Looking For Some Leadership
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INVESTMENT HOUSE.COMTM
Informing Investors Around The World
Read In All 50 States And Over 100 Countries
Weekend Newsletter for
June 18, 2006
Table Of Contents 1) MARKET SUMMARY 2) PRE-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
Expiration Friday a piker compared to the rest of the week.
– Quiet exit to a loud week.
– Fed gets last shots in before quiet time ahead of June 28-29 meeting.
– Bond curve remains inverted, but overall rates rebound above Fed Funds Rate.
– Looking for a follow through . . . and some leadership.
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Market Summary (continued)
We thought expiration might be a bit anti-climactic after a week that saw NASDAQ lose 62 points on Monday and Tuesday as it sold further in its second down leg of this correction and then vault 71 points Wednesday and Thursday when the oversold condition got a goose on the butt from a more moderate Bernanke. The other indices acted similarly with early week losses and late week rebounds. On expiration Friday, NASDAQ and the other indices faded modestly, basically closing the week flat. Man. A lot of running in place for a push.
Of course, this action all took place in the context of a much more telling picture. While the Wednesday and Thursday gains mostly eclipsed the Monday and Tuesday losses, those declines were at the tail end of the two week market pounding that made up the second down leg of this correction and matched the losses in the first leg that started mid-May. This was the sharpest pullback since the summer of 2004, and as discussed earlier in the week, coming at this stage of the economic expansion that raises some questions as to it being just a bump in the road in a continuing market uptrend.
You can view the Wednesday and strong Thursday snapback as an indication the market is just fine. Indeed many have been saying just that. It may simply be a case where the market overreacted to the Bernanke and company nuvo hawkishness and factored in an economic slowdown. The Thursday afternoon rocket shot higher after the ‘kinder and gentler’ Bernanke speech gives that notion some credence. Bond yields, while still inverted, moved back up after the speech, a better indication that there was some short term overreaction.
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=
JCP”>
JCP (J.C. Penney–$65.57; -0.27; optionable): Department stores.
http://finance.yahoo.com/q/pr?s=jcp”>Company Profile
STATUS: Ascending base. JCP is the leader in its space, and it keeps posting excellent growth in sales. It is working on a 15 week ascending pattern that has used the 50 day EMA (63.14) to make higher and higher lows. Strong bounce higher last week on solid volume, but capped out Friday, hitting 67.11 on the high before turning over and posting a modest loss on the session. It is likely to test some more early this week, holding above the 10 day EMA (64.33) and then resuming the move that will take it to a new breakout. It could however continue higher on volume from here given its leadership and money flow surging higher. Want to be ready for either event as JCP is a solid leader.
Volume: 2.613M Avg Volume: 2.193M
BUY POINT: From Friday close: $66.05. On a test of 64.33, 64.68 on the rebound. Volume=3.3M Target=$75.95 Stop=$64.21
POSITION: JCP KM – Nov. $65c (59 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).
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.
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 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=
XRAY”>
XRAY (Dentsply–$59.90; -0.39; optionable): Pre-split. Splits 2:1 on 7-18-06.
http://finance.yahoo.com/q/pr?s=xray”>Company Profile
After Hours: $59.90
STATUS: Test breakout. Took the day off Friday but is still ready to resume the breakout move and start the pre-split run. To recap: Bounced Wednesday and Thursday, but no volume Thursday to continue the move. XRAY is completing the test of its early June breakout from a 23 week base. Strong money flow is leading and relative strength is ready for the breakout move; bullish given the stock is pulling back.
Volume: 525.302K Avg Volume: 507.768K
BUY POINT: $60.68 Volume=600K Target=$68.00 Stop=$59.78
POSITION: XEQ JL – Oct. $60c (60 delta).
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=
ALTR”>
ALTR (Altera Corp.)
http://finance.yahoo.com/q/pr?s=altr”>Company Profile
When the market is in the selling mode some of the easiest money is made going with the flow. Even when the market is rallying stocks mostly have to scratch and claw their way up, fighting for a 10% move. When the market sells, fear takes over, and as we teach in our seminars, greed is powerful but fear is the king of market emotion. In other words, when fear takes over the downside selling is far faster and stronger than the upside buying.
As we have been writing, the semiconductors have led the move lower, and thus we have been playing them as they sold off. Again, go with the flow, and the chips were definitely down. ALTR tanked in May, falling through its 200 day SMA on the way down. When a stock breaches that key support it will typically test, and thus after ALTR finished the downside dump lower we watched for it to test the 200 day and roll over. It did that in early June, and on 6-5-06 it gapped lower from that level on rising trade. That was our cue to enter.
We bought some July $20 strike put options at $1.65 as ALTR moved lower through 18.75. We were looking for a drop of about $1.50 on the leg lower to give us a nice return in a short time on those options. Why $1.50? Because that is taking the middle out of its legs lower, giving us a nice gain without overstaying our welcome. With downside plays the action is fast down and fast back up. That is why we buy nearer term expiration months (2 to 3 months out) and typically play each rotation lower as a separate play, i.e. when a stock hits resistance in its downtrend and turns lower we buy in, and when it finishes that leg lower we sell out and wait for the rebound to resistance to start it all over.
That higher volume on the rollover showed the sellers were back in, and sure enough ALTR headed lower. It fell 0.66 that session, was flat the next, fell 0.41 the next, was flat, then lost 0.23, 0.28, and 0.14 over the next three sessions. That took us just past our target, and after 8 sessions of a down leg we decided to cash out. We sold our puts for $2.50, pocketing a 50% gain in a week. Sure enough ALTR showed a big doji the next session (Wednesday) and then rebounded to the 10 day EMA to end the week. We are looking to reload if ALTR stalls at this near resistance and starts to sell once more.
We can play these over and over as a stock sells in its downtrend until it has done this about 4 times. Then it will bounce higher to test higher resistance before either selling off again or finally forming a new base and trying for a more sustained upside. When the market is selling, take the easy money that the market is giving out. Don’t try to fight it too hard by pushing upside plays when support is tenuous.
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=
STLD”>
STLD – Steel Dynamics Inc. is currently trading at $55.13. The July $55 Calls (RQLGK) are trading at $3.90. That provides a return of about 7% if STLD is above $55 on expiration Friday in July.
http://finance.yahoo.com/q/pr?s=stld”>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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