Weekend Newsletter for April 24, 2005
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Weekend Newsletter for
April 24, 2005
Table Of Contents 1) MARKET SUMMARY 2) PRE-ANNOUNCEMENT PLAY 3) TECHNICAL PLAY 4) COVERED CALL PLAY
http://ichart.yahoo.com/v?s=^ixic”> http://ichart.yahoo.com/v?s=^dji”>
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 sell on lighter volume, hanging on for another fight this week.
– Market survives Friday, just barely.
– Fed continues its tough talk about inflation, reiterating its stance after FOMC minutes clouded some minds.
– Oil bounced off $50, and is still bouncing.
– Earnings and a couple upbeat economic reports help stocks bounce, but mixed data and still high gasoline prices are hard to overcome.
– Stumbling along, trying to hold together for the continued rebound.
– Thursday move has set stage for further rebound as leaders hold their ground, but still the same headwinds to overcome.
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After the big gains Thursday some weakness ahead of the weekend was expected. Stocks started off lower and struggled all session. The large cap SP500 and DJ30 were relatively stronger all session, with the blue chips managing to turn positive in the early afternoon. With NASDAQ, SOX, and SP600 selling off more than 1%, however, the overall market found very little traction.
Volume was running lower so there was still opportunity for the afternoon drift higher to continue. Then the quite hawkish text of Fed governor Kohn’s speech was released. Further, news of a North Korean shutdown of a reactor in order to collect plutonium for a nuclear bomb test added to the concern. Oil started to rise sharply and stocks started to fall. NASDAQ, one of the weakest indices of the session, fell 24 points in just over an hour. SP500 dropped 15 points. What was a modestly lower session turned into a pretty severe drop.
Volume remained light, and that gave stocks some breathing room to bounce into the close. SP500 pared its losses by 10 points, NASDAQ by 11. That made the close at least respectable, though a 30 point loss on NASDAQ is hardly respectable. More like bearable given the 48 point gain the prior session, lower volume, and still in position to continue higher. Still quite shaky, still feeling its way along, but set to continue the follow through delivered by SP600 on Thursday. All it has to do is overcome fear of Fed and fear of oil, just the two big issues that have, on their own, launched many economic slowdowns and recessions. Now they are teamed up, and the market is trying to deal with them.
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=
GME”>
GME (Gamestop–$23.65; -0.27; optionable): Retailer of computer game and PC entertainment software.
http://finance.yahoo.com/q/pr?s=gme”>Company Profile
STATUS: Breakout test. GME is back on. It formed a 21 week reverse head and shoulders base sporting excellent 7 to 3 accumulation (7 up price weeks on rising volume to 3 down price weeks on rising volume). There were plenty of buyers during the base, setting up the breakout. It made the breakout 5 sessions back when it announced the acquisition of ELBO. After that big move it has eased back in a narrow range the past four sessions, holding the breakout over the March closing high (23.42). Being stingy with a gain is a very good sign of strength and will likely yield a bounce from here before going much lower. Super money flow and a relative strength breakout; it has a lot going for it. Looking for a break higher from here on the same strong volume seen Friday as GME held steady.
Volume: 1.306M Avg Volume: 488.727K
BUY POINT: $24.15 Volume=1.2M Target=$28 Stop=$22.92
POSITION: GME JX – Oct. $22.50c (67 delta) &/or Stock.
http://www.investmenthouse.com/1daily1.htm”>Learn more about “The Daily” with Stock Picks! – Issued 5 Times Per Week
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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. Here’s a pre-split play to watch and our current analysis.
http://www.investmenthouse.com/1stocksplits1.htm” target=”_top”>http://www.investmenthouse.com/images2/cnbc.gif” width=”39″ height=”31″ border=”0″ alt=”CNBC Interview”>
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-announcement play to watch and our current analysis.
Chart by http://www.stockcharts.com”>StockCharts.com
http://www.investmenthouse.com/cc/googsm.gif” width=”360″ height=”208″ border=”1″>
http://investmenthouse.com/quote/stkquote.php3?smbl=
GOOG”>
GOOG (Google)
http://finance.yahoo.com/q/pr?s=goog”>Company Profile
A lot of people fear Google because they relate it to 1999 and 2000 when internet stocks ran so high and then fell so far. They got burned and their gut keeps them from really looking at such a stock. In the stock market, however, you don’t get anywhere listening to your gut. We saw Google in neatly formed cup with handle base the past 11 weeks, an accumulation base setting it up for the next break higher. GOOG got a boost from the YHOO earnings, starting the breakout move with a gap higher on Wednesday. That was hard to get in; gaps are tough, and GOOG closed basically right where it gapped higher. That did not slow it, however. Next session it was up again, but we wanted to get into some positions ahead of its earnings announcement after the Friday close because we anticipated there would be an upside surprise and we were looking for a possible stock split (at $200 per share, why not?). It ran back toward the Wednesday close and we were able to move in. We purchased some June $200 strike call options for $15. They were basically at the money and had a 54 delta; that would give us plenty of movement in the option, particularly the way this stock can move. It worked out well. There was not a split, but the stock soared near $22 on the open. We were able to sell our options for $24.60, a nice 64% gain with a short exposure to the market. Too bad no split; we might have really made a killing. We sold all of our position on the early move higher as the stock was already backing off its pre-market levels at the open. If a split had been announced we would probably have sold half of our position and rode the rest a bit longer.
http://www.investmenthouse.com/1stocksplits1.htm”>Learn more about our Stock Split Report – Issued 5 Times Per Week
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Chart by http://www.stockcharts.com”>StockCharts.com
http://www.investmenthouse.com/cc/cnctsm.gif” width=”360″ height=”208″ border=”1″>
3) TECHNICAL PLAYhttp://investmenthouse.com/quote/stkquote.php3?smbl=
CNCT”>
CNCT (Connetics–$28; -0.48; optionable): Drugs.
http://finance.yahoo.com/q/pr?s=cnct”>Company Profile
After Hours: $27.87
STATUS: Breakout test/cup with handle. CNCT is forming a handle to its 5.5 month base. The base got a rocky start with a nasty gap lower in November, but it recovered and held the 50 and 200 day SMA (25.84, 25.25) during the rest of the pattern. A solid surge two weeks back sent it to a breakout above its March high, and now it is testing that move. You can call this a second handle if you want; either way it is a strong stock with a good pattern forming. Outstanding 7 to 2 accumulation (7 up price weeks on rising volume to 2 down price weeks on rising volume) shows a lot of buyers as it sets up for the breakout. Making a nice, lower volume test of the move higher, shaking out the last sellers. Waiting for a return of the strong volume as it moves through the buy point.
Volume: 467.146K Avg Volume: 913.136K
BUY POINT: $28.72 Volume=1.3M Target=$35 Stop=$27.34
POSITION: UXU GE – July $25c (78 delta) &/or Stock.
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
http://www.investmenthouse.com/cc/crssm.gif” width=”360″ height=”208″ border=”1″>
4) COVERED CALL PLAYhttp://investmenthouse.com/quote/stkquote.php3?smbl=
CRS”>
CRS – Carpenter Technology Corp. is currently trading at $60.14. The May $60 Calls (CRSEL) are trading at $2.75. That provides a return of about 4% if CRS is above $60 on expiration Friday in May.
http://finance.yahoo.com/q/pr?s=crs”>Company Profile
http://www.investmenthouse.com/1coveredcalls1.htm”>Learn more about our Covered Call Tables – 8 Tables Updated 5 Times Per Week
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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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