Stocks Close Week on Downside
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INVESTMENT HOUSE.COMTM
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Weekend Newsletter for
December 18, 2005
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
Try as they might, stocks cannot put together a rally.
– Stocks close out the week on downside, in the consolidation range but struggling.
– Current account gap declines, but again it is storm related.
– Fed said it needed more data, and this week it gets it.
– Santa better get on the stick if this rally is going to continue.
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Market Summary (continued)
Okay, they didn’t try that hard. Futures were up solidly, up over 5 points against fair value. Stocks told the story on the open; they were not out of the blocks as strong as the futures were up. It did not take long for the early and very modest gains to dissipate. After showing a return to some bullish action early in the week, the market reverted to more bearish intraday action Thursday and Friday, i.e. starting higher and closing lower.
Volume was up big even for expiration when compared to recent expiration sessions. This was quadruple expiration and the NASDAQ 100 rebalance; thus the very strong volume was not that unusual. It was about all that was excessive on the session. The losses were modest, running well below 1%. Breadth was very modest, just slightly negative. Not bad given that the small caps were struggling once more.
Indeed, that was the main negative for the session: more struggling stocks. SP600 has been fighting the consolidation the past two sessions. It managed to hold up but it is battling. Energy was weak, chips struggled, and there are more stocks breaking near support. It is very hard to quantify that given a rebalance in addition to the quadruple expiration. You basically have to see the action early the following week to determine what was position shuffling and rolling over to the next expiration as opposed to the desire to dump stocks.
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=
LIFC”>
LIFC (Lifecell–$20.19; +0.84; optionable): Biotechnology.
http://finance.yahoo.com/q/pr?s=lifc”>Company Profile
STATUS: Cup. LIFC is showing good action as it continues shaping up its 13 week cup base. It has moved off the bottoms and is working laterally over the 50 day EMA (19.36), ready to move higher and complete the base. Strong volume Friday, moving back above average. Looks ready to make the move; it can make us some great money just with a run up to the prior high. Positive accumulation. Looks ready to make the run higher.
Volume: 657.832K Avg Volume: 615.012K
BUY POINT: $20.65 Volume=923K Target=$24.75 Stop=$19.28
POSITION: QKL CD – Mar. $20c (54 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.
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
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http://investmenthouse.com/indexq.php?smbl=
DIOD”>
DIOD (Diodes, Inc.)
http://finance.yahoo.com/q/pr?s=diod”>Company Profile
DIOD is one of the strongest stocks in the market right now, and when it was heading into its stock split in early December we were watching it as it had made a breakout from its short cup with handle base. It surged to start December (as did many stocks), but unlike the rest of the market it continued its break higher after a short respite. After that break higher to start the month we were watching for our chance. It moved laterally for a week but then volume surged again as it came off a down day. We moved in with some stock positions at $28.05 and some March $23.38 call options at $3.30. DIOD moved laterally for three more sessions and then blasted higher on huge volume. It ran higher for a week and is still going. We took some of the strong stock gain at 33.76 (20%) and some of the 133% option gain, but let the rest run given the strength. We will let it do so until it shows signs of topping on this run and then take the rest of the option gain. It is very strong, however, so we will let the stock work for us.
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=
NDAQ”>
NDAQ (Nasdaq Stock Market, Inc.)
http://finance.yahoo.com/q/pr?s=ndaq”>Company Profile
You have to be ready to work the market any way it will make you money. NDAQ has been very strong in 2005, running hard from April to November, rising 4.5 times its starting price. We saw it peak and sell on some strong volume, bounce off near support but make a lower high on very low volume. When it breached the 18 day EMA on 12-7 we prepared a downside play, looking for a modest test higher and then a rollover. It did not take long. NDAQ bounced weakly the next session, and then gapped higher the following session but rolled over, unable to take out the 10 day EMA. That is classic weakness in a stock that has made a near term top. We moved in with some January $40 put options at $3.90. We liked the price and the -50 delta as that would give us a nice 40%ish gain on a move down to the 50 day EMA where we expected it to find support. NDAQ made a weak top, and when that happens the drop can come quickly. It did just that, selling on 12-9 and then gapping lower on 12-10, falling to the 50 day SMA on the intraday low. That put it at our target and we took the 43.5% gain on our options (sold them at $5.60). NDAQ found support and has bounced modestly, but if it cannot retake the 18 day EMA it is likely to roll over again and give us a deeper move through the 50 day EMA.
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=
SCHN”>
SCHN – Schnitzer Steel Industries, Inc. is currently trading at $30.77. The January $30 Calls (SQQAF) are trading at $2.00. That provides a return of about 4% if SCHN is above $30 on expiration Friday in January.
http://finance.yahoo.com/q/pr?s=schn”>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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