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Begin Part 2 of 2

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:

Target hit alerts issued on MVL (+28%), SIMG (+20%), and BPHF (+20%).

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: PETM broke out on big volume, continuing Wednesday's move off the 10 day MVA! HRB sold off for the covered call play.

Targets hit Thursday: SIMG (9), BPFH (26), MVL (7.50)

Stocks/Indexes from the Wednesday report: A market pullback affected stocks today.
VVUS: Pulled back on lower volume in the pennant/handle. Want to see it hold its 18 day MVA.
ADBE: Has to test back to the 10 day MVA after breaking out of the ascending wedge. Volume was higher, so not the kind of pullback we like to see. 38 is important support.
CNMD: Another low-volume pullback after the stock moved up in the test Wednesday.
22 may hold it.
ACE: Made it back from a test below the 18 day MVA, recent support in the ascending wedge. Almost lost the pattern.
SNS: Could not hold the 10 day MVA after bouncing from there yesterday. Fell on lower volume to the 18 day MVA, where it is likely to consolidate a few more days ahead of another bounce.
GAP: Low volume here, too, but the stock held its support in the test of the breakout (ascending wedge). Looks good.

Continued plays:
Covered call:
HRB: Sold below the 18 day MVA, giving us over 2 points for the covered call sale in a surprise drop. The stock can continue down to the 50 day MVA with this action; at least we are not in a hurry yet to buy back the calls. Good move for the play!
NVLS: Looks like it wants to hold up at 50, and with the improved market it might. Showed a very tight doji on lower volume, moving laterally above the support (50), trying to form a flying plateau pattern. If it moves back over 52.30, Tuesday's high, it can run again (time to buy back the calls). Sell point was 50.50.

Other continued plays:
JH: Still like this pattern for a potential 18 day MVA bounce.
ESE: Ditto.
HARB: In the pennant still.

Best Plays:
1) KSWS: Breaking out!
2) ACAT: A tight ascending wedge.
3) SBUX: A handle at support.
4) RPM: Ready to move higher.

New plays:

KSWS (K-Swiss--$38.19; +1.06; optionable): Consumer Non-durables
http://biz.yahoo.com/p/k/ksws.html
STATUS: Broke out of a cup with handle base mid-January and after reaching a new high at 38.95, fell back and moved into a 5-week cup with handle. Thursday the stock broke out over the handle high as volume broke sharply higher, above average levels to 147,300 (avg. 85,000). The stock remains a buy on the move, still within 5% of our limit for buying on breakouts, and with the strong money flow and high relative strength, KSWS looks ready to follow through. Target: 45.60
BUY POINT: 38.35 on continued strong volume. Stop Advisory (7%): 35.67. Remains a buy on the breakout up to 40.
POSITION: Stock and/or July $35 calls to buy (SWU GG).

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

ACAT (Arctic Cat--$18.00; +0.20; no options): Recreational Vehicles
http://biz.yahoo.com/p/a/acat.html
STATUS: ACAT trades on less than 100,000 average daily volume. The stock has been in a steady uptrend since mid-2000 although it took a hit with everything else in September. Since then the stock became more volatile but recently tightened up in an ascending wedge pattern with resistance pretty sturdy at 18. The 18 day MVA is most immediate support (17.79), and intraday Thursday ACAT broke it, falling to but bouncing back from 17 on huge volume (417,100; avg. 67,300). The stock looks as if it can blast from the pattern. Good money flow, and buying has shot up. Target: 22
BUY POINT: Breakout: 18.25 on continued strong volume. Stop Advisory (7%): 16.83
POSITION: Stock.

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

SBUX (Starbucks--$23.12; -0.02; optionable): Specialty Restaurants
http://biz.yahoo.com/p/s/sbux.html
STATUS: A cup with handle inside a bigger, 13-month cup base with highs around 25; this little cup has resistance at 24. SBUX formed the right side of the little 5-week pattern on a good run up from the 50 day MVA (a 3-point move in seven days), and is pulling back now in the handle on decreasing volume. Volume was lower and below average Thursday at 2.5 million (avg. 3.7 million), with the stock showing a tight doji above support at 23 (the 10 day MVA is at 22.93). May hold the support for another day, but expect a move up and breakout. Excellent money flow. Target: 29
BUY POINT: 24.17 on volume of 5.6 million or higher. Stop Advisory (7%): 22.48
POSITION: Stock and/or July $20 calls to buy (SQX GD).

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

Updates:

PRIA (Pri Automation--$25.82; -0.08; optionable): Semiconductor Equipment
http://biz.yahoo.com/p/p/pria.html
STATUS: We covered PRIA when it formed the 5-week ascending wedge in the previous two months. The stock broke out, but on a move off the 50 day MVA after the pattern failed on some heavy selling toward the end of February. At this time PRIA is pulling back in a test of the 50 day run, and showing a three-day lateral move on decreasing volume (down Thursday to 232,900; avg. 375,000). We like the tight doji (a star) which is holding above the closing highs in the wedge (25.22). It suggests the stock can move up from here if it can hold above the support. On that move, target is 31.
BUY POINT: 26.88 on volume of 300,000 or higher. Stop Advisory (7%): 25
POSITION: Stock and/or May $22.50 calls to buy (UXQ EX).

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

RPM (Rpm Inc--$16.17; -0.06; optionable): Materials & Construction
http://biz.yahoo.com/p/r/rpm.html
STATUS: RPM is in an ascending wedge pattern that is a test of its last run up from the 18 day MVA, which is current support at 16.18. Volume is below average in the pattern, off of the high levels on the run, and steadily decreasing for a week (to 273,400 by Thursday; avg. 472,000). With the two dojis on low volume today and yesterday, RPM looks ready to hold for a move back up in the pattern, and we look for the breakout when it takes out the resistance at the 17 range. Nice uptrend for this stock since September. It corrected to the 50 day MVA mid-January. Excellent money flow. Target: 20.50
BUY POINT: Breakout: 17 on volume of 640,000 or higher. Stop Advisory (7%): 15.81
POSITION: Stock and/or May $12.50 calls to buy (RPM EV).

http://www.investmenthouse.com/cd/rpm.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.

MIK ($35.50; +1.35; optionable): MIK has looked decent since it crossed back over the 50 day MVA a week ago (not forming a pattern but making a run off of 30). It was looking bearish but did not complete the right shoulder of the developing head and shoulders. Today it broke out over the head of that pattern on strong volume after reporting better than expected earnings.

UP & COMERS PORTFOLIOS: BBBY, SRCL

BBBY ($31.60; -0.44): The third day below the 50 day MVA but holding at a long term up trendline (June 2000/December and March 2001 lows). Will see if it can hold there, but even if it does not, the stock remains in an uptrend as long as it holds the 200 day MVA. Volume is falling and while we don't usually hold on to stocks that break the 50 day MVA, BBBY may recover if it can hold here.

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

AMGN ($59.80; -0.79): Crossed over the 200 day MVA Wednesday for the first time since December, but was back below today, lower volume and a doji on the move. Can continue lower to complete the right side of the shoulder in the 5-month head and shoulders base, or, the lower volume doji can mean a move back up.

HB ($57.73; -0.37): A cent below the 50 day MVA, volume just higher. On a break of support HB can fall to 56, if not the 200 day MVA at 55, but the 50 day MVA (simple), tapped on the low at 57.42, has been support as well.

BUD ($49.28; -0.62): Stronger volume (above average) and a fight to hold support at the 18 day MVA. Just may correct back to the 50 day MVA since the stock has held the 18 day MVA since early January. It has bounced twice but is not showing good price/volume action for a week.

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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