Growth Leaders Holding Well
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INVESTMENT HOUSE.COMTM
Informing Investors Around The World
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Weekend Newsletter for
March 12, 2006
Table Of Contents 1) MARKET SUMMARY 2) POST-SPLIT PLAY 3) TECHNICAL PLAY 4) COVERED CALL PLAY
http://ichart.yahoo.com/v?s=^ixic”> http://ichart.yahoo.com/v?s=^dji”>
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
Stock rebound manages to hold into the close.
– Jobs report gives market an excuse to bounce; this time relief move sticks.
– Non-farm jobs continue to grow as more job seekers re-enter the market.
– Jobs report doubles chance of third rate hike in June even as other indicators continue to soften.
– Defensive stocks dominating the rebound, but there are still growth leaders holding well.
– Wall of worry versus macro economic themes pushing market around near the post-2002 highs.
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Market Summary (continued)
The jobs report was stronger, and in the current Fed-induced anti economic strength mindset you would expect that news to further weaken stocks. After six straight down sessions on NASDAQ and five out of six on SP500, however, the market was oversold and needed to come up for air at some point. Thus even though the strong jobs data indicates further Fed action, indeed starting to once more build in an additional 25 BP to 5.25% on Friday, the market latched onto it and rebounded. Apparently good economic news can be good news if you have been beat up enough.
Stocks rallied early, held up through a mid-afternoon, pre-weekend selling attempt, and bounced into the close. Breadth was strong as the small and mid-cap indices worked with the large caps. Volume was up on NYSE but lower on NASDAQ. The up volume was not that solid either; NYSE trade came in well below average even with the rise in trade and NASDAQ volume fell below average for only the second time in 9 sessions. Stocks were moving but they lacked punch, not what you want to see on an up session, particularly after sellers used stocks as punching bags the prior week.
The rebound had a defensive flavor to it, literally, as defense stocks continued to provide some leadership. Health related stocks and consumer staples gained as well, adding more to the defensive nature. The move was broader than that, however, and most sectors enjoyed a rebound. With the volume and defensive flavor, it definitely had the look of a relief bounce.
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=
IDEV”>
IDEV (Indevus Pharmaceuticals–$6.58; +0.1; optionable): Biotechnology.
http://finance.yahoo.com/q/pr?s=idev”>Company Profile
STATUS: Ascending base. IDEV spent most of 2005 basing, starting to rally in Q4 to form the right side of its long pattern. A solid break higher in December was followed by a 50 day EMA (5.67) test in early February. It surged off that level and is now working laterally the past three weeks, forming another consolidation before continuing its move. This time it is not giving back any ground, a sign that the new owners don’t want to give up their shares and any sold are quickly purchased by the longer term holders. Volume jumped Friday as IDEV started toward the breakout. Strong fundamentals are helping drive this recovery. Strong money flow is leading.
Volume: 642.935K Avg Volume: 529.261K
BUY POINT: $6.78 Volume=625K Target=$8.38 Stop=$6.31
POSITION: QUF IU – Sept. $5c (76 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.
http://www.investmenthouse.com/1stocksplits1.htm” target=”_top”>http://www.investmenthouse.com/images2/cnbc.gif” width=”39″ height=”31″ border=”0″ alt=”CNBC Interview”>
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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http://investmenthouse.com/indexq.php?smbl=
CHRW”>
CHRW (C.H. Robinson Worldwide–$44.85; +0.77; optionable): Air delivery and freight.
http://finance.yahoo.com/q/pr?s=chrw”>Company Profile
STATUS: Breakout test. CHRW has already made us some money this year, and it is setting up to make us some more. It broke out from a 10 week cup with handle in early February and rallied to 46. It has spent March fading back to test that move, holding above the 18 day EMA (43.92) as it makes the lower volume pullback. No sellers given the low volume. A nice volume spike Wednesday as CHRW reached below the 18 day EMA but snapped back to close above that level. That volume reversal shows us the buyers using the dip to pile in. Friday CHRW started higher on rising but still below average volume. Looking for strong volume as it continues the breakout run. Excellent money flow is leading higher. Relative strength broke out with the price and it looks ready to do the same, a good bullish indication.
Volume: 682.525K Avg Volume: 876.356K
BUY POINT: $45.25 Volume=1.1M Target=$52.55 Stop=$43.69
POSITION: CJQ HI – July $45c (56 delta) &/or Stock.
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=
PDS”>
PDS (Precision Drilling)
http://finance.yahoo.com/q/pr?s=pds”>Company Profile
With the choppy market seen the past two months, established trends are starting to break down, making it more difficult to find consistent moves either up or down. The key has been finding newly forming trends, up or down, and then moving in after they make that first test of the new trend, breakout, or breakdown. It is similar to how we play the first breakout test: the fact that the stock holds the new trend and continues to give us a distinct advantage to turn a stocks’ move into a nice money maker for us.
With the energy sector topping, it was a prime place to look for changing trends. The problem with many stocks in that sector, however, is that the option values, particularly put options, were inflated. That made finding winning plays at reasonable prices difficult. A little diligence, however, and you can find plays that work.
PDS was one of those. It had formed a broad umbrella top from December to early February. That pattern resembles a head and shoulders but with less defined points such as the shoulders and head. PDS broke lower in mid-February but then managed a rebound, coming back to the 50 day EMA. It bumped that resistance but could not break through. That is when we turned it into one of our plays, ready to move in when this test of the breakdown failed and PDS started back down. Sure enough, on 3-1-06, after four days of trying, PDS fell back from the 50 day EMA. We moved in with some April $30 put options. At $0.85 per option the price was right, and by using the delta, we calculated a 40% return if it sold to our target at 30.
PDS took one more swipe at the 50 day EMA but that was a parting shot; it tumbled lower the next three days, hitting our target on March 7. We locked in some 41% option gain on part of the options (so we were a percent off), and let the rest ride because PDS was showing strong downside bias and still had a bit more downside before it hit support. It fell further the next session but was all over the map intraday. It sold off in the afternoon so we decided to give it one more session. It was another up and down day as well, but again it sold in the afternoon. We decided then that it was getting too volatile, and volatility can mean a change is coming. So, we sold our remaining options for $1.60, banking an 88% gain on them. Friday PDS showed a doji at support on a strong shot of volume. It looks ready to rebound. When it does and if it fails at the 10 or 18 day EMA, we will look at riding it down again, taking advantage of the next cycle lower. In this way we take what the market gives whether it is up or down. The key is looking for where the opportunity is and taking it.
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=
CNQ”>
CNQ – Canadian Natural Resources is currently trading at $55.32. The April $55 Calls (CNQDK) are trading at $3.50. That provides a return of about 6% if CNQ is above $55 on expiration Friday in April.
http://finance.yahoo.com/q/pr?s=cnq”>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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