Leading Stocks Set For Move Higher
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INVESTMENT HOUSE.COMTM
Informing Investors Around The World
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Weekend Newsletter for
January 15, 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
Nice easy pullback leads into a 3-day weekend.
– Very nice consolidation continues as indices, leading stocks set up for the next move higher.
– Core PPI barely inches higher as energy yet to make the crossover.
– December retail sales rise less than expected but November revision more than doubles earlier report.
– China’s present love affair with US treasuries and the flat yield curve.
– Getting ready for the next move higher and trying to avoid minefields.
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Market Summary (continued)
There was not much buying enthusiasm Friday nor was there much selling. The market slowed down ahead of a 3-day weekend with not many wanting to get too long with the Iran situation. Stocks continued the Thursday weakness early in the day but Friday was not the same one-sided action (namely down) that Thursday showed. The major indices were up and down all session making two down runs and two upside runs. The last move was up, and it took NASDAQ, SP500 and SP600 positive by a hair. If the bell closed 30 minutes later it would likely have been down. It was that kind of day.
There was not a lot of power behind the moves either way, and given the market is in a consolidation phase that is good. Volume was lower, moving back to average on NASDAQ and NYSE, showing no sellers or buyers in any number. Breadth was modest as well (+1.2:1 on NYSE, NASD), and the fact it was positive on a mixed session is also a positive market indication on the day. SP500 tapped at the 10 day EMA on the low, its nearest support, and rebounded, good intraday price action. That was mirrored by many strong leaders such as BRL, CLE, DAKT, MRVL, SNDK, STJ, WIRE as they ease back on lighter volume to set up the next run.
This is great action that is working to set up the next upside move, and we like that the market is overlooking other issues and is just going about its business. For instance, earnings continue to be an overall disappointment early in the season, but the market is not too concerned about the reports (thus far at least) of what it considers a few laggards (e.g. AA). There is also the continuing climb in oil, fostered of late by the tensions regarding Iran. It was lower Friday, but still uncomfortably comfortable in the lower sixties. As we discussed the past week, that won’t be good for the economy when we move into the summer and gasoline hits $3/gallon early on and then pushes to $4 when a big storm moves into the gulf. For now, however, the market is ignoring this rather nasty possibility, and we are more than happy to play along with it as it disregards this issue.
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=
BRCM”>
BRCM (Broadcom Corp.)
http://finance.yahoo.com/q/pr?s=brcm”>Company Profile
2005 ended weaker, but 2006 started strong. When that happens you look for the stocks that held up the best during the fade; they are likely to be the leaders in the move. BRCM was one of those stocks. It used the late December selling to set up a short double bottom over the 50 day EMA. We saw that strength and volume swell to start the year, and prepared a play for it. On January 5 BRCM jumped higher on a huge jump in volume and that was our cue. We moved in with some stock positions at $50.14 and some May $50 call options at $4.90. The 53 delta on the options would give us some good return as BRCM is capable of big gains when it starts a run. This one was taking BRCM out of a 12 week lateral move, a good base that set up a solid run.
Well, turns out that the strength BRCM showed to end 2005 did in fact foretell a leader in the rally. BRCM surged for 5 straight sessions, peaking out at 58.59. When it started to the following session we decided to take some of the gain; the market had run hard and was due for a pullback. We sold part of the stock position for a 14% gain, and part of the options at $10 for a 104% gain. As it is a leader, we kept some positions to let it work for us after the pullback. Indeed, we are going to add to positions after it makes its test of the strong move. A strong stock in a good market rally will make 4 to 5 runs off of the 10 or 18 day EMA after a breakout. This is the first test, and that leaves a lot of upside still for BRCM.
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=
JOSB”>
JOSB (Joseph A. Banks–$48.19; -0.13; optionable): Apparel stores. Splits 5:4 on 2-16-06.
http://finance.yahoo.com/q/pr?s=josb”>Company Profile
STATUS: Cup w/handle. Refusing to give any ground as JOSB continues forming the handle to its base, moving laterally in a very tight range on very low volume. Like how it is not giving ground. It is reaching the point where it needs to make the move. Retail was coming to life last week, and that could mean JOSB is going to make its move this week. To recap: Rocky ride for JOSB to start December, gapping lower, but then a big recovery in January, gapping higher. A bit of expectations management got a bit too aggressive with the lowered guidance and then the strong sales. In any event, the action formed a 6 week cup with handle with JOSB moving laterally the past week on lower volume. This base immediately follows the breakout from an 18 week double bottom with handle base. Top rated in its group with strong fundamentals to go along with its technical position setting it up for a new high. Solid 3 to 1 accumulation in the current pattern shows overall accumulation as JOSB sets up for the next move.
Volume: 252.153K Avg Volume: 452.622K
BUY POINT: $49.55 Volume=525K Target=$56.98 Stop=$47.89
POSITION: QZS DJ – Apr. $50c (50 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=
TOMO”>
TOMO (Tom Online–$22.5; +1.79; optionable): Telecom wireless communications.
http://finance.yahoo.com/q/pr?s=tomo”>Company Profile
STATUS: Reverse head and shoulders. TOMO shot higher Friday on strong volume, breaking out of its 8 week base and to a new all-time high. TOMO was a new issue in March 2004, and it has a lot of buying and no overhead supply. Another market leader with a very strong pattern and very strong fundamentals to back it. Big surge and we are looking to start a position on a continued move and then on the first test of the breakout and run higher. Strong money flow and looking for a relative strength breakout this week as TOMO continues its break higher.
Volume: 1.172M Avg Volume: 311.066K
BUY POINT: $22.78 Volume=325K Target=$27.35 Stop=$21.25
POSITION: QWX FX – June $22.50c (54 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=
CBI”>
CBI – Chicago Bridge & Iron Co. is currently trading at $25.25. The February $25 Calls (CBIBI) are trading at $1.55. That provides a return of about 6% if CBI is above $25 on expiration Friday in February.
http://finance.yahoo.com/q/pr?s=cbi”>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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