Stocks Close With Modest Rally
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INVESTMENT HOUSE.COMTM
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Weekend Newsletter for
November 13, 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
Stocks sleepwalk higher after Thursday breakout move.
– Stocks close out week with a modest rally and light holiday volume.
– Oil holds below its trendline as retailers show there is life after $3/gal gasoline.
– Treasury market may be trying to tell us something with its recent action.
– Week ahead heavy on the data as indices reach for 2005 highs.
– Shades of late 2004 as market anticipates lower oil, Fed cessation.
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Market Summary (continued)
Friday was just about what you would expect given a strong breakout move Thursday and Veteran’s Day that saw the bond market closed and many institutional investors taking the day off. It was quiet and sluggish, but stocks managed to walk through the session to a positive close, leaving them holding the breakout move and looking right at the 2005 highs to start next week.
It was quiet but important. After a week-long lateral drift to consolidate the strong late October/early September move, NASDAQ and SP500 broke out of the range Thursday on strong volume. It was not necessarily an easy week to work through. The market was confronted with one obstacle after another, but each time it kept coming back and it kept showing the right kind of price/volume action and leadership as it did. As we noted last week, the character has changed, and when it does the market tends to put its head down and drive higher regardless of what is thrown at it.
One thing we meant to mention Thursday was the commentary we heard before the open that day from some floor traders who were concerned the move was over because the market had ‘stalled out’ the prior week. As you are well aware, the action was superb during the ‘stall out,’ as the market eased laterally on lower volume, setting itself for the next move. That the breakout occurred the same day the ‘stall out’ concerns were voiced is pretty typical of how emotion works in the market: if the action starts to draw comments and complaints, you can bet the next move is about to begin. That Thursday breakout confirmed the good action we have seen all during this rally, and it sets the stage for the showdown with the 2005 highs.
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=
BMD”>
BMD (Birch Mountain Resources Ltd.)
http://finance.yahoo.com/q/pr?s=bmd”>Company Profile
BMD is a gold mining stock that was a new issue in mid-2004. We saw it form its first big base this year and have played it as it broke out and has run higher. As with all strong breakouts, it makes a run, tests back to support (e.g., the 18 or 50 day EMA) and then makes another run. After a strong run to begin October, we kept an eye on it for another opportunity, i.e. when it made the pullback to support. It dipped to the 50 day EMA intraday to start November and recovered the same session. That was our alert that it was ready to move back up. On 11-3-05 BMD made a definitive move higher on very strong volume. That was the move we were looking for and we entered positions at 5.55. When BMD makes these moves it really takes off, and that is exactly what it did. It continued higher on 11-4 and 11-5, and then took a day off on Tuesday. We were ready to take some gain if it peaked out, but Wednesday it gapped higher. It could not make anything more out of the gap so we took part of our gain, a solid 25% gain which was right at our pre-set target. By watching BMD’s patterns of movement we were able to anticipate the move, buy in when it started, and then sell it at the peak of the run.
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=
TRID”>
TRID (Trident Microsystems–$32.59; -0.61; optionable): Semiconductors. Splits 2:1 on 11-21-05.
http://finance.yahoo.com/q/pr?s=trid”>Company Profile
STATUS: Flat base. TRID is moving within a couple of weeks from its split, and it is setting up to start its pre-split run. It rallied in early November and then spent the past week moving laterally and then easing back to the 10 day EMA (32.47) on the Friday close as volume remained well below average. Looking for it to make a higher low here and then rebound through the November highs at 34 to give us a good entry point.
Volume: 701.281K Avg Volume: 913.976K
BUY POINT: $34.11 Volume=1.4M Target=$39.45 Stop=$32.31
POSITION: HVU AF – Jan. $30c (76 delta) or HVU DG – Apr. $35c (51 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/quote/stkquote.php3?smbl=
DESC”>
DESC (Distributed Energy Systems Corp.)
http://finance.yahoo.com/q/pr?s=desc”>Company Profile
DESC has been on a good run this year, and it needed a breather. In October it started a base to consolidate its gains. In early November we saw it had formed a very tight, flat handle to its short base, and given the stocks’ strength we got ready to enter when it broke higher on stronger volume. On 11-7-05 we saw the move, a strong volume surge and price move. We moved in with stock positions at $8.76 and some March $7.50 call options at $2.30. As is the case with these breakouts, DESC did not waste time making tracks. It gapped higher the following session and then rallied Wednesday and Thursday as well, hitting our target at 10.65 in short order. We sold some of the stock positions at $10.66 for a nice 21% gain, and some of the option positions at $3.60 for a 56% gain. We like the move a lot so we are willing to let the rest of our positions ride through a pullback and then maybe add some more as DESC continues higher after the test. It does not always happen this quickly, but if you look for the right stocks, study their moves, and understand if they are under accumulation, you can anticipate the moves and step in at the right time to participate in strong moves that bring you excellent gains over a shorter period of time.
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 $25.06. The December $25 Calls (MQBLE) are trading at $1.35. That provides a return of about 5% if MTLM is above $25 on expiration Friday in December.
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
* * * 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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