Weekend Newsletter for February 17, 2002
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1) MARKET SUMMARY
The roll down from resistance continues.
– Indexes continue trending lower after testing resistance Thursday.
– New accounting worries hit the market as IBM and NVDA targeted.
– Slew of so-so economic reports provides no punch for the market.
– Sentiment indicators showing bullish and bearish extremes.
– Subscriber Questions.
http://www.investmenthouse.com/1weekendmarketsummary.htm “> Click here or on link for our full Weekend Market Summary
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2) Stock Splits
Be sure to read our Stock Splits Manual. 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.
ACS (Affiliated Computer–$95.13; -0.54; optionable): Software. Splits 2:1 effective 2-25-02.
STATUS: We were looking for ACS to make its way back up toward one of its up trendlines to find resistance that would set up another put. This week ACS has made its way back up to the trendline (which is at its recent high and just under ACS’ 50 day MVA, 97). It made a low-volume move up to that level Thursday, and Friday showed a loose doji with volume up to 741,800 (average 702,300), dropping back momentarily through our downside buy point. With that action (the weak move up over the past week and now the doji are signs of a drop back), it looks like another failure on this move, and we will now watch for ACS to start back down. This could be, like a pre-split to the upside, a quick play where we grab a couple of points and move on. There is support from recent intraday lows at 88, but we could get a drop as low as the recent lows (87.50-88.50), which approach the 200 day MVA, at 85.94.
PLAY: Aggressive: A drop through 94.25 on above average volume, with April $105 puts to buy (ACS PA – check delta, etc. with your broker as unavailable at the time of writing).
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3) Technical Play
ATH (Anthem–$56.10; -0.31; optionable): Insurance
STATUS: A new issue (late October) that is testing its breakout off the 18 day MVA, support from which the stock has bounced twice mid-January. The last three days ATH held the 10 day MVA (55.89), tightening in the pullback with 2 dojis the last two days of the week. Volume was lower Friday at 763,500 (avg. 762,000) and has held at or above average in this pullback, spiking hugely on the last bounce when the stock gapped higher.
Looking for this consolidation to lead to another strong move up from the 10 day. ATH shows high money flow and decent buying. Target: 62
BUY POINT: Aggressive: 56.75 on volume in the range of one million. Stop advisory (7%): 52.78
POSITION: Stock and/or June $50 calls to buy (ATH FJ). Deltas unavailable.
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http://www.investmenthouse.com/1tech1.htm “> Click here to learn more about our Technical Trader Report
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4) Covered Call Play
PIR – Pier 1 Imports Inc. is currently trading at $17.96. The March $17.5 Calls (PIRCW) are trading at $1.15. That provides a return of about 4% if PIR is above $17.5 on expiration Friday in March.
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http://www.investmenthouse.com/1coveredcalls1.htm “> Click here to learn more about our Covered Calls Service
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5) IPOs
This past week the IPO market was full of surprises. Online payment system PayPal (ticker: PYPL) had a rocky week getting its IPO to market, but finally found success on Valentine’s Day. The first Internet related offering in nearly a year, PayPal not only went public without reducing its price, but also soared for the best first day of the year. The deal appeared to be in jeopardy as CertCo very publicly did everything it could to prevent the offering from filing a patent infringement suit to threatening an injunction.
http://www.investmenthouse.com/1ipo.htm “> . . . continued . . .
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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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