the 54 level. FITB has continued to pull back from the January high of 61.31. Earnings are out before the bell Tuesday, so we will see what those numbers can do for a move up from this support. The 18 day MVA is at 57.35; watch that level for resistance on a move up. Good buying.
BUY POINT: Aggressive: On a bounce on stronger volume.
POSITION: Stock and/or February $55 calls to buy (FTQ BK).

BREAKOUTS:

New Play:

BJ (BJ's Wholesale Club--$40.00; +1.62; optionable (BJ)): Discount stores
http://biz.yahoo.com/p/b/bj.html
STATUS: Making its breakout move from a cup with handle base (prior high 41.38). The stock closed at the handle high, just under the buy point of 40.13, on outstanding volume (1.5 million; avg. 477,000) on a move up from the handle's base at the 18 day MVA (37.81). Strong money flow and high relative strength, and buying has picked up nicely.
BUY POINT: 40.13, on continued strong volume. Remains a buy on the breakout up to 42.14.
POSITION: Stock and/or March $35 calls to buy (BJ CG). Few open interests.

TESTS OF THE BREAKOUT: Some of these stocks are moving back on low volume to test the breakout. We often take profits on option plays when they start to pullback on the breakout move and then get back in when the stock bounces up off of the breakout point. This second ove is where some of the biggest gains are made.

New Play:

SUB (Summit Bancorp--$41.75; -0.31; optionable (SUB)): Regional banks
http://biz.yahoo.com/p/s/sub.html
STATUS: Trying to form an ascending wedge as a test to the breakout from a trading range. Volume continues to pull back nicely, reaching below average levels Friday 509,400; avg. 819,000). The low of 40.94 tested support at the 10 day MVA. The stock closed at this same price three days ago, so might grab hold for a turn back up here due to the low volume. Earnings are out before the open Wednesday. Strong buying along with high money flow and relative strength (has moved out ahead of price, a bullish sign).
BUY POINT: On a move over 43.56 (recent high), on volume in the range of 1 million.
POSITION: Stock and/or April $40 calls to buy (SUB DH).

Continuing Plays:

PCSA (Airgate Pcs Inc--$46.00; -1.75; no options): Telecom services
http://biz.yahoo.com/p/p/pcsa.html
STATUS: This stock broke out of its ascending wedge and is pulling back in test of the buy point of 41.13. The breakout launched the stock higher in the upper right side of its base, but has pulled back from the breakout high. The low (45.25) tested support, 44.88, a price hit several times since June. PCSA can pull back to 44.88 before heading back up again. The 200 day MVA is at 51.75.
BUY POINT: On a move back up from 44.88 on stronger volume (129,400; avg. 193,000).
POSITION: Stock.

XOXO (Xo Communications--$25.69; -1.19; optionable (QNF)): Domestic Telecom
http://biz.yahoo.com/p/x/xoxo.html
STATUS: Pulling back in a test of the breakout from its ascending wedge pattern. The low (24.44) tested support at the stock's down trendline (March, September and November highs), which XOXO broke on the breakout move. Volume fell just below average (7 million), so the stock can pull back toward the low again before moving back up in a rally. Excellent buying and strong money flow.
BUY POINT: On a move back up from the 24 level (or better), on rising volume.
POSITION: Stock and/or April $25 calls to buy (QNF DE).

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 Plays:

CTX (Centex Corp--$39.13; +0.82; optionable (CTX)): Materials and construction
http://biz.yahoo.com/p/c/ctx.html
STATUS: Moving up on good volume in its ascending wedge pattern (518,700; avg. 429,000), which is serving as a handle to a quite lengthy base (prior high of 45.25). Pattern high is 40.31. The 50 day MVA is supporting the consolidation (36.57). Strong money flow and high relative strength. Earnings January 23.
BUY POINT: 40.44, on volume of 644,000 or better.
POSITION: Stock and/or April $35 calls to buy (CTX DG).

SWBT (Southwest Bancorp of Tx--$44.00; -0.94; optionable ( )): Regional: Southwest
http://biz.yahoo.com/p/s/swbt.html
STATUS: In an ascending wedge pattern at the stock's all-time closing high of 45.25 (hit the end of December). On low volume (140,900; avg. 250,000), price pulled back and tested support on the low (43.75, a price hit three times in the last three weeks). Look for a move up from there. Pattern high is 45.63. Stock shows strong money flow and high relative strength.
BUY POINT: 45.76, on volume of 338,000 or better.
POSITION: Stock. Options have insufficient open interests (too illiquid for this stock).

AAS (Amerisource Health Corp--$49.13; +1.07; optionable (AAS)): Drugs wholesale
http://biz.yahoo.com/p/a/aas.html
STATUS: In a large ascending wedge pattern and moving up from support (18 day MVA at 48.34) on above average volume (992,600; avg. 617,000). The high tapped near resistance at the 50 level; let the stock break over that for positions. High relative strength.
BUY POINT: On a move over 51 on continued rising volume. Breakout: 53.75.
POSITION: Stock and/or February $45 or $50 calls to buy (AAS BI or BJ). Next month out is May (AAS EJ).

Continued Wedge Plays:

ORCL (Oracle Corporation--$32.31; -1.00; optionable (ORQ, ORY)): Software
http://biz.yahoo.com/p/o/orcl.html
STATUS: Pulling back from the Thursday high of 34.09 as volume dropped further below average to 40 million (avg. 46 million). Support still looks firm at 32, tested on the intraday low, if not 30. Look for a move back up from that level in a market rally.
200 day MVA is at 36.02.
BUY POINT: On a move up from 32 or 30, on stronger volume, in a market rally.
POSITION: Stock and/or March $27.50 (ORQ CY) or $30 (ORY CF) calls to buy.

KEI (Keithley Instruments Inc--$46.88; +1.00; optionable (KEI)): Electronics (scientific and technical instruments)
http://biz.yahoo.com/p/k/kei.html
STATUS: Thursday's pop on stronger volume set up Friday's move over the 50 day MVA (46.23), volume edging higher to 481,200 (avg. 503,409). The stock is in good position for another move up in its ascending wedge pattern, but Friday's doji may hold it here at the moving average. Earnings are reported before the bell Thursday. The 200 day MVA is at 52.09. KEI has moved up from the December 20 low of 29.63, not a bad return.
BUY POINT: Up from here on above average volume in a rally.
POSITION: Stock. April options have insufficient open interests for the stock.

BASING/TRADING RANGES:

New Plays:

TGP (Georgia-Pacific--$30.88; +0.07; no options): Materials and construction
http://biz.yahoo.com/p/t/tgp.html
STATUS: In a saucer with cup pattern, the handle in a type of wedging pattern as volume steadily pulls back below average (reaching 92,200 by Friday; average is 167,318). Handle high is 31.19; the stock moved up from a test of the 10 day MVA (30.58) and looks ready to move in a sector rally. Earnings are out January 26. Basic materials usually perform well when the Fed cuts rates.
BUY POINT: 31.32, on volume of 251,000 or better.
POSITION: Stock.

NATI (National Instruments Cp--$51.00; -0.88; optionable (SJQ)): Computer hardware
http://biz.yahoo.com/p/n/nati.html
STATUS: The stock is in the handle of a 9-month base (prior high 59.50), and the handle is an ascending wedge being formed on overall low volume. Shares pulled back to 185,900 (avg. 234,000), pulling the stock down from a high of 53.13, the handle high (which the stock hit at the end of December). Look for a move back up from the 10 day MVA, tested on the low of 50.50, for the breakout. Earnings are reported after the bell Thursday. The stock was added to the S&P 400 index as of December 20.
BUY POINT: 53.26, on volume of 351,000 or better.
POSITION: Stock and/or February $50 calls to buy (SJQ BJ). March options had insufficient open interests.

LOW (Lowe's Companies Inc--$50.38; +0.44; optionable (LOW)): Retail
http://biz.yahoo.com/p/l/low.html
STATUS: Trying to move up after a handle pullback in its 17-week cup with handle basing pattern. The stock has moved somewhat laterally the last three days after moving up Wednesday from a test of support (18 day MVA at 47.11). Volume dropped below average (1.5 million; avg. 2.4 million) as the low tested 49.75, support that looks good to hold the stock (and/or 49.50 as well) until it rallies. High money flow and relative strength, and good buying. Another stock that should perform well with Fed rat cuts.
BUY POINT: Aggressive: On a move up from here on stronger volume. Breakout: 54.63, on volume of 3.6 million or better.
POSITION: Stock and/or April $45 or $47.50 (LOW DI or DW) calls to buy.

AZO (Autozone Inc--$28.81; +0.18; optionable (AZO)): Auto Parts
http://biz.yahoo.com/p/a/azo.html
STATUS: Looks ready to explode out of the handle of its 9-month cup base (30.06 prior high), the stock showing a perfect doji at the top of its trading range on strong volume (549,200; avg. 434,454). Handle high is 29; after the pullback over steadily decreasing volume and the volume surge Friday, we are looking for a breakout soon. Strong money flow and relative strength, and buying has turned positive.
BUY POINT: 29.13, on volume of 652,000 or better.
POSITION: Stock and/or March $25 calls to buy (AZO CE).

TGT (Target Corporation--$34.81; +1.37; optionable (TGT)): Discount stores
http://biz.yahoo.com/p/t/tgt.html
STATUS: Moving up from the base of its handle on stronger volume (6.4 million; avg. 4.7 million) toward breakout from the 9.5-month base (prior high 39.19). A good-looking pattern with a handle high of 38. High money flow and relative strength, and positive buying.
BUY POINT: Aggressive: On a move up from here on continued rising volume. Breakout: 38.13, on volume of 7 million or better.
POSITION: Aggressive: Stock and/or April $30 or $32.50 calls to buy (TGT DF or DZ). Breakout: Stock and/or April $35 calls to buy (TGT DG).

TLB (Talbots Inc--$49.94; +0.13; optionable (TLB)): Retail
http://biz.yahoo.com/p/t/tlb.html
STATUS: In a short cup with handle (previous high 54), the handle forming on below average volume (334,000; avg. 444,000). The stock closed on a doji on the low volume, above support (10 day MVA 48.61 and 49.50, a price hit 5 times), and looks ready to head up from here after posting the small gain. Handle high is 52. The stock has a high relative strength. The company reported good sales for the Christmas season, without resorting to discounting.
BUY POINT: 52.13, on volume of 666,000 or better.
POSITION: Stock. Too few open interests for the stock.

Continued Basing Plays:

LEH (Lehman Bros--$76.00; +0.81; optionable (LES)): Brokerage
http://biz.yahoo.com/p/l/leh.html
STATUS: Pulled back from Wednesday's breakout move in the cup with handle, trying a move up Friday but pulling back down on lower (though still high) volume of 3 million; avg. 2.4 million). The stock can test the 10 day MVA (73.59), but on continued lower volume may catch support at the 75 level. Continues with high money flow and relative strength.
BUY POINT: Aggressive: On a move up from 73.59 or better on rising volume. Breakout: 81.13, on volume of 3.5 million or better.
POSITION: Aggressive: Stock and/or February $70 calls to buy (LEH BN). Breakout: Stock and/or April $77.50 calls to buy (LES DW).

MXT (Metris Companies Inc--$29.38; -2.25; optionable (MXT)): Credit Services
http://biz.yahoo.com/p/m/mxt.html
STATUS: Moved up Thursday but on lower volume (back below average), unable to break out of the handle of its double bottom. Friday the stock dropped back below its 200 day MVA (29.51), closing on the 10 day MVA on rising volume (879,800; avg. 646,318). Earnings are out before the bell on Wednesday, and that may be the catalyst for the breakout.
BUY POINT: Breakout: 32.38, on volume of 969,000. Remains a buy on a breakout up to 34.
POSITION: Stock. April options had insufficient open interests (too illiquid for this stock).

MER (Merrill Lynch & Co--$74.25; +0.50; optionable (MER)): Brokerage
http://biz.yahoo.com/p/m/mer.html
STATUS: Inched up toward the breakout point of 75.13 but volume dropped back below average (3.7 million; avg. 4.6 million). We are looking for a market pullback, so the stock most likely will do the same. Look for support at 73 on that move until a market rally boosts the stock back up. Excellent money flow and high relative strength.
BUY POINT: Breakout: 75.13, on volume of 6.9 million or better.
POSITION: Breakout: Stock and/or April $70 calls to buy (MER DN).

JPM (J.P. Morgan & Co--$53.31; -0.82; optionable (JPM)): Banking
http://biz.yahoo.com/p/j/jpm.html
STATUS: Made a breakout move Thursday on good volume, closing at the buy point, then pulled back Friday on lower, below average volume (9 million; just below average), the low testing support at 52.38. Look for support at 52.44 (hit three times just prior to the start of the base) on a continued pullback before the stock can move back up. After a Tuesday pullback, earnings out before the bell Wednesday can be a catalyst for the move.
BUY POINT: Aggressive: On a move back up from 52.44 on stronger volume. Breakout: 54.13, on volume of 14 million or better.
POSITION: Stock and/or March $45 or $50 calls to buy (JPM CI or CJ).

PUT PLAYS: Still looking at some defensive stocks for possible moves down as the techs rally. These plays are on some defensive stocks that look ready to move back down from resistance levels.

Continued Plays:

UNH (Unitedhealth Group Inc--$54.19; -1.19; optionable (UNH)): Health care plans
http://biz.yahoo.com/p/u/unh.html
STATUS: Moved back down from the 50 day MVA (56.53) Thursday, then dropped back again Friday on lower volume (1.6 million). The low tapped possible support just up from 53. We are looking for a move below that level, but the stock can move back up to test the high of 55.56, where it's tested 5 times in the last week. On a move back down on high volume, we will look at the downside play.
BUY POINT: On a move down below 53 on strong volume on the selling.
POSITION: February $55 puts to buy (UNH NK).

BMY (Bristol-Meyers Squibb Co--$67.19; +2.69; optionable (BMY)): Drug manufacturer
http://biz.yahoo.com/p/b/bmy.html
STATUS: Moved up to test the 18 day MVA (67.42) but volume was lower (4 million) as it broke back over the 50 day MVA. On a move back down, the stock might hold support at the 50 day MVA (66.25), so we will let it break that support and that at the 64 level, where the stock has by now stacked up lower possible support. Might not work, but we'll see how it plays out in the next couple of days.
BUY POINT: A move below 64 on strong volume.
POSITION: February $70 puts to buy (BMY NN).

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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