Market Trys To Continue Rebound
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INVESTMENT HOUSE.COMTM
Informing Investors Around The World
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Weekend Newsletter for
June 4, 2006
Table Of Contents 1) MARKET SUMMARY 2) POST-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
Stocks post a flat Friday. After two solid rebound sessions we will take it.
– Jobs data gooses market, but cannot hold third day of gains to close out week.
– Jobs growth slows: when lagging indicators slow it is past time to STOP with the rate hikes already.
– ECRI shows slowing as well, and of course, that inflation has already peaked.
– Market still seeking a follow through and leadership as it sets up to try and continue the rebound.
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Market Summary (continued)
The weaker jobs data helped trigger the next upside move, but after two solid gains off of the test of the May sell off lows, stocks could not hold the move. It was a case of a good rebound followed by more perceived good news that pumped up the futures only to have all of the fuel burned out by the open. Stocks jumped out of the gate, extending the rebound that started Wednesday, but hit the apex in the first 10 minutes.
This was pretty much as we expected, but the jobs report provided more stimulus than we thought it would and thus we did not get the steady rise through the morning and then the afternoon fade. Instead, the indices hit their highs at the open, fell off sharply, and then mounted a modest but dogged recovery from late morning to the close. That afternoon move brought the indices basically back to flat with the NYSE positive and NASDAQ slightly lower. It was no wimpy move. NASDAQ lost 30 points from high to low, then regained 15 points to close flat. SP500 recovered 8 points over the afternoon to close up 2.51.
That recovery was important. Early in the session NASDAQ and SP500 moved through key resistance at the 200 day SMA and 50 day EMA respectively. As we anticipated, however, they were unable to hold the push through those key levels after the prior two moves. While rather normal, that and the overall move Friday demonstrated some of the problems with this rebound. First, it was a decent end to the week and the Friday comeback showed new tenacity, but the market simply failed to deliver a follow through to the reversal session two Wednesdays back. NYSE put together strong volume Wednesday but not enough price movement. Thursday there was some strong price gains but volume was the shrinking violet.
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=
IFO”>
IFO (InfoSonics Corp.)
http://finance.yahoo.com/q/pr?s=ifo”>Company Profile
Sometimes leaders emerge from what appears to be nowhere. Many investors ignore them because they fear the unknown. Those are the same investors that often invest with their emotions, and thus avoiding what they don’t understand versus sizing up what the market is telling them about a stock.
IFO is such a stock. A new issue in 2004, it went nowhere until late 2005. It peaked in January of 2006 and stalled, falling into a 17 week cup with handle base. It broke out the second week of May; that was confirmation for us the stock had the big money support to make a serious move. We then started looking for the test of that move, the point where we could enter after the first profit takers left and then the big money moved back in.
IFO started moving laterally on 5-17-06, but it only did so for two sessions, coming back on the intraday low to tap the 10 day EMA and then rebounding. That showed us the buyers jumped back in at the first chance to move in. The next session when it started higher we moved in, picking up positions at 21.44. No options so this was a pure stock play. IFO made a quick test of the move, holding the 10 day EMA but then blasting off again on 5-26-06, hitting 24.90 on the close. It continued higher, moving through our initial target at 26 on 5-31. The volume was so strong we opted to let it run. Up 3.92 the next session and then another 3.20 on Friday. That put IFO at 33.53, a 65% gain in just under two weeks, all stock, no options. It pays to watch the newcomers that most ignore.
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.
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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 post-split play to watch and our current analysis.
Chart by http://www.stockcharts.com”>StockCharts.com
http://www.investmenthouse.com/cc/zumzsm.gif” width=”360″ height=”208″ border=”1″>
http://investmenthouse.com/indexq.php?smbl=
ZUMZ”>
ZUMZ (Zumiez–$33.96; -0.97; optionable): Apparel stores.
http://finance.yahoo.com/q/pr?s=zumz”>Company Profile
STATUS: Reverse head and shoulders. Split in late April, rallied a bit more and then fell into the current 5 week base, using the 50 day EMA (31.56) as support. Excellent 3 to 0 accumulation in the base (3 up price weeks on rising volume to 0 down price weeks on rising volume) shows all buying, setting up the next breakout and run for this strong market leader. One of those retail leaders we referred to.
Volume: 320.651K Avg Volume: 288.748K
BUY POINT: $35.05 Volume=433K Target=$42.00 Stop=$32.95
POSITION: QUY KG – Nov. $35c (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=
DXPE”>
DXPE (DXP Enterprises–$45.19; +2.69; no options): MRO products for industrial customers.
http://finance.yahoo.com/q/pr?s=dxpe”>Company Profile
After Hours: $46.67
STATUS: Test 50 day EMA. DXPE made us some strong gain on its May run as it broke out from a 5 week lateral base that tested the early March breakout from a larger 6 month pattern. It surged to 59.24 and then used the market selling to test the move, coming back to form a floor at 45 before gapping lower to the 50 day EMA (41.82) Thursday. It rebounded Friday on good, above average volume, tapping the 10 day EMA (45.95) on the high. Good shakeout Thursday; looks like it is ready to make its next move upside. Want to see it clear 18 day EMA (46.43) on solid trade. It was up after hours, doing just that.
Volume: 631.423K Avg Volume: 504.085K
BUY POINT: $46.65 Volume=756K Target=$55.98 Stop=$44.88
POSITION: – Stock (no option chain).
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=
EXP”>
EXP – Eagle Materials Inc. is currently trading at $50.18. The June $50 Calls (EXPFJ) are trading at $2.15. That provides a return of about 4% if EXP is above $50 on expiration Friday in June.
http://finance.yahoo.com/q/pr?s=exp”>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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