Early Leaders Starting To Emerge
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INVESTMENT HOUSE.COMTM
Informing Investors Around The World
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Weekend Newsletter for
June 25, 2006
Table Of Contents 1) MARKET SUMMARY 2) PRE-SPLIT PLAY 3) TECHNICAL PLAY 4) COVERED CALL PLAY
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http://www.investmenthouse.com/1splitnotification.htm”>Stock Split Notices http://www.investmenthouse.com/1questions.htm”>Investing Q & As http://www.investmenthouse.com/1glossary.htm”>Glossary
1) MARKET SUMMARY > >From “The Daily” at InvestmentHouse.com
Market spends another slow day, trying to consolidate for a move through resistance.
– Energy deal excites the market, but hard to tell given the price and volume moves.
– Early leaders starting to emerge even as market sputters along.
– Headline durable goods post surprising loss, but still shows plenty of underlying strength.
– Can a 50 BP hike spur a rally?
– Indices remain at the crossroads, trying to consolidate as leaders start to stir.
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Market Summary (continued)
With an extraordinary 2 for 1 mindset, Anadarko (APC) announced an acquisition of KMG and WGR in a bid to become the largest independent oil and gas company in the world. Of course, it was no 2-fer deal as APC is paying premiums of roughly 40% and 50% respectively. Either energy companies are grossly undervalued after a one month correction to a 3.5 year run or Anadarko has made the blunder of the decade.
While the energy sector got hot flashes over the magnitude of the deal, the market was rather under-whelmed. Stocks opened softer but managed a nice rebound, breaking sharply higher to start lunch. Both NASDAQ and SP500 moved to the 18 day EMA once more, but a summertime Friday meant low volume once more. Without the trade behind it the move waffled and faded into the close. The large cap indices were a gnat’s butt lower while the small and mid-cap indices with their large contingent of energy stocks managed some decent gains.
As noted, volume was lower than a very low volume Thursday, capping a week of underachieving trade. The only bump higher was Wednesday on the yawn inspiring follow through session. Breadth was as flat as the indices. It was not a week of technical breakthroughs in the market, a sharp contrast to the wildly varying internals and price movements two weeks back.
http://www.investmenthouse.com/1weekendmarketsummary.htm”>Read “The Daily” Entire Weekend Summary
Here’s a trade from “The Daily” and insights into our trading strategy:
Chart by http://www.stockcharts.com”>StockCharts.com
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http://investmenthouse.com/indexq.php?smbl=
EEFT”>
EEFT (Euronet Worldwide–$35.06; +0.57; optionable): Electronic transaction processing services
http://finance.yahoo.com/q/pr?s=eeft”>Company Profile
STATUS: Cup. Hot sector. Similar to other recovering leaders, EEFT is in the process of forming up a new base, coming off 11 weeks of trending lower with a nice price and volume bounce a week back. It continued higher this week, cracking back up through the 50 day EMA (34.47) on Wednesday and adding to that gain Friday. Still working on the pattern, but it has reversed its trend and is setting up a reverse head and shoulders at the bottom of the pattern. Lots of positives building. A market leader with excellent fundamentals growth to go along with this nice pattern forming up.
Volume: 217.578K Avg Volume: 374.168K
BUY POINT: $35.45 Volume=500K Target=$42.55 Stop=$33.89
POSITION: HSQ KG – Nov. $35c (54 delta) &/or Stock.
http://www.investmenthouse.com/1daily1.htm”>Learn more about “The Daily” with Stock Picks! – Issued 5 Times Per Week
2) Stock Splits Playing stock splits can be very profitable, but it takes know-how. Our stock split service focuses on three main types of plays: 1) pre-announcement (where we forecast an upcoming split prior to the company making the announcement); 2) pre-split (these plays are made in the days leading up to the actual split day); and 3) post-split plays (plays made after the actual stock split where the stock is showing continued or renewed strength).
We play pre-split plays as short-term plays. We get in when the technical indicators show us things look right, grab as much as we can, and get out, always being conscious of resistance and support. These stocks are highly volatile at this time, and can turn on you quickly. Don’t let good profits disappear. Watch for turns, especially when a stock trades in a wide range and finishes off its high. That is a sign these stocks often give you that they are running out of steam. We usually get out and ask questions later. We can always get back in. We like to play in the money calls, preferably two strike prices in the money as this usually gives us a greater delta (the percent an option will mover versus the stock’s movement). We prefer deltas of 75 or better. This means if the stock moves 1 point, the option should move three-fourths of that point. That means up or down.
Remember, wait to see the stock start to move up. Don’t just blindly make a play and don’t try to guess tops and bottoms. We can look at indicators to give us a clue as to what will happen, but we need the stock to confirm it for us.
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Listen to Stock Split Report Editor Jon Johnson’sstock split interview on CNBC-TV [ http://www.investmenthouse2.com/cntdir.asp?name=JonJohnson-B” target=”_new”>Broadband | http://www.investmenthouse2.com/cntdir.asp?name=JonJohnson-D” target=”_new”>Dial-up ]
Here’s a pre-split play to watch and our current analysis.
Chart by http://www.stockcharts.com”>StockCharts.com
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http://investmenthouse.com/indexq.php?smbl=
TEX”>
TEX (Terex–$90.12; +2.57; optionable): Farm and construction machinery. Splits 2:1 on 7-17-06.
http://finance.yahoo.com/q/pr?s=tex”>Company Profile
STATUS: Double bottom. Yes, we were looking at TEX as a downside play, but it has recovered ahead of the split. TEX moved above the 50 day EMA (86.14) on a strong shot of above average volume Wednesday and then over the 50 day SMA (88.70) Friday. This move has broken up the trend lower, and another stronger volume run through the April highs at 90 puts a bullet into that head and shoulders. Nice turnaround, and looking for that rising volume to give us the buy point in this part of the pre-split run.
Volume: 652.9K Avg Volume: 852.849K
BUY POINT: $90.74 Volume=850K Target=$101.00 Stop=$86.00
POSITION: TEX JS – Oct. $95c (49 delta).
Learn more about our Stock Split Report and how we have made gains of 321% with our powerful stock split plays!
http://www.investmenthouse.com/a/StockSplitReport.html”>Details Here.
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Chart by http://www.stockcharts.com”>StockCharts.com
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3) TECHNICAL PLAYhttp://investmenthouse.com/indexq.php?smbl=
FMD”>
FMD (First Marblehead Corp.)
http://finance.yahoo.com/q/pr?s=fmd”>Company Profile
We are always looking for leaders no matter what the market condition is. Right now we are looking for leaders to emerge because after this selling the leaders clue us in as to whether a market rally attempt has any legs. Moreover, the early leaders tend to be the best gainers in the market. That is why FMD caught our eye back in late May as it basically ignored the selling as it tested and held key support at the 50 day EMA. Its entire sector was showing relative strength, and FMD is one of the top stocks in that sector. When volume jumped as it moved higher off that level we were ready to enter.
We moved in on 5-26 when it jumped higher on stronger volume off of that support. We moved in with some stock positions at $46.14 and some September $45 strike call options at $4.70. We like stock because it gives us the ability to sell calls against the position when the move stalls out some and we like buying options on breakouts because we can really leverage our gains. FMD bounced a couple of more sessions, but the stronger volume off the 50 day EMA was an accurate indicator. FMD jumped higher the first week of June, gapping higher on strong volume.
That set off a two week run and was still running Friday, reaching 56.48 on the close. Our initial target was at $55, and FMD blew through that Friday. Strong move so we wanted to let the position work for us, but we also like to take some gain after strong moves such as this. So we banked some of the 21% stock gain at 56 and sold some of the options at $11 for a nice 134% gain. FMD is a perfect example of why one of our sayings is ‘follow the leaders.’
http://www.investmenthouse.com/1tech1.htm”>Learn more about our Technical Traders Report – Issued 5 Times Per Week Chart by http://www.stockcharts.com”>StockCharts.com
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4) COVERED CALL PLAYhttp://investmenthouse.com/indexq.php?smbl=
ATI”>
ATI – Allegheny Technologies Inc. is currently trading at $65.28. The July $65 Calls (ATIGM) are trading at $4.10. That provides a return of about 6% if ATI is above $65 on expiration Friday in July.
http://finance.yahoo.com/q/pr?s=ati”>Company Profile
http://www.investmenthouse.com/1coveredcalls1.htm”>Learn more about our Covered Call Tables – 8 Tables Updated 5 Times Per Week
* * * SCOTTRADE * * *
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The foregoing is commentary for informational purposes only. All statements and expressions are the opinions of Online Investment Services, LP., or Split Ventures, Ltd. This information is 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 the related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolios of writers for this issue may, in some instances, include securities mentioned herein and on the related 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. No one associated herewith receives compensation in any manner from any of the companies that are discussed in this newsletter or on the related websites.
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