us stock market, stock watch

Begin Part 2 of 3

Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.

3-5-02
ISM Services, February (10:00): 58.7 actual versus 51.0 expected and 49.6 prior.

3-6-02
Factory Orders, January (10:00): 1.6% actual versus 1.4% expected and 1.2% prior.
Fed Beige Book (2:00): Up in 9 of 12 districts.

3-7-02
Initial Claims, 3/2 (8:30): 376K actual versus 380K expected and 381K prior (revised from 378K).
Productivity-Rev., Q4 (8:30): +5.2% actual versus 4.7% expected and 3.5% prior.
Consumer Credit, January (3:00): $12.8B actual versus $3.7B expected and -$1.8B prior (revised from -$5.1B).

3-8-02
Nonfarm Payrolls, February (8:30): Unch. versus -89K prior.
Unemployment Rate, February (8:30): 5.8% versus 5.6% prior.
Average Workweek, February (8:30): 34.1 versus 34.0 prior.
Hourly Earnings, February (8:30): 0.3% versus 0.0% prior.

SUBSCRIBER QUESTIONS

Q: Can you explain the term "DELTA"? Thanks.

A: Delta is the measure of how much an option price changes for every move up or down in the underlying security. A delta of 1.0 means that for each $1 move in the underlying stock, the option moves $1 as well. A delta of 0.50 means for every $1 move, the option moves $0.50 in the same direction. Put options have negative deltas, e.g., -0.50. They work the same way: when you own a put option with a -0.50 delta, if the stock moves up $1, the put option falls $0.50; if the stock falls $1, the put option rises $0.50.

We use deltas on covered calls to determine where to put our buyback order on calls that we sold. We know that the stock has support at a certain level, say $3 below where the stock currently is. It is topping, so we want to sell some calls. If the calls we want to sell have a 0.7 delta, a $3 drop to support by the stock would drop the price of the option by 2.10 ($3 x 0.7=2.10). So, we subtract 2.10 from the ask price of the option at the time we sold it to determine the ask price (the price at which we would have to buy it back) of the option when the stock hits the support level. That way we can do it all automatically. We discuss this great way to use covered calls to our advantage to generate cash in cash accounts and in IRA's in our online seminars.

THE PLAYS: PII blasted up, continuing its solid move!

BONUS PLAY: SY tried to move but pulled back again; still looks decent. CMX tested back and is holding up nicely. MDR is still set up.

LECO (Lincoln Electric--$27.25; +0.50; no options): Manufacuring.
http://biz.yahoo.com/p/l/leco.html
STATUS: LECO looks ready to take off to a new high. The stock broke out of a lateral range (an extended handle to a cup) last month, and has moved in an ascending wedge holding loosely over the short-term MVA's (18 day at 26.51). After tapping down to the 18 day Wednesday, today LECO blasted up on very strong volume (227,300; average 89,300), closing just below the high of 27.50. Looking for the breakout. Target: 32.
BUY POINT: 27.60 on volume of minimum volume of 120,000. Stop: 25.67.
POSITION: Stock only.

SJM (Jm Smucker--$35.45; +0.85; no options): Food & Beverage.
http://biz.yahoo.com/p/s/sjm.html
STATUS: With a name like Smucker . . .Peeled back steadily from its high of 37.73 in early December, testing close to its 200 day MVA at 36 before making an abrupt recovery in mid-February. That move took SJM back over the 50 day MVA (33.91), and the last couple of weeks the stock has moved in a tight lateral pattern, recently holding just over its 10 day MVA (34.74). Today SJM made a move up, closing over recent highs as volume picked up to 91,500 (average 74,400). A good start, and we are looking for a clean break, targeting 40 (watching the high). Excellent money flow and good buying.
BUY POINT: 35.70 on increased volume. Stop: 33.20.
POSITION: Stock only.

SVM (Servicemaster--$14.36; -0.08; optionable): Business services.
http://biz.yahoo.com/p/s/svm.html
STATUS: Broke out of a lengthy consolidation Wednesday, making the move on strong volume. Today SVM tested the move, tapping at former highs at its low of 14.20 (the consolidation dates back to mid-December), recovering a bit to close. Volume was lower on the test at 650,100 (average 431,600), and we will look for SVM to hold 14.20 and continue the move. Good money flow and buying. Targeting 16.50.
BUY POINT: 14.55 on increased volume. Stop: 13.53 (7%).
POSITION: Stock and/or July $12.50 calls to buy (SVM GV - under 100 open interest).

Quick updates prior bonus plays.
MKSI - Holding up after the run.
ISLE - Testing the breakout on lower volume.
DCOM - Holding the former highs on the test, and could bounce from a high-volume doji.
SOV - Holding up after its pullback.
SHFL - Still looking like a bounce.
BAX - Is setting up in a pennant now.
IR - Finally pulled back after the huge run, and adding a trailing stop just below 51.
APA - Close well off the high could spell a pullback to support.
MSM - Holding up after the move with a low volume pullback.

MARKET FAVORITES: BRCM bounced a bit but closed with a doji. Still could move, but might need to test 40 again.

BRKS (Brooks Automation--$50.10; +0.05; optionable): Semiconductor equipment.
http://biz.yahoo.com/p/b/brks.html
STATUS: Since breaking from a pennant in early January, BRKS has moved in a range roughly from 42-50. BRKS tested its 200 day MVA (42.84) for most of last week, bouncing up hard in the semiconductor rally and taking out its recent highs. It is now taking a rest after having tapped 52 twice at the move's high, today dipping back again on decreasing volume (641,600; average 657,600). Looking for BRKS to hold 50 and then give us a move back up with a renewed market rally. Target: 60.
BUY POINT: In a strong market, a move over 51 on above average volume. Stop: 47.90. Over the high: 52.10 on above average volume. Stop: 48.45 (7%).
POSITION: Stock and/or July $45 calls to buy (BQE GI - under 100 open interest).

PRE-ANNOUNCEMENT PLAYS FOR THIS WEEK: After DRI's announcement, no more scheduled for this week.

PRE-ANNOUNCEMENT BEST PLAYS:
1) DRYR - Still holding that nice pattern
2) LSTR - Good-looking test
3) MUR - Broke out!
4) KRI - Still in the pennant
5) ACDO - Looking good
6) RUS - Trying to move
7) CYN - Could still breakout but looks like a rest

DRYR (Dreyers Grand Ice Cream--$43.17; -0.33; no options): Forecast to announce a split with earnings on 4-24-02 before the open.
http://biz.yahoo.com/p/d/dryr.html
BACKGROUND: Last announced a 2:1 split on 10-27-97 at a price of $42. Before that it announced in October 1990 at about the same price range. The annual shareholder meeting was on 5-9-01 at which time no additional shares were authorized. The company has sufficient shares for a 3 for 2 split.
STATUS: Pulled back a bit more in the handle. DRYR is in a nice, though short pattern. For better than a week DRYR has been dipping gradually in the handle to its 'flying w' double bottom pattern, which formed after its break from a large cup with handle pattern in December. Looking good as it moves on low volume (134,000 today; average 257,400), showing a doji today over the 10 day MVA (43.07). Looking for a move up and breakout. Target: 50.
BUY POINT: 44.98 on volume of 390,000. Stop: 41.83. Aggressive: Over 44 with volume of 300,000 or better. 41.50.
POSITION: Stock only.

LSTR (Landstar System--$88.28; -0.12; no options): Researching a new date.
http://biz.yahoo.com/p/l/lstr.html
BACKGROUND: Based upon our research it does not appear that LSTR has ever split its stock. The annual shareholder meeting was on 5-16-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: Nice test of its recent breakout. We took LSTR on its January run, then exited as it started to drop, and since then we have been keeping tabs on it on the watchlist. It tested back through its 50 day MVA (currently 80.11) on the recent drop, hitting 77 before starting a move back up. Initially there was not much in the way of volume, but Monday there was an infusion of strength as LSTR made a new high (prior high 87.35). The last three sessions it has pulled back slightly with dojis, moving on low volume (48,300 today; average 64,600). With the low volume pullback and doji holding over the prior high, we are looking for LSTR to bounce and head up to 100.
BUY POINT: After holding 87.50 on a light volume pullback, a move over 89 on above average volume. Stop: 84.50.
POSITION: Stock only.

MUR ($89.55; +1.84): Forecast to announce a split 4-24-02 after the close, with earnings.
http://biz.yahoo.com/p/m/mur.html
BACKGROUND: Based upon our research it does not appear that MUR has ever split its stock. Authorized shares were increased at the last shareholder meeting.
STATUS: Broke out to a new high today! Volume was up at 294,800 (average 252,500), and we were looking for more strength, so we will see if it will continue the momentum from here. This move started Wednesday out of a handle-type consolidation formed as MUR approached the high after having moved out of the rolling range of the last several months. With current positions looking for a run to 100.
BUY POINT: Riding current positions. With the decent but not great volume today, for new positions we will see if the stock settles back a bit on low volume, holding the prior high of 87.85. We can look at new or additional positions on a move up from there. Stop: 84.
POSITION: Stock and/or July $80 calls to buy (MUR GP).

KRI (Knight-Ridder--$67.51; -0.18; optionable): Newspapers. Forecast to announce a split on 4-24-02 before the open. There is also the shareholder meeting the next day at 9:30 PT.
http://biz.yahoo.com/p/k/kri.html
BACKGROUND: Last announced a 2:1 split in July 1996 at a stock price of approximately $70. The company has sufficient shares for a 2 for 1 split.
STATUS: Still in the pennant pattern, which has shaped up nicely since KRI broke to a new high in mid-February. It is holding steady support over the 10 day MVA (67.06), occasionally dropping down intraday to hit its 18 day MVA (66.41). Volume has been light as it tightens in the pattern, which is good action, and we will look for strength on a breakout. Target: 80.
BUY POINT: 68.35 on volume of 540,000 (average 405,100; today down to 215,300). Stop: 63.57. The move to a new high is 68.83.
POSITION: Stock and/or July $65 calls to buy (KRI GM - under 50 open interest).

ACDO (Accredo Health--$53.50; -0.19; optionable): Researching a new date.
http://biz.yahoo.com/p/a/acdo.html
BACKGROUND: Last announced a 3:2 split on 1-29-01 in conjunction with earnings. The stock price was $45. The annual shareholder meeting was on 11-16-01 at which time no additional share were authorized. The company has sufficient shares for a 3:2 split.
STATUS: Looking good in its pattern, a pennant which has taken on the look of an ascending wedge in its tightening tip. ACDO formed the pattern after a strong breakout in early January, and another strong move at the start of February after it had consolidated a bit. Holding nicely over its short-term MVA's (52.68), today with a doji on continued low volume (307,100; average 588,100). Watching for another strong move. Target 63. Excellent money flow.
BUY POINT: 54.89 on volume of 800,000, with stock and/or May $50 calls to buy (DZU EJ).

RUS (Russ Berrie--$31.65; +0.10; no options): Toys and games. Looking at a date in mid-April, and we are working to narrow that down.
http://biz.yahoo.com/p/r/rus.html
BACKGROUND: Last announced a split in 1993 at a stock price of $35. The company has sufficient shares for a 2:1 split.
STATUS: Tried to make a move up today, but after a gap to 31.76 its pulled back, showing a loose doji after having tapped its 18 day MVA at its low of 31.32. Volume wsa not what we were looking for to carry a breakout, coming in up at 23,000 (average 24,800). RUS had leveled over the 18 day and formed a pennant, but has spread out a bit after gapping below the 18 day Wednesday and then with today's action. The candlestick indicates a test back to support, but we continue to look for the strong breakout. RUS broke out of a 2-month cup with handle in November and has moved more or less laterally up the 50 day MVA since then. It hit a high of 31.85 while moving in the present consolidation. Target: 36.
BUY POINT: 31.95 on volume of 34,000. Stop: 30.25.
POSITOIN: Stock only.

CYN (City National--$51.81; -0.19; optionable): Regional bank. Forecast to announce a split with earnings 4-16-02 before the open.
http://biz.yahoo.com/p/c/cyn.html
BACKGROUND: Based upon our research it appears that CYN split its stock in 1990 in the $40 range. The company has sufficient shares for a 3 for 2 split.
STATUS: Has tried to breakout, but has not generated the necessary volume. After moving out of its 5-month cup pattern in January, CYN formed an ascending wedge, and is now bouncing along the pattern highs, and looks to need a rest and test of support (the 18 day MVA, at 50.80). Off the higher volume (251,500; average 207,100) doji today, we will look for a move back and hold of the 18 day, setting up and building strength for the breakout. Target: 60.
BUY POINT: After a low volume test of the 18 day: 52.45 on volume of 280,000. Stop: 48.78 (7%).
POSITION: Stock and/or May $50 calls to buy (CYN EJ).

PRE-SPLITS BEST PLAYS: NJR made a nice move going into the split, and we will see if it can continue strength post-split.
Remember, we try to grab these as they break out of good patterns or as they start a run right before the split. Not looking for home runs, but looking for those $3 to $4 moves running into the split, watching for topping signs and potential resistance. Not huge money, but it can be very steady. We set our initial stops at the 7-8% range below the purchase price (or just below obvious support), and move them up on a move to preserve our profits.
1) DF - Forming up for a move
2) WERN - Might need a bit more rest
3) JEC - Pre-split momentum!

DF (Dean Foods--$72.35; +0.05; optionable): Splits 2:1 effective 4-25-02.
http://biz.yahoo.com/p/d/df.html
STATUS: DF is moving in a handle to its cup pattern, which dates back to late December (high of 72.47). DF took out that high in recent sessions (73.40 Monday), but volume has been low and the stock has needed to rest after having made a nice run up from the bottom of the base (64, then the 50 day MVA). Today DF showed a second consecutive doji after having tested the 10 day MVA (71.40) at its low today, with volume continuing to be low in the handle (352,700; average 560,000). Looking for a breakout. Target still 80.
PLAY: For new positions, a breakout: 73.50 on volume of 840,000, with stock and/or June $70 calls to buy (DF FN). Stop: 69.

WERN (Werner Enterprises--$27.01; +0.01; optionable): Splits 4:3 on March 15.
http://biz.yahoo.com/p/w/wern.html
STATUS: Made a great move back up Monday, breaking out of the doldrums that had embraced it since early February. Solid volume accompanied the break back over the 50 day MVA (25.67), but WERN has eased upward slightly since as volume steadily declines (down to 180,700 today; average 320,700). The drift up is not the best action, so we will watch for a possible dip before the next move (short-term MVA's at 26). However, with pre-splits we typically can see a lot of volatility, and we will keep watching WERN for a continuation of its move. The high is ahead at 29.57 and that is our target.
PLAY: After a dip back toward 26-26.50, a move back over 27. Stop: 25.50. From here: Over 27.44. Stop: 25.50 (7%). Stock and/or April $25 calls to buy (QEH DE).

JEC (Jacobs Engineering--$71.75; +1.84; optionable): Splits 2:1 on April 2.
http://biz.yahoo.com/p/j/jec.html
STATUS: JEC has made a really nice move. It started at 62 last week, hitting 69.18 before abruptly testing the 200 day MVA (65.28). It held there, and has made another fine move, hitting the buy point Wednesday and then continuing up today, with a spike in volume as well (291,000; average 244,000). Riding positions up to a target that is the high (hit in May and November 2001) at 75.70. For new positions we will see if JEC makes another retracement toward 70, setting up another blast up.
PLAY: For new positions: A move up from 70 after a hold of that level on a move back. Stock and/or July $65 calls to buy (JEC GM).

CONTINUING CANDIDATES BEST PLAYS:
1) THQI - Nice test of the 200 day
2) ETH - Doji over support.
3) RARE - Still waiting for the breakout

THQI (THQ Inc.--$51.01; +0.01; optionable): Software.
http://biz.yahoo.com/p/t/thqi.html
BACKGROUND: Last announced a 3:2 split on 10-26-99 in conjunction with earnings. The stock price was $44. Prior to that announced a 3:2 split on 7-23-98 in conjunction with earnings. The stock price was $33. The company has sufficient shares for a 2:1 split.
STATUS: THQI has made strong move the last two weeks, pulling out of the doldrums that accompanied a steady drop from 65 to 40 over three months. Monday it closed back over its 200 day MVA (50.21), and showed good volume on a move up from there the next session. We were looking for it to dip back and test the 200 day, and that is what it has done, today showing a 'shooting star' doji over the 200 day as volume continued to decrease (936,600; average 1.45 million). Looking good for a continuation of the move. Target: 60.
BUY POINT: Over 52.20 on volume of 1.7 million or better. Stop: 49.
POSITION: Stock and/or June $50 calls to buy (QHI FJ).

ETH (Ethan Allen--$40.52; +0.01): Home furnishings.
http://biz.yahoo.com/p/e/eth.html
BACKGROUND: Last announced a 3:2 split on 4-28-99, approximately 2 weeks after earnings release. The stock price was $35. The annual shareholder meeting was on 11-15-01 at which time no additional shares were authorized. The company has sufficient shares for a 2:1 split.
STATUS: ETH made a nice run up from one of its long-term up trendlines (36), which was at the neckline of a head and shoulders pattern, and back over the 50 day MVA (39). It hit up to 42.15 on the run, but pulled back on rather strong volume. However, it looks like it wants to hold the former 'shoulder' highs at 40 (with the 10 day MVA), and it closed with a 'shooting star' doji over that support today. Looking for ETH to hold and continue its move.
BUY POINT: Holding support at 40, a move over 41.25 on above average volume (203,400; today down to 139,700). Stop: 38.46.
POSITION: Stock and/or May $35 calls to buy (ETH EG).

RARE (Rare Hospitality--$26.81; -0.04; optionable):
http://biz.yahoo.com/p/r/rare.html
BACKGROUND: Last announced a 3:2 split on 7-26-00 in conjunction with earnings. The stock price was 29.50. The annual shareholder meeting was on 5-14-01 at which time authorized shares were increased. The company has sufficient shares for a 2:1 split.
STATUS: Tightening up now, squeezing between the highs in the handle and the short-term MVA's (18 day at 26.33). Volume continues to be quite low as the pattern tightens, today showing a doji on volume of 85,100 (average 263,000). The pattern is within the handle of the cup with handle that dates back to May (high 28.43; February high at 32). The handle recently dipped back to the 50 day MVA (25.23), but it bounced back up to form the consolidation. Good relative strength, but money flow lags. Target: 32.
BUY POINT: 27.15 on volume of 400,000. Stop: 25.25.
POSITION: Stock and/or May $25 calls to buy (QRH EE - low open interest).

POST SPLITS BEST PLAYS:
1) BGS - Hanging in there

BSG (formerly BSYS; Bisys Group--$32.60; -0.41; optionable): Split 2:1 on 2-25-02.
http://biz.yahoo.com/p/b/bsys.html
STATUS: Dipped back a bit further than we were looking for (the recent highs of 33), but its low-volume drop today (366,200; average 560,000) stopped short of the 10 day MVA (32.46), and held its prior closing highs. Still a possible good play if it can hold this level; the last dip before the breakout held the 18 day MVA (32.10), and we will look for a strong move back up and continued trend using the short-term MVA's as support.
PLAY: If it can hold, we can look at positions on a move over 33.20 on above average volume, with stock and/or June $30 calls to buy (BSG FF).

End Part 2 of 3

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