Stocks Breakout in Anticipation of Earnings
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INVESTMENT HOUSE.COMTM
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Weekend Newsletter for
July 10, 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
Impressive follow through to Thursday reversal pushes NASDAQ to join SP600, SP400.
– Investors shrug off terror attack and the weekend, push NASDAQ through 2100.
– Jobs come in lower than expected again as unemployment rate falls again.
– Weaker non-farm jobs report belies economic strength showing up of late.
– Stocks breakout in anticipation of earnings, and now they need to deliver.
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Market Summary (continued)
We had concerns about the market’s ability to continue with the Thursday comeback given the weekend and the potential for another terror attack elsewhere. The majority of investors did not harbor the same concerns, however. That became very apparent as the market moved higher early, made a full test of the move, and then never looked back. When we saw the futures higher pre-market, we said in our pre-market alert that a successful test of the early surge would be the key to the session.
That was just one of the keys, however. The other was what NASDAQ was going to do with 2100 if it made it that far. By lunch it had rallied to that level and moved laterally for 1.5 hours. It started the afternoon session with a breakout over 2100, and it never came back to that level. In doing so a large cap index finally joined the small and mid-cap SP600 and SP400 with a breakout past resistance. NASDAQ did not move to an all-time high as did the smaller and mid-caps (it would have to more than double to do that), but it made that important move above 2100 that had slammed the lid on the upside since January this year.
With the large caps joining the move, breadth was excellent. Sector after sector scored gains. About the only weaknesses were in the energy stocks, but they had a good run ahead of the rest of the market and are taking a breather while the other sectors play catch-up. Classic, healthy rotation where money moves to other areas after one sector or sectors get a bit overbought. SP500 rallied as well, but it was unable to make the break over the June highs and clear that recent resistance marking the handle high in its base. Thus NASDAQ made the move but the SP500 is still lagging despite its nice gain. That is about typical, however, as SP500 has been reluctant to take on a leadership role; it gave it up to NASDAQ in April when it was ready to breakout but then collapsed. Thus NASDAQ’s leadership here is more important than SP500, but SP500 does have to follow along just as it did Friday.
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/cwtrsm.gif” width=”360″ height=”208″ border=”1″>
http://investmenthouse.com/quote/stkquote.php3?smbl=
CWTR”>
CWTR (Coldwater Creek–$23.8; +0.62; optionable): Retail: catalog & mail order
http://finance.yahoo.com/q/pr?s=cwtr”>Company Profile
STATUS: Breakout test. CWTR broke out from an 11 week cup with handle base to end May. An explosive, high volume move sent it to 24, up 4 points. It is making the second test of that breakout, coming back from quick run to 26, holding the 18 day EMA (23.16) on last week’s selling. A market leader and frequent stock splitter, CWTR is giving us a good entry point here on this pullback. Just looking for some stronger volume as it continues back up after this test.
Volume: 558.474K Avg Volume: 431.198K
BUY POINT: $24.14 Volume=647K Target=$28.35 Stop=$23.12
POSITION: CWK JY – Oct. $23.375c (55 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.
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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/hccsm.gif” width=”360″ height=”208″ border=”1″>
http://investmenthouse.com/quote/stkquote.php3?smbl=
HCC”>
HCC (HCC Insurance Holdings–$39.27; +0.32; optionable): P&C Insurance. Splits 3:2 on 7-18-05.
http://finance.yahoo.com/q/pr?s=hcc”>Company Profile
STATUS: Test 50 day EMA. HCC was moving higher Friday, but volume was not, fading back to well below average. This is a similar pattern in many stocks: breakout in late May and June and then a test of that breakout back at the 50 day EMA (38.35). Nice pattern and just need some volume on the way back up. To recap: Good volume Thursday as HCC tapped the 50 day EMA on the low and rebounded to post a modest gain. It has slipped back to the 50 day over the past 6 weeks after a mid-June move higher out of its 10 week cup base. Good test, good set up for a pre-split run. Money flow is moving higher ahead of price, leading the way. HCC looks ready to follow.
Volume: 205.5K Avg Volume: 373.686K
BUY POINT: $39.22 Volume=475K Target=$44.12 Stop=$38.54
POSITION: HCC KH – Nov. $40c (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!
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Chart by http://www.stockcharts.com”>StockCharts.com
http://www.investmenthouse.com/cc/mlhrsm.gif” width=”360″ height=”208″ border=”1″>
3) TECHNICAL PLAYhttp://investmenthouse.com/quote/stkquote.php3?smbl=
MLHR”>
MLHR (Herman Miller–$30.65; +0.23; optionable): Business equipment.
http://finance.yahoo.com/q/pr?s=mlhr”>Company Profile
STATUS: Cup w/handle. A nice easy pullback the past two weeks as the market struggled, forming the handle to its 13 week base. The pattern formed using the 50 day EMA more or less as support (29.88), a good indication the big money was hanging onto positions and accumulating more stock. Indeed, the solid 4 to 2 accumulation shows the buying. Strong money flow is leading higher, and we are looking for MLHR to follow it. A solid, perennial leader, and a breakout takes it toward a new all-time high.
Volume: 474.281K Avg Volume: 348.661K
BUY POINT: $31.62 Volume=523K Target=$35.98 Stop=$30.38
POSITION: MHQ KF – Nov. $30c (58 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=
MTLM”>
MTLM – Metal Management Inc. is currently trading at $23.28. The August $22.5 Calls (MQBHX) are trading at $1.75. That provides a return of about 4% if MTLM is above $22.5 on expiration Friday in August.
http://finance.yahoo.com/q/pr?s=mtlm”>Company Profile
http://www.investmenthouse.com/1coveredcalls1.htm”>Learn more about our Covered Call Tables – 8 Tables Updated 5 Times Per Week
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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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