SP500 Heads Into Next Week at Next Key Resistance (Weekend Issue)
INVESTMENT HOUSE.COMTM
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Weekend Newsletter for
May 29, 2005
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
Upside drift takes over once more for another upside week.
– Stocks overcome early weakness, continue their bullish ways.
– Spending lighter than expectations, but inflation indications remain low.
– Gasoline prices help consumer sentiment.
– SP500 heads into next week at next key resistance.
– Summer officially to start Tuesday, and volume already low.
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Market Summary (continued)
Stocks opened soft on a mixed personal spending and income report, but a very tame personal consumption expenditure deflator (PCE) added some confirmation to the low core CPI reading earlier in the week. That along with a bit better than expected final May Michigan sentiment report started a slow, steady melt higher that left stocks overall higher and closed out another upside week, the fourth in a row for the new leader NASDAQ.
Stocks simply refused to give up ground despite the rally to this point and despite taking little rest on the month long advance. When they do get a bit weak they still end the day rallying back up to session highs. You love to see that in stocks when they are trending higher and you are playing that trend. Despite the overall low volume, the price/volume action has been good (up volume on up days, lower volume on down days), and that shows more buyers than sellers. That gives stocks the tenacity to hold onto gains that we have seen. When they do sell, in general they are holding near support, taking a breather, and then bouncing back up on better trade. How long this can go on given the rise to this point and the slow overall trade remains to be seen, but the fact that stocks are performing in this bullish overall and intraday fashion tells us that the rally still has good foundations even if it takes a pause at this point.
All of this got started back in late April. At that time we wrote extensively about the high volume slugfest ongoing in the market. Each session, up or down, saw higher volume. One day stocks rose on high volume just to sell the next on higher volume. Then another up session on even stronger volume. We noted that type of back and forth fight between the bulls and the bears typically signals a season change taking place. Given the sell off that would mean an attempted bottom setting up. A quick double bottom the last two weeks of April, capped by a high volume reversal the last day of that month set the stage. Stocks followed through on that reversal on the fourth session, and that is when NASDAQ took over the leadership from SP500.
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
http://www.investmenthouse.com/cc/tridsm.gif” width=”360″ height=”208″ border=”1″>
http://investmenthouse.com/quote/stkquote.php3?smbl=
TRID”>
TRID (Trident Microsystems)
http://finance.yahoo.com/q/pr?s=trid”>Company Profile
We saw the technology sector starting to take the lead, and that was reflected in many of its stocks, particularly some less well known emerging leaders in the semiconductor sector. TRID is one such stock, and it caught our eye back in early May as it looked to be finishing up a 14 week flat base. It gave a classic move at the end of the pattern: just when it looked as if it was setting up to break higher it faded. Many gave up on it, but a good pattern is a good pattern, and when we saw the low volume fade we figured it was a shakeout. Sure enough it started higher, moving over the highs in the pattern on strong trade. We moved into a position on May 12 with both stock and some October $17.50 call options. The options were about $1.50 in the money and sported a nice 65 delta; that would give us plenty of movement as the stock broke higher. TRID paused for a couple of days after we moved in, but it held the nearby 10 day EMA and then shot higher on rising trade. We let it run and pause, then start its run again. Friday it bolted higher once more and we locked in some partial gains, 11% on the stock and 46% on the options. We like to take some interim money off the table, letting the rest run and then looking for the next opportunity to move in and buy some more positions at the right entry point. That way we can use the ‘houses’ money to ride the stock higher and average up into a winner at the next good opportunity if it keeps on moving higher. If it starts to falter we can always take the rest of the money off the table.
http://www.investmenthouse.com/1daily1.htm”>Learn more about “The Daily” with Stock Picks! – Issued 5 Times Per Week
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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
http://www.investmenthouse.com/cc/copsm.gif” width=”360″ height=”208″ border=”1″>
http://investmenthouse.com/quote/stkquote.php3?smbl=
COP”>
COP (ConocoPhillips–$107.55; +2.47; optionable): Major oil and gas. Splits 2:1 on 6-2-05.
http://finance.yahoo.com/q/pr?s=cop”>Company Profile
After Hours: $107.75
STATUS: Pre-split. With oil running the oil stocks are doing likewise. COP has the added impetus of its upcoming split next week. Even with the low overall trade that is helping the upside move. We are looking to get a squeeze play here, moving in on a continued bounce higher on into the split. All we are looking for is 4 to 5 points to take it back up to the March and April highs. That banks us a 50%ish gain with the option play.
Volume: 2.168M Avg Volume: 4.214M
BUY POINT: $107.88 Volume=4.5M Target=$113 Stop=$105.12
POSITION: COP HA – Aug. $105c (65 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
http://www.investmenthouse.com/cc/cwtrsm.gif” width=”360″ height=”208″ border=”1″>
3) TECHNICAL PLAYhttp://investmenthouse.com/quote/stkquote.php3?smbl=
CWTR”>
CWTR (Coldwater Creek)
http://finance.yahoo.com/q/pr?s=cwtr”>Company Profile
Coldwater Creek is a catalog retailer, and as with many retailers the past few months it has been setting up well for a breakout move. The stock split in mid-March, but it had slipped the first part of what turned into an 11 week double bottom with handle base. Nicely formed, the right leg undercut the left and it used the 200 day SMA as support. That set the foundation for the breakout, and we were just waiting for some volume to show that the big money was moving back in. On Wednesday it sold off intraday but then rallied on volume back through the buy point, just over the high in the handle. We stepped in and started positions with some stock and options. For options we were looking at October $20 strike calls; that gave us plenty of time to expiration and a 51 delta, giving us time to let the play work as well as getting some good movement when it did. As it turned out we did not have to wait long. We anticipated a good earnings report from CWTR; the base indicated there would be good results reported. The earnings were solid and CWTR shot higher. We were able to bank some nice 12.9% gain on our stock positions and 56% on our options. We opted to take a partial gain and let the rest run. Good patterns often predict good results, but we still need to see the volume come in and show us a stock is ready to make a serious move. That beats the heck out of buying low and hoping.
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
http://www.investmenthouse.com/cc/cmcsm.gif” width=”360″ height=”208″ border=”1″>
4) COVERED CALL PLAYhttp://investmenthouse.com/quote/stkquote.php3?smbl=
CMC”>
CMC – Commercial Metals Co. is currently trading at $25.99. The July $25 Calls (CMCGE) are trading at $2.15. That provides a return of about 5% if CMC is above $25 on expiration Friday in July.
http://finance.yahoo.com/q/pr?s=cmc”>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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