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Begin Part 2 of 2

SUBSCRIBER QUESTIONS

Q: Could you not by puts or go short for NVLS if you don't already have a position? Thank you for a reply.

A: Last night we were looking at NVLS as a covered call candidate on the Daily as a stock we had previously taken positions on and was ripe for a pullback. We know that stocks will inevitably pullback no matter how strong they are, and if we are going to hold onto the stock during the pullback, we can sell some calls on it, let it fall, and then buy them back when it hits support and starts to rebound.

That is the same theory of puts or going short: the stock is going to fall. That can be played with puts or short selling as well. The usual precautions apply: is there enough room on the fall down to support to cover the spread and give us a safe enough return?

THE PLAYS:

Reading the Plays: Please note that when we reference the 10, 18, and 50 day moving averages (MVA), those are exponential moving averages (EMA). The 200 day moving average is always simple (SMA). We will note when we reference a particular MVA differently, e.g., a simple 50 day MVA. Please click on the Yahoo and chart links for company and charting information. A "prior high" refers to the high at the start of a base.
For conserving space on listings of stop losses, the symbol (7%) indicates that the stop is 7% below the buy point.

Good movers: HRLY, RKY, PETM, PCX. Huge move by FMX, previously covered as a cup with handle but has made a strong run up from the 50 day MVA as is close to breaking out of its 9-month base.

Stocks/Indexes from the Monday report:
LUX: Big volume spike today and just a small move up; could blast off from here (test of breakout).
ESE: Still tight in the lateral pullback to support.
INVN: Holding with a hanging man doji on lower volume after Tuesday's move off of support (ascending wedge).
HARB: Showing a super tight doji in the tail of the pennant; volume is rising so things look good.
BBX: Held for another small move up in the test of the recent ascending wedge breakout. Volume was lower but pattern still looks good.
NVLS: Hit the sell point for the covered call play, bouncing up from a low of 49 on decreased volume. Target is 47.

Continued plays:
Covered call:
PENN: Dropped to a low of 32.80, moving down through the 33 level (we thought it could), then bounced back up. That was the place to buy back the calls. The stock closed back above the 10 day MVA; after this test it will likely hold so a good place to close out existing positions.
HRB: Still at the 10 day MVA, just a bit lower today on rising volume. May move back up from here, so will be ready to buy back the calls. Target is a drop to the 18 day MVA at the 48.80 level if it does not hold.

Other continued plays:
ACE: Buy point 44.86 in the ascending wedge. Nice pattern.
HNT. Moving up on rising volume after breaking back over the 18 day MVA. Another potential bounce play from the 18 day MVA.
HRLY: Nice move up again after taking the Tuesday breather we noted in last night's report! Holding current positions.
JH: Still like this pattern for a potential 18 day MVA bounce.
LYTS: Like this one too in the pullback on lower volume after its breakout form the flat base.
PETM: Surging again to a new closing high off a 10 day MVA bounce.

Best Plays:
1) VVUS: Moving into a breakout!
2) ADBE: Moving up after testing the breakout.
3) CNMD: Ditto.
4) GAP: Ready for a continued bounce.
5) SNS: Nice pattern.

New plays:

VVUS (Vivus--$7.99; +0.84; optionable): Health Services
http://biz.yahoo.com/p/v/vvus.html
STATUS: Making a breakout move from a 2-year cup with handle base. The handle spans 6 weeks and mid-way through it VVUS tried to launch a breakout but pulled back instead (forming a pennant). After about two more weeks of consolidation, the stock lunged off of the 18 day MVA Wednesday on a sharp rise in volume to strong levels (661,700; avg. 381,000). Looking for this one to break out here, for a move over the January and February highs. Outstanding money flow and buying looks good. Target: 10.50
BUY POINT: Aggressive (still has the January high at 8.35): 8.18 on continued rising volume. Stop Advisory (7%): 7.61
POSITION: Stock.

http://www.investmenthouse.com/cd/vvus.html

ADBE (Adobe Systems--$40.34; +0.36; optionable): Software
http://biz.yahoo.com/p/a/adbe.html
STATUS: ADBE broke out of a 3-month ascending wedge pattern that had developed above and below its 200 day MVA (35.39). The stock reached up to 41 on the breakout for the first (not the last, we hope) March closing high. After a day of rest, the stock on Wednesday's intraday low stayed well above the buy point (37.80) and headed up on rising volume (3.5 million; avg. 3.4 million). Looking for a continued upward move in this test of the breakout! September low was 22.20, from where ADBE has trended up very nicely. Solid money flow, high relative strength. Target: 47
BUY POINT: 41.05 on volume of 4 million or higher. Stop Advisory (7%): 38.18
POSITION: Stock and/or July $35 calls to buy (AEQ GG).

http://www.investmenthouse.com/cd/adbe.html

Updates:

CNMD (Conmed Corp--$22.42; +0.52; optionable): Health Services
http://biz.yahoo.com/p/c/cnmd.html
STATUS: After breaking out of the 10-week flat base pattern last Friday, CNMD tested the move for 2 days, and Wednesday started moving up again on a good rise in volume (to 262,100; avg. 381,000). Looking for a new leg up here after a successful, though short (but it does not have to be longer) test of the breakout. Good money flow, high relative strength. Target: 28
BUY POINT: Aggressive (still has March high at 23.05): 22.65 on continued rising volume (265,000 or higher). Stop Advisory (7%): 21.06
POSITION: May $20 calls to buy (KQD ED).

http://www.investmenthouse.com/cd/cnmd.html

GAP (Great Atlantic--$27.29; +0.48; optionable): Retail
http://biz.yahoo.com/p/g/gap.html
STATUS: Looking for a bounce from the 18 day MVA (26.59) after GAP broke out of the ascending wedge (off of support at the 50 day MVA) then tested the move. The stock fell to 26 on the low Wednesday but strong volume propelled it back up (164,500; avg. 161,000). Looking for a strong move up from here. Good money flow and strong buying. Target: 32
BUY POINT: Aggressive: 27.50 on continued rising volume (170,000 or higher): Stop Advisory (7%): 25.58
POSITION: Stock and/or July $25 calls to buy (GAP GE).

http://www.investmenthouse.com/cd/gap.html

SNS (Steak N Shake--$14.59; +0.11; no options): Leisure
http://biz.yahoo.com/p/s/sns.html
STATUS: Looks like a good place to add to positions or enter with new ones. After the nice breakout at the end of February (from a 4-week flat base), a strong bounce off its 18 day MVA, SNS pulled back over the last 7 days to support at the 10 day MVA in a test, well above the buy point in the earlier pattern at 13.38. The move down has been on decreased volume which rose again Wednesday (107,700; avg. 74,000). Looking for another leg up from here after an orderly test of the breakout. Outstanding money flow and buying. Target: 18
BUY POINT: Aggressive: 14.80 on continued rising volume. Stop Advisory (7%): 13.76
POSITION: Stock.

http://www.investmenthouse.com/cd/sns.html

PORTFOLIOS: Each report, we look at these to see which is in a buy position. We don't cover them all each time, just the ones that look ready to pick up a few shares.

THE LEADERS: DGX, FRX, LLL, MIK, APPB, IGT.

IGT ($67.37; +1.12): After Tuesday's selling, IGT held the 18 day MVA as volume remained below average.

UP & COMERS PORTFOLIOS: BBBY, SRCL

SRCL ($66.09; +0.93): Another test of the 10 day MVA (tapped the last 2 days on the lows) on below average volume. SRCL can head up from here for a move over the March high at 67, look for strong volume on that move.

MEMBER PORTFOLIO: CSCO, SEBL, EMLX, BRCM, HDI, BRCD, BUD, AMGN, WMT, ORCL, HB, NOC

BRCM ($40.04; -0.46): Is holding above the 50 day MVA after crossing back over on Tuesday. Resistance is at the 50 day MVA (simple, at 41.68), but when the chips rally again, a move over that will offer a good aggressive entry point for a run back up to the 50 range.

WMT ($60.90; +0.14): Held the 18 day MVA with a tight doji on decreased volume after some selling back to the support on Tuesday. Can give another bounce but has done so three times since late January so may take the opportunity here to test the 50 day MVA. That could launch another series of bounces.

NOC ($109.30; +5.35): Made a nice move over the 50 day MVA Wednesday, volume higher and just above average levels. Still needs to get over resistance at 110 and then show continued good price/volume action for looking at new entry points.

AMGN ($60.59; +1.65): All right! Made it over the 200 day MVA, just barely, on stronger, above average volume Wednesday. We will see how things shape up from here. Has been forming a head and shoulders, so not out of the woods yet.

HB ($58.10; +0.17): Held support at the 50 day MVA after falling out of the pennant and selling down to that support on Tuesday.

EMLX ($34.04; -3.23): Dragged down by MCDT news and a downgrade. Still below the 50 day MVA and looks ready to head for the 200 day MVA (just above 30). After the last drop to the 200 day, the bounce back to the 50 day MVA offered a good exit point.

Good Investing!
Jon L. Johnson and The Daily 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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