Weekend Newsletter for April 3, 2005
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Weekend Newsletter for
April 3, 2005
Table Of Contents 1) MARKET SUMMARY 2) POST-SPLIT 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 try to surge on belief Fed will be easier, then reality sets in.
– Strong pre-market, strong early surge reverses and collapses.
– Jobs market softens but inflation fears stoked by ISM prices paid.
– We have to stop fearing prosperity, but no one believes the Fed gets it or is going to avoid slowing the economy.
– Big money sells into first of quarter rally that saw some new money enter.
– Stocks head into earnings season in retreat.
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Futures were strong even before the weak jobs report hit the wire as stocks were going to try another Wednesday-like relief move. The jobs data fueled the fire somewhat as non-farm payrolls sliced expectations in half and had some toying with the theory that the weaker data would somehow mitigate the Fed’s stand on rate hikes and inflation. We even heard some opine the Fed was going to move into a holding pattern with respect to rate hikes. Nonsense.
Even so stocks opened higher and rallied quite nicely in the first half hour. Not massive gains, but a solid move upside. Then the ISM index hit, originally reported at 63.1; it was quickly retracted to an in line reading. That was not bad, but the prices paid jumped to 73 from 65. That slapped the market with harsh reality; prices were rising, the Fed has officially declared war on inflation (no ‘police action’ here), and despite a weak jobs report the Fed has made the decision it is going to hike rates to get them up past negative (where it is now). The market rolled over and sold off into the close on slightly rising volume. No major sell off, but it kicked the Wednesday rebound attempt out the door.
Raising rates is something the Fed needs to do, and that in itself is not bad for the economy or the market. Investors, however, have no faith that the Fed can raise rates in a benign manner that will assist or at least not impinge the economy’s growth. The Fed’s history is littered with economic tombstones bearing the inscription ‘Taken too young, a victim of over-Fedding.’ The market knows this and for now has no stomach to fight the Fed. Add to that stubbornly high oil prices and you have a struggling market, one that is looking down the road and does not like what it sees with the Fed clearly stating it is fighting inflation and consumers having to deal with $3/gallon gasoline this summer.
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
http://www.investmenthouse.com/cc/pumpsm.gif” width=”360″ height=”208″ border=”1″>
http://investmenthouse.com/quote/stkquote.php3?smbl=
PUMP”>
PUMP (Animas–$20.10; -0.11; no options): Medical appliances.
http://finance.yahoo.com/q/pr?s=pump”>Company Profile
STATUS: Test 50 day EMA. PUMP has set up for the next entry point after giving us a nice little gain following a super breakout in February. The stock was a new issue in May 2004, has set up and broken out of its first base, and is making the first test of that breakout. The first test is one of our favorite entry points, and this one held a key level at the 50 day EMA (19.64). Strong money flow is moving higher ahead of price and we are looking for PUMP to follow it. Need to see some more volume as it bounces off the 50 day and moves through the buy point.
Volume: 127.16K Avg Volume: 207.629K
BUY POINT: $21.22 Volume=311K Target=$24.75 Stop=$20.38
POSITION: – Stock (no option chain).
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.
For post-splits, we can play them as we would pre-splits (very short term), but we prefer to stretch our horizons, playing the trend. When playing options, we look further out, 2 or more months at least. We let the trend carry us along if there is one, but we will also take profits if the technical pattern degenerates, e.g., breaks a trendline. The main difference between post-splits and pre-splits plays is that we really have to like the pattern. Pre-splits can run right before their splits even with poor technical indicators. For post-splits, we are looking at the stocks from more of a longer term “would I buy this stock at this juncture?” position. Now there are times when a hot stock splits and investors pile in to get in while the stock is ‘cheaper.’ We play those, but with more of a short-term, pre-splits mentality in that we will be ready to get out fast if the momentum fades.
Remember, everything we do has to pass muster with the market that day … don’t fight the market on these plays. Here’s a post-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 post-split play to watch and our current analysis.
Chart by http://www.stockcharts.com”>StockCharts.com
http://www.investmenthouse.com/cc/chdsm.gif” width=”360″ height=”208″ border=”1″>
http://investmenthouse.com/quote/stkquote.php3?smbl=
CHD”>
CHD (Church & Dwight–$35.59; +0.12; optionable): Cleaning products.
http://finance.yahoo.com/q/pr?s=chd”>Company Profile
STATUS: 50 day EMA test. Still working laterally over the 50 day EMA (34.88), but volume jumped Friday close to average as CHD posted a modest gain. It has been biding its time, holding up well as the market sold, and it looks very close to making its move. To recap: A strong move higher from late January to early February took CHD higher from its last test of the 50 day. CHD split in early September during the formation of its base. Now it is setting up to continue the breakout run. Money flow is strong and volume has spiked higher the past two weeks when CHD made jumps off the 50 day EMA in the face of the market selling.
Volume: 234.7K Avg Volume: 273.932K
BUY POINT: $36.05 Volume=393K Target=$42.45 Stop=$34.96
POSITION: CHD GG – July $35c (60 delta) &/or Stock.
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/drssm.gif” width=”360″ height=”208″ border=”1″>
3) TECHNICAL PLAYhttp://investmenthouse.com/quote/stkquote.php3?smbl=
DRS”>
DRS (DRS Technologies–$43.7; +1.2; optionable): Aerospace/defense.
http://finance.yahoo.com/q/pr?s=drs”>Company Profile
STATUS: Flat base. Volume surged well above average Friday as DRS bolted off the 50 day EMA (41.77). It is moving toward the highs of the past 8 weeks and a breakout from its 14 week pattern. Excellent 6 to 1 accumulation (6 up price weeks on rising volume to 1 down price week on rising volume) shows nearly all buyers and is setting the foundation for the breakout move. A breakout takes it near an all-time high. This recent base is the tail end of a much larger 3 year cup with handle. In any event, money flow is strong and relative strength is making the breakout ahead of the stock price, a very bullish signal. Looking to move in on a continued rally that takes it past the February closing high (44.14).
Volume: 671.2K Avg Volume: 300.14K
BUY POINT: $44.22 Volume=400K Target=$49.75 Stop=$43.25
POSITION: DRS II – Sept. $45c (48 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/ossm.gif” width=”360″ height=”208″ border=”1″>
4) COVERED CALL PLAYhttp://investmenthouse.com/quote/stkquote.php3?smbl=
OS”>
OS – Oregon Steel Mills, Inc. is currently trading at $24.15. The May $22.5 Calls (OSEX) are trading at $2.90. That provides a return of about 6% if OS is above $22.5 on expiration Friday in May.
http://finance.yahoo.com/q/pr?s=os”>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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