Gold and Bonds Continue to Recover

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INVESTMENT HOUSE.COMTM

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Weekend Newsletter for

July 16, 2006

Table Of Contents 1) MARKET SUMMARY 2) PRE-SPLIT PLAY 3) TECHNICAL PLAY 4) COVERED CALL PLAY

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1) MARKET SUMMARY > >From “The Daily” at InvestmentHouse.com
More selling, not much covering ahead of weekend.

– No relief ahead of weekend but NASDAQ third leg lower is already long in the tooth.
– Friday shows more mixed economic signals, confusing some as to Fed’s course. There should not be any confusion.
– Gold and bonds continue to recover as global events spark gains, but trend is still same & Fed will take note.
– After triggering further weakness, earnings set to trigger a rebound that was delayed last week.

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Market Summary (continued)
Investors had even more data to worry about Friday with further aggression in the Middle East, more warnings about the future (Borders, D.R. Horton, GE), and mediocre retail sales and sentiment. Basically, more worries about the economy given the Fed, energy prices, world tensions, and a potentially weaker consumer.
Stocks started lower in a continuation of the prior selling but then tried a rebound into midday. We expected a rebound attempt ahead of the weekend, but this one never got any strength, just wandering up off the lows into the close. Not a lot of covering given expectations of more violence this weekend as Israel made it clear it would not let up while its soldiers were still captive.
Technically it was just more selling in the current leg lower with the normal summer attributes, i.e. lower volume. Breadth was lighter to the downside but still a negative 2:1. NASDAQ fell further past its June low, landing at the October 2005 lows where it bottomed and started a solid rally through April 2006. It has dropped 150 points on this leg, getting close to the 200 points or so on the prior two legs lower. In addition, SOX continues to act as if it is sold out with INTC, TXN, CYMI and other chips posting modest gains. Recall that SOX was positive mid-Thursday before the Middle East escalation. The rubber band is stretched and ready to snapback for a rebound move. The quality of the move remains to be seen.

http://investmenthouse1.com/cntdirplus.asp?name=IHDaily&zid=~~EMAILID~~”>Read “The Daily” Entire Weekend Summary

Here’s a trade from “The Daily” and insights into our trading strategy:

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ININ”>
ININ (Interactive Intelligence)
http://finance.yahoo.com/q/pr?s=inin”>Company Profile
The market has been choppy and a lot of the well-known stocks began to falter as summer started, but if you kept watching for strength developing in stocks as evidenced by their patterns and buying, you could ferret out some solid investments. ININ caught our eye with a strong mid-June move higher that broke it out of a 7 week double bottom base. When we saw that volume move we looked at the stock, liked the accumulation and institutional support. Then we started looking for a test of the breakout to give us an entry.
It started to test back intraday on 6-22 and 6-23, rebounding on the close. The 10 day EMA was rising to meet it, and with a strong breakout, the 10 day EMA will often trigger the next move after the first breakout test. Sure enough ININ jumped higher again on 6-26 and that is when we moved in with some stock positions at $13.03. There were no options, but ININ exhibited the strength to give us a nice gain even without the leverage of options. Volume remained high as ININ continued the move, stair-stepping up the 10 day EMA in a classic run higher after a breakout. We set our initial target at $15.75, a level that was well within its ability to run on a breakout move. It hit that level and beyond on 7-11-06 and we took some solid 21.5% gain, selling at $15.85. It continued higher the next session, but then gapped lower Thursday. With the market news we decided it was best to take the rest off the table, let it test lower, and then look at it again after it consolidated this great move.

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.

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=
DRQ”>
DRQ (Dril-Quip–$82.78; +0.40; optionable): Oil and gas service company.
http://finance.yahoo.com/q/pr?s=drq”>Company Profile
Earnings: Early August
STATUS: Double bottom w/handle. Very common pattern in this market that has had its ups and downs. The strong stocks have not been immune, but they have hung on and formed these accumulation patterns that have shaken out the sellers and have left the true believers in. Tried to make the move Wednesday out of its handle, but the market was not ready. Reached lower through the bottom of the two week handle Friday and then rebounded to post a modest gain, holding the 10 day EMA on the close and showing a nice doji. This is the kind of shakeout that works to set up the breakout. Nice 10 week base that formed using the 50 day EMA (76.68) as support as it sets up for another all-time high. Good shakeout and now ready for the break higher, and this pattern is well equipped to do so.
Volume: 482.9K Avg Volume: 423.895K
BUY POINT: $84.55 Volume=636K Target=$99.95 Stop=$82.05
POSITION: DRQ IQ – Sept. $85c (51 delta) or DRQ LR – Dec. $90c (48 delta) &/or Stock.

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4) COVERED CALL PLAYhttp://investmenthouse.com/indexq.php?smbl=
BOOM”>
BOOM – Dynamic Materials Corp. is currently trading at $30.58. The August $30 Calls (QCBHF) are trading at $3.00. That provides a return of about 9% if BOOM is above $30 on expiration Friday in August.

http://finance.yahoo.com/q/pr?s=boom”>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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Gold and Bonds Continue to Recover