Earnings Trump Fed
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INVESTMENT HOUSE.COMTM
Informing Investors Around The World
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Weekend Newsletter for
July 23, 2006
Table Of Contents 1) MARKET SUMMARY 2) POST-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
Tech earnings guidance pushes market lower Friday.
– Earnings trump Fed in an up then down week.
– Growth sectors take their toll on market.
– Earnings, leading indicators point to slowing, Fed futures point to pause.
– Market still seeking a floor in light of future economic concerns.
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Market Summary (continued)
In real estate it is location, location, location. In the market its earnings, earnings, earnings. After a Tuesday reversal session the market jumped higher Wednesday when Fed chairman Bernanke gave the market the trigger it was looking for. Though his words were not much different from prior comments and speeches, the market was oversold and looking for a reason to rebound. When Bernanke didn’t come out with fire and brimstone the market took it as a sign from above and bolted higher.
It was expiration week, however, and that often means volatility during the week and on Friday as well. It is also peak earnings season, and while the Fed can undoubtedly influence earnings, this far into the rate hiking cycle the Fed’s action is baked into the cake and earnings are forming up with respect to that action as well as the economic cycle and the other factors in the mix. Earnings as of last week were coming in relatively solid at 65% beating, 22% meeting and 13% missing; at this stage last quarter, 19% had missed.
The market never cares much about what earnings have done lately, however, looking more to the future. Starting midweek investors suffered from future shock as INTC, AMD, DELL and other techs warned the future was not bright enough to require shades. There were bright spots as well as MOT and AAPL posted strong results and guidance, and the ‘industrial’ sectors enjoyed strong earnings and forecast more to come (e.g. UTX, CAT, SLB, NUE). Tech, however, is very much prisoner to economic growth, and as we have reported the past several months, the economy is slowing, showing typical weakening signs after 3.5 years of expansion. Yes inflation has heated up of late, but that is also typical as inflation lags, coming in hotter even as the economy slows, only to dissipate as the cycle progresses.
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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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CHL”>
CHL (China Mobile–$29.26; -0.23; optionable): Chinese wireless telecom.
http://finance.yahoo.com/q/pr?s=chl”>Company Profile
Earnings: Released in June
After Hours: $29.60
STATUS: Cup w/handle. CHL gapped higher Wednesday, coming up off the handle of its 10 week base that is setting it up for a breakout to a 6 year high. Good technical action, using the 200 day SMA (25.58) as support on the lows and the 50 day EMA (27.88) as it came back to test and form the handle where the short term profit takers sell out. Excellent upside volume during the handle. Solid fundamentals to go along with this solid pattern. Looks as if it is going to test the 10 day EMA (28.90) and then continue and give us the breakout.
Volume: 802K Avg Volume: 683.622K
BUY POINT: $30.05 Volume=1M Target=$34.95 Stop=$28.48
POSITION: CHL LF – Dec. $30c (52 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).
For post-splits, we can play them as we would pre-splits (very short term), but we prefer to stretch our horizons, playing the trend. When playing options, we look further out, 2 or more months at least. We let the trend carry us along if there is one, but we will also take profits if the technical pattern degenerates, e.g., breaks a trendline. The main difference between post-splits and pre-splits plays is that we really have to like the pattern. Pre-splits can run right before their splits even with poor technical indicators. For post-splits, we are looking at the stocks from more of a longer term “would I buy this stock at this juncture?” position. Now there are times when a hot stock splits and investors pile in to get in while the stock is ‘cheaper.’ We play those, but with more of a short-term, pre-splits mentality in that we will be ready to get out fast if the momentum fades.
Remember, everything we do has to pass muster with the market that day … don’t fight the market on these plays.
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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 post-split play to watch and our current analysis.
Chart by http://www.stockcharts.com”>StockCharts.com
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IGT”>
IGT (International Game Technology–$37.37; -0.48; optionable): Video gaming devices for casino industry, etc.
http://finance.yahoo.com/q/pr?s=igt”>Company Profile
STATUS: Cup. Announced earnings Thursday and jumped higher on strong, above average volume, threatening the breakout from its 12 week base. Faded some Friday on lower volume, but ready to hold some support at 37 and then deliver the upside breakout. Strong fundamentals to go along with its strong base showing surging money flow and a relative strength breakout Thursday. After this test it will be ripe for a breakout move.
Volume: 3.157M Avg Volume: 2.132M
BUY POINT: $38.28 Volume=3.2M Target=$44.00 Stop=$36.48
POSITION: IGX JG – Oct. $35c (69 delta) &/or Stock.
Learn more about our Stock Split Report and how we have made gains of 321% with our powerful stock split plays!
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Chart by http://www.stockcharts.com”>StockCharts.com
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3) TECHNICAL PLAYhttp://investmenthouse.com/indexq.php?smbl=
BRLI”>
BRLI (Bio-Reference Labs–$22.12; +0.82; optionable): Medical labs.
http://finance.yahoo.com/q/pr?s=brli”>Company Profile
Earnings: Early August
STATUS: Test breakout. BRLI broke out from a 6 month ascending base in mid-June and had made its way higher since. It topped out near 22 in late June and early July, hanging in there as the market got rocky. In the July selling it tested the move, coming back to the 50 day EMA (20.24) on the Tuesday low and then started higher on volume to end the week, a stock of strength in a weaker market. Relative strength broke out again ahead of the stock and we are going to pick up some BRLI as it continues up through the early July high as it follows its money flow higher.
Volume: 213.731K Avg Volume: 148.956K
BUY POINT: $22.36 Volume=223K Target=$26.50 Stop=$20.89
POSITION: BJQ KX – Nov. $22.50c (51 delta) &/or Stock.
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=
RAIL”>
RAIL – FreightCar America Inc. is currently trading at $45.10. The August $45 Calls (RQNHI) are trading at $2.40. That provides a return of about 5% if RAIL is above $45 on expiration Friday in August.
http://finance.yahoo.com/q/pr?s=rail”>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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