Stocks Hanging Tough as Earnings Start
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INVESTMENT HOUSE.COMTM
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Weekend Newsletter for
July 17, 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 testing the move but refusing to give up ground.
– Stocks start soft but show same resilience and finish higher again.
– PPI even less inflationary than CPI.
– Inventories are lower, production and capacity are higher, more evidence the economy is strengthening again.
– Stocks hanging tough as earnings start, but expecting more of a large cap pullback before next upside begins.
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Market Summary (continued)
Stocks started slightly weaker Friday despite some more strong economic reports released pre-market. PPI was very tame, inventories were lower, production was strong and utilization was the best in over a year. The good news was not enough to lift stocks on the open and they faded midmorning, but easily held above near support with SP600 tapping at the 10 day EMA on the low. This was more of the test we were looking for, the test the market had been signaling the past few sessions despite the hiccup higher Thursday on the very positive economic data and some surprise earnings.
The market would not stay down, however, and began a slow steady rebound that gained speed in the late afternoon session. Once more this rally showed its strength, coming back from some selling. Volume did not show strength, however, coming in much lower and well below average even on the July expiration.
That low volume kept NASDAQ and SP500 from clearing the next key resistance points (1229 on SP500 and 2163 on NASDAQ) after they made a run at them in the late afternoon. Breadth was flat, just slightly positive, another indication of the overall blas performance on the day. Stocks managed to rebound from negative and post modest gains, but once more the breadth was stagnant and Friday the volume was low. Just no strength in the move.
It was a solid, solid week, but the move higher is definitely losing steam as the upside gains grow smaller and volume overall is weaker after the big surges that started the rally on its way last week. At the same time it has yet to really give up any ground; indeed it has posted 7 consecutive upside sessions on NASDAQ and SP500. You have to like a market that refuses to give up its gains, fighting back from intraday weakness. That kind of stingy market is a sign of strength even as the move slows its advance.
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=
MYK”>
MYK (Mykrolis–$15.28; -0.03; optionable): Fluid management and microcontamination control components.
http://finance.yahoo.com/q/pr?s=myk”>Company Profile
Earnings: Early August.
STATUS: Breakout test. Testing the Friday and Monday breakout moves from its 14 week cup with handle base that formed using the 50 day EMA (14.11) as support. Outstanding 6 to 0 accumulation (6 up price weeks on rising volume to 0 down price weeks on rising volume) shows nothing but buying as it set up for the next breakout and run higher. It has made the breakout move, and now is set up for the continuation run. Friday MYK tapped back at the 10 day EMA (15.03) on the low and then rebounded as volume rose. It is not yet at a new all-time high, but it is a leader and is set up to make a good continuation run from here, following its strong money flow higher.
Volume: 215.5K Avg Volume: 256.129K
BUY POINT: $15.72 Volume=384K Target=$18.82 Stop=$14.89
POSITION: MYK AC – Jan. $15c (64 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
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http://investmenthouse.com/quote/stkquote.php3?smbl=
SUN”>
SUN (Sunoco–$119.02; +1.2; optionable): Oil and gas refining. Splits 2:1 on 8-2-05.
http://finance.yahoo.com/q/pr?s=sun”>Company Profile
STATUS: Test 18 day EMA. SUN broke out from a 9 week double bottom with handle base in mid-June, rallying to 122.88 early last week before the oil sector came under some pressure. Dumped lower on stronger volume Thursday when most energy stocks fell, but checked up at the 18 day EMA (117.35) and managed a modest but above average volume bounce Friday. May take a couple more sessions to rest up and set up the next bounce, but looks solid for a bounce off of this near support.
Volume: 1.293M Avg Volume: 1.275M
BUY POINT: $119.68 Volume=1.5M Target=$125.96 Stop=$117.27
POSITION: SUN KD – Nov. $120c (54 delta).
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=
ITG”>
ITG (Investment Technology Group, Inc.)
http://finance.yahoo.com/q/pr?s=itg”>Company Profile
We had been watching ITG in the investment brokerage sector for a few weeks as it tested its breakout from an 18 week cup with handle base. It had rallied on the initial break higher but then fell into a three week test that was holding above the 18 day EMA on very low volume. We were waiting for a volume move higher to show it was ready to continue the breakout and deliver the bigger gains; stocks often test their breakouts quickly and then set about posting some serious gains. On Monday it made that move, gapping higher on strong volume. We used that move to enter positions, both with stock and options. We picked up the stock at 22.02, and we bought some October $20 call options for $2.80. That was not a bad price at all for the options given they were just over $2 in the money and sported a 70 delta, meaning the option would move 70 cents for every $1 move in the stock.
With the volume gap higher to continue the breakout move, ITG did indeed move. It rallied each session of the week, culminating in a big gap higher Friday that pushed the stock to our target price. With the big run higher and strong gap the stock was ripe for some profit taking. That is exactly what we did, taking a nice 20% stock gain and a very nice 135% option gain (sold the calls for $6.60). After such a fast, big move in a stock you often see a pullback to test. That is what ITG is doing, but we did not see any reason to hang onto the options as they are a wasting asset given they expire. Thus after such a good move it is never a bad idea to lock in some gain, particularly on the options.
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=
LCAV”>
LCAV – LCA Vision Inc. is currently trading at $45.08. The August $45 Calls (JVQHI) are trading at $3.30. That provides a return of about 8% if LCAV is above $45 on expiration Friday in August.
http://finance.yahoo.com/q/pr?s=lcav”>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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