Stocks Continue Rebound
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INVESTMENT HOUSE.COMTM
Informing Investors Around The World
Read In All 50 States And Over 100 Countries
Weekend Newsletter for
May 28, 2006
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
Rebound continues as inflation data remains tolerable.
– Stocks continue rebound on inflation reading as volume shrinks ahead of Memorial Day.
– Spending and income solid, PCE bearable, but energy accounts for most of the gains.
– Michigan sentiment meets expectations but consumers thinking a lot about energy costs.
– Bernanke holds tough to his line of caution on rate hikes in light of pressures facing economy.
– Strong reversal session provides momentum through Friday, but the big test is coming this week.
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Market Summary (continued)
Stocks continued higher following the Wednesday intraday reversal on that tremendous NASDAQ trade, gapping higher once more and trending upwards all session. The action was a bit better than anticipated as stocks held their gains into the close, fighting off some mid-afternoon selling to close at session highs. We thought the proximity of the 3-day weekend would send in some sellers in the afternoon and take back some of the gains after the Wednesday reversal, but the modest attempt with 2 hours left was bought and stocks posted their third straight gain.
Investors again found the economic news favorable, or at least favorable enough. Consumer spending was in line (0.6%) while income fell a bit below expectations (0.5% versus 0.7%). The PCE rose 2.1% year over year, putting it just over the Fed’s 2% speed limit. As with the Q1 PCE reported Thursday, however, the whisper was up to 2.3%; thus the 2.1% gain was a relief. Kind of the old promise one thing then deliver better idea.
Again, it was enough to keep stocks moving higher. They closed at the highs as noted, with modest but solid gains. By the close Friday, however, despite the gains, the indices were still mired deep in the holes dug over the past three weeks. NASDAQ is still well off its 200 day SMA. SP500 bounced off its 200 day SMA, something it had to do, but it is still well below the 50 day EMA. Similar story with the other indices, and indeed, SOX has yet to make any real upside move.
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=
TWGP”>
TWGP (Tower Group Inc.)
http://finance.yahoo.com/q/pr?s=twgp”>Company Profile
Ever since MSFT announced its lackluster forecast and the inflation scare hit, the market has been under the gun. When that happens money tends to rotate. In times of inflation and general fear we often notice the insurers start to outperform. When the bad news hit we started looking around and saw TWGP. It had broken out of a 3.5 month cup with handle in early April and had come back to test that move to start May. We love to move in on the breakout test: when the stock starts back up on volume that shows us the big buyers still want the stock even at a higher price, a very bullish indication.
We saw the trading range tighten right on top of the near support at the 18 day EMA and we put the play onto the report. Shortly thereafter it broke higher on strong volume on 5-2-06. Strong volume showed us the big buyers were moving back in after that original breakout. We moved in with some stock positions at 26.54 and some July $25 strike call options, paying $3.20 per option. The nice 64 delta would give us good movement on our options for every move the stock made.
TWGP continued higher, but then came back in the market selling to test the move. It got close to stopping us out, but an intraday reach lower rebounded by the close keeping us in the play. It continued higher, using that 18 day EMA as support. We let it make its steady climb higher. Friday TWGP hit our initial target at 31.75 and started backing off some. After such a strong move this indicated it might need a breather. We locked in some of the gain, selling the stock for 31.50 (18.6% gain) and some of the options for $6.30, a 96% gain. We plan to let TWGP continue to work for us as it remains in its very nice uptrend
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/indexq.php?smbl=
B”>
B (Barnes Group–$42.76; +1.44; no options): Industrial equipment and components. Splits 2:1 on 6-2-06.
http://finance.yahoo.com/q/pr?s=b”>Company Profile
STATUS: Test 50 day EMA. Nice gap higher in late April took B to 48 on the high. It made a small double top and then sold back in the market selling, falling to and slightly undercutting the 50 day EMA (42.20) on the lows. It made a quick recovery, moving back above that level Friday on some solid above average volume that showed up again on Wednesday. B rallied to the 18 day EMA (42.96) Friday and stalled a bit. Want to see it rally through that level to start the pre-split run and give us the buy point. Nice strong leader that looks ready to make its pre-split move.
Volume: 212.8K Avg Volume: 200K
BUY POINT: $43.04 Volume=300K Target=$49.90 Stop=$41.12
POSITION: – Stock (no option chain).
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=
FORR”>
FORR (Forrester Research–$25.83; -0.04; no options): Research services re impact of technology on business and consumers.
http://finance.yahoo.com/q/pr?s=forr”>Company Profile
STATUS: Test breakout. FORR is in the process of digging itself out of a 6 year correction. It has formed two bases over the past 9 months, blasting higher in late April out of an 8 week flat base, running to 27 on the high. It used the market selling to test the breakout. Fading back to the 18 day EMA (25.42) on very low volume, working laterally along that support level the past two weeks. Excellent action and we are looking for it to deliver a high volume break higher this week as it resumes the move. Solid 4 to 2 accumulation in the most recent base (4 up price weeks on rising volume to 2 down price weeks on rising volume) shows plenty of buying; nice complement to the strong money flow.
Volume: 32.8K Avg Volume: 115K
BUY POINT: $26.48 Volume=172K Target=$31.75 Stop=$25.28
POSITION: – Stock (no option chain).
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=
ATI”>
ATI – Allegheny Technologies Inc. is currently trading at $67.19. The June $65 Calls (ATIFM) are trading at $5.10. That provides a return of about 5% if ATI is above $65 on expiration Friday in June.
http://finance.yahoo.com/q/pr?s=ati”>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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