February 3, 2002 Weekend Newsletter
http://www.investmenthouse.com/weekend/020302.htm “> click here or on link for full report with graphs on our website
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1) MARKET SUMMARY
NYSE volume backs off on the selling.
– Dow and S&P rest Friday; Nasdaq looks a bit winded.
– Economic reports fail to give the market more upside fuel.
– Double bottom recession ahead?
– Subscriber Questions.
– Team Trades.
http://www.investmenthouse.com/1weekendmarketsummary.htm “> Click here or on link for our full Weekend Market Summary
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2) Stock Splits
Be sure to read our Stock Splits Manual. 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. Here’s a pre-split play to watch and our current analysis.
GILD (Gilead Sciences–$69.81; +4.39; optionable): Biotechnology. Splits 2:1 effective March 8.
STATUS: GILD shows the kind of shining action you get from playing splits. Research indicates that after a split, stocks appreciate faster than they would have had they not split, and GILD has more than doubled since its last split one year ago. It broke out of its range in October, tested the move in early January, and now has come back up over the 50 day MVA (66.29) and consolidated over that support. Friday GILD made a big move, bouncing up from the 50 day with much stronger volume (4.57 million; average 2.04 million). The high (from November) is ahead at 73.67, but we are looking for a move over the recent consolidation high, at 71.15. Target on a new high: 85.
PLAY: 71.25 on continued strong volume, with stock and/or March $65 calls to buy (GDQ CM). Stop: 66.26.
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3) Technical Play
DTC (Domtar–$10.75; +0.30; no options): Consumer Non-durables.
STATUS: Broke out of an 8-month reverse head and shoulders pattern Friday on strong volume (113,800; avg. 63,000). The stock remains a buy on the move up to 11.34, after which we can look for a pullback (test) and move back up for additional positions. There is a chance the stock can pull back on the open Friday to test the buy point at 10.80 before heading up again. If so, aggressive positions from there. The pattern is part of a 2-year base with highs near 15. High money flow and relative strength. Target: 13
BUY POINT: A buy up to 11.34 on this move. Stop: 10.14 (7%) on buys at 10.90 after an early intraday pullback.
POSITION: Stock.
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http://www.investmenthouse.com/1tech1.htm “> Click here to learn more about our Technical Trader Report
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4) Covered Call Play
CAH – Cardinal Health Inc. is currently trading at $65.93. The March $65 Calls (CAHCM) are trading at $3.60. That provides a return of about 4% if CAH is above $65 on expiration Friday in March.
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http://www.investmenthouse.com/1coveredcalls1.htm “> Click here to learn more about our Covered Calls Service
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5) IPOs
Underwriters finally completed the first deals of 2002 this week with three companies raising $1.16 billion. Last year at this point three IPOs had priced as well, but they raised just $212.4 million. Although IPO volume remains light, the quality of the companies going public has improved greatly from a year ago. Two of the three deals that priced this past week are profitable businesses. All of the first three deals of 2001 were still operating at a loss when they went public. Today only one of them currently trades above its offering price. Fortunately, the prospects for 2002’s newest stocks are stronger.
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http://www.investmenthouse.com/1ipo.htm “> This story continued in our IPO Forum
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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.
Copyright 1997, 1998, 1999, 2000, 2001, 2002 by Online Investment Services, LP. – All Rights Reserved.
