SP500, SP600 Join in Rebound Rally
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INVESTMENT HOUSE.COMTM
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Weekend Newsletter for
October 16, 2005
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
Rally continues Friday but without SOX and without much volume.
– SP500, SP600 join in the rebound rally but SOX is a no-show.
– Economic data cuts both ways regarding economy’s strength and further Fed action.
– CPI soars but core remains low: inflation versus high prices.
– September retail sales solid ex-autos that suffered due to end of incentives.
– History shows fiscal and monetary policy have to work together to beat inflation and promote growth.
– Early October Michigan sentiment read declines unexpectedly.
– Earnings to put market to test as market seeks to form a bottom.
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Market Summary (continued)
There was definite economic data overload Friday not only from the scheduled releases of data but also GE’s Q3 earnings where all of its six businesses experienced greater than 13% growth and saw no issues with customer demand in this quarter. That did not vault the market higher; indeed, it didn’t even give GE much of a boost (+0.32). Combined with the other data, however, and a continuing oversold condition, it helped boost stocks for a second consecutive session.
There was a torrent of data. CPI hit a 25 year high but the core was as tame as a sedated ground sloth. Retail sales were slower but take out autos and they beat expectations. Factory output and usage fell, but most was traceable directly to the storms. Michigan sentiment fell when it was expected to rise; that was the pickle that choked the market early on, but it recovered. Since it was the preliminary Michigan statement perhaps investors were not too taken aback.
Futures remained positive after the early data and stocks started higher. The Michigan report stalled the early move and turned the indices negative, but they recovered and rallied into lunch. It was still no slam dunk; afternoons have killed the market during the selling. SP500 hit 1184 resistance at lunch and then fell into the early afternoon. Buyers recovered, however, and rallied the market into the close. NASDAQ posted another gain while SP500 and SP600 joined the action just as we said they had to do. The glaring omission from the action was SOX; the semiconductors started the party and then left early. They need to show up again this week to keep the rebound alive and better set up the test lower and thus have a better shot at setting a bottom.
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/quote/stkquote.php3?smbl=
XLE”>
XLE (Energy Select Sector SPDR)
http://finance.yahoo.com/q/pr?s=xle”>Company Profile
When the market starts to sell after a strong run you look for the leaders that may be spent after the move. With the meteoric surge in energy stocks from June through September, when the selling hit they were the prime candidates to zero in on for a quick downside move. The question was which one to choose. Many were falling. To make the job easier we focused on the XLE, the Energy Sector Spyder. Compared to the individual energy stocks whose options were sky high due to the big increase in the volatility component, XLE option prices were reasonable and they gave good deltas to ensure we got rewarded for our investment. After the early tumble in October, XLE rebounded to test the 50 day EMA it breached on that initial fall. Volume was low as it came back up, a classic relief move that is destined to fail. When we saw XLE tap the 50 day EMA on the intraday high on Wednesday 10-11-05, we were ready the next session to move in when XLE fell back down. Sure enough XLE made one more attempt at the 50 day and then rolled over. We moved in with some November $50 put options at $2.35. The -46 delta would give us a solid gain if XLE moved back down to our target. We weren’t greedy, just wanting to ride the play back down to the August low. XLE moved down that session, and then gapped lower Thursday, selling down to and through our target. When it looked ready to bottom for the session we sold the options for $3.70, banking a nice 57% gain in less than a whole session. XLE rebounded that session and more on Friday. Usually they don’t happen that fast, but when playing the downside takes over, fear is the main emotion. Greed is a strong emotion, but it is no match for fear. Nice play.
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/quote/stkquote.php3?smbl=
SBUX”>
SBUX (Starbucks–$52.88; -0.02; optionable): Fancy, high-priced coffees. Splits 2:1 on 10-24-05.
http://finance.yahoo.com/q/pr?s=sbux”>Company Profile
After Hours: $52.88
STATUS: Test 200 day SMA. SBUX moved through the 200 day SMA (51.93), part of its continuing work on a 10 month base that started when SBUX started to report declining earnings. This month it has started to report upside surprises in earnings. It tested the 200 day two weeks back and eased back as the market sold. It blasted through that level Thursday on strong volume and took a breather Friday. Showing a solid return to buying interest with money flow continuing to strengthen. Has some good momentum and a split coming. Looking for SBUX to continue to percolate higher this week.
Volume: 3.512M Avg Volume: 3.054M
BUY POINT: $52.25 Volume=3.2M Target=$58.88 Stop=$51.78
POSITION: SQX AJ – Jan. $50c (62 delta) &/or Stock.
Learn more about our Stock Split Report and how we have made gains of 321% with our powerful stock split plays!
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Chart by http://www.stockcharts.com”>StockCharts.com
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3) TECHNICAL PLAYhttp://investmenthouse.com/quote/stkquote.php3?smbl=
AQNT”>
AQNT (aQuantive–$19.17; +1.18; optionable): Digital marketing via internet.
http://finance.yahoo.com/q/pr?s=aqnt”>Company Profile
After Hours: $19.16
STATUS: Ascending base. Volume has moved back above average the past two sessions as AQNT held support at 18 and rallied sharply Friday. We were watching AQNT for a buy point at the end of September but it was caught in the October selling that pushed it lower. Volume remained low and below average on the fade, showing few sellers. That looks to be the final shakeout in the 13 week base sporting solid 4 to 2 accumulation (4 up price weeks on rising volume to 2 down price weeks on rising volume). Strong money flow is leading higher. Looking for continued strong volume as AQNT moves through the buy point; that shows us the big money is really moving in after the early October shakeout. Market leader with excellent fundamental and technical characteristics.
Volume: 1.438M Avg Volume: 1.034M
BUY POINT: $19.38 Volume=1.6M Target=$23.35 Stop=$18.48
POSITION: QBT CD – Mar. $20c (53 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/quote/stkquote.php3?smbl=
OS”>
OS – Oregon Steel Mills Inc. is currently trading at $23.29. The November $22.5 Calls (OSKX) are trading at $2.05. That provides a return of about 6% if OS is above $22.5 on expiration Friday in November.
http://finance.yahoo.com/q/pr?s=os”>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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