Stocks Snap Back
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INVESTMENT HOUSE.COMTM
Informing Investors Around The World
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Weekend Newsletter for
October 30, 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 rebound in the face of even more gloom.
– Stocks snap back as SP500 roars off up trendline.
– GDP pretty darn solid, posting 3+% growth for tenth consecutive quarter.
– Core inflation continues to shrink, wages applying no pressure (as if they ever do).
– Market continues its bottoming process in the face of plenty of pessimism.
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Market Summary (continued)
With the potential CIA related indictments coming midday, the litany of negative issues confronting the market ratcheted up another notch Friday. As we discussed earlier in the week, the gloom or anxiety about a host of problems was reaching an oppressive level. Friday we heard about the ‘worst week ever’ for the President, predictions of a Watergate-like scandal, a crippled presidency, etc. On top of everything else confronting us this type of problem can be a crowning blow: the administration in a scandal.
The market did not notice. The market sold off hard Thursday afternoon when rumor hit that Mr. Rove was likely to be indicted. After the news turned negative on just about all fronts some buyers came in. Futures were higher early Friday. When Q3 GDP stormed in at 3.8% with a low core PCE deflator stocks were goosed even more. Despite all of the gloom, the drop in consumer sentiment, and fears about the Fed and energy wrecking the economy, this strong expansion overcame serious obstacles and posted a tenth quarter of growth in excess of 3%.
Stocks opened higher, made a mid-morning test of the move that looked ready to wreck the move, but then caught support an hour and one-half into the session and rallied to the close. The GDP provided some kick and when the grand jury only passed down one indictment the market was goosed a bit more.
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=
FCX”>
FCX (Freeport McMoran–$49.36; +1.54; optionable): Copper.
http://finance.yahoo.com/q/pr?s=fcx”>Company Profile
After Hours: $49.36
STATUS: Double bottom w/handle. A neat little pattern has formed over the 50 day EMA (45.26), part of a base on base pattern that combines a 6.5 month cup with handle and breakout with the current 5 week pattern. These really shake out the sellers and set up a stronger move higher. Accumulation is a strong 14 to 9 in the two patterns (14 up price weeks on rising volume to 9 down price weeks on rising volume), showing plenty of buyers in the stock. Relative strength broke out ahead of price, a very bullish indication for the price. Looking for volume to run back up as FCX starts the break higher. Top rated fundamentals along with an excellent pattern.
Volume: 2.905M Avg Volume: 2.76M
BUY POINT: $49.75 Volume=4.1M Target=$58.95 Stop=$47.04
POSITION: FCX BJ – Feb. $50c (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.
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=
FAST”>
FAST (Fastenal Company–$68.65; +1.03; optionable): Home improvement. Splits 2:1 on 11-11-05.
http://finance.yahoo.com/q/pr?s=fast”>Company Profile
STATUS: Test breakout. FAST surged higher in early October, gapping out of a 9 week double bottom base. It rallied to 70 and then started laterally the past two weeks on lower, below average volume. Dropped harder Thursday on rising, average trade and then bounced back some Friday. May take a couple more sessions to test the move before making the next break higher to continue the run. Looking for that volume to jump back up as it does.
Volume: 536.699K Avg Volume: 621.236K
BUY POINT: $69.25 Volume=918K Target=$75 Stop=$67.89
POSITION: FQA BN – Feb. $70c (54 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=
BABY”>
BABY (Natus Medical, Inc.)
http://finance.yahoo.com/q/pr?s=baby”>Company Profile
Even when the overall market is selling we look to see if there are leaders that are holding the line. These are the stronger stocks, the leaders that will move when the market selling abates. Or in some cases they will move higher regardless of what the market is doing. BABY in the medical appliances sector is one of those stocks. It caught our eye as it moved higher in late September in a breakout from a 3 month flat base. When it tested we liked how it eased back on just a bit on very low volume, testing the breakout. Strength in a weak market. It made a quick test of the 50 day EMA and then vaulted higher on volume on 10-19. That was the move we were looking for: continuing the breakout move on volume, showing us that buyers were more than ready to move back in even at a higher level.
We moved in with some stock positions at $13.29 and some January $12.50 call options at $1.50. We were anticipating a move to 15.88 as our initial target before BABY would need a breather. We based that on its past strong moves when it set up similarly to this base. Over the next six sessions it powered higher on strong volume, rallying to 15.89 on Thursday 10-27. Because the move was so strong we sold half of our positions, willing to let the stock test and then move higher for us. We banked a 19.5% gain on our stock positions and a 120% gain on the options. Now we are looking for a test and then a continuation of the move to make us some more money
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=
ACI”>
ACI – Arch Coal Inc. is currently trading at $76.70. The November $75 Calls (ACIKO) are trading at $4.60. That provides a return of about 4% if ACI is above $75 on expiration Friday in November.
http://finance.yahoo.com/q/pr?s=aci”>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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