Weekend Newsletter for February 27, 2005
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Weekend Newsletter for
February 27, 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
Stocks surge toward highs but still waiting for real volume.
– Another strong Friday rally pushes indices to 2005 closing highs.
– Week of solid economic data fights rising oil prices.
– Fed may say ‘go slow’ but it is draining the money supply again.
– Market has leadership but still lacks power.
– Looking for follow through this week . . . to the upside for a change.
– Lots of economic data to mull including the jobs report.
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For the third Friday in four stocks surged sharply and closed on their highs to close out the week. The old adage buy on Monday sell on Friday has somewhat held this year. Fortunately there have been a few more up sessions thrown in the past 4 weeks to get the indices back up near 2005 highs. In addition the media had a lot to chew on with the all but NASDAQ and SOX at new closing highs for the year (not new highs, but new closing highs). It is a nice headline for the news agencies, but the real move remains to come as the indices move for a post-crash high. That will hopefully come with a nice follow through session to the Wednesday turn back up from the recent distribution. It has not shown enough strength yet, but the time for that is this coming week.
Friday had some good news to propel it with a nice upside revision to Q4 GDP from 3.1% to 3.8%, but that was almost an afterthought to a week filled with mostly good, though some bad, economic news. The big stories were the CPI, the dollar, and oil. The dollar and Korea’s statements about diversifying sent a major shudder through the market Tuesday, fostering the second hard distribution session in three. The indices broke lower and it was not looking good for the attempted rebound. Then on Wednesday the CPI came in below expectations, allaying for now the inflation fears sparked by a surging PPI the week before. Indeed, the government’s inflation measure is tracking amazingly low given the spike in oil prices during 2004 and the continued solid economic growth. Oil was another counterbalance to the good news as it spiked toward $52/bbl on cold weather fears in the US and Europe, not to mention comments from the Saudi Arabia oil minister that demand was driving the price rise and that we had best get used to it.
In the end the positives won out and stocks rallied right back up Wednesday through Friday. Price/volume action showed improvement (up on the up sessions to close the week) though Friday was mixed with NASDAQ volume a substantial disappointment. It was not enough to undo the distribution. Sure the indices made it back to the closing highs for the year, but until they show that follow through with strong volume on top of excellent NYSE breadth shown Friday, it is susceptible to more sharp selling when sellers swoop in. In other words, what we want to see are the buyers coming back in and dominating. Once they show that dominance then they can trade punches with the sellers and it would take a strong resurgence of the sellers to chance the character back to negative. You prefer to play the side that is in control. Buyers looked as if they wanted to take back control with the upside flourish to finish the week. They still have to show a strong volume follow through to fully take the control back from the sellers.
http://www.investmenthouse.com/1weekendmarketsummary.htm”>(This Article Is Continued On Our Website. Please Read Full Weekend Summary.)http://www.investmenthouse.com/1daily1.htm”>Learn more about our Daily Newsletter 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’s stock 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 ]
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http://investmenthouse.com/quote/stkquote.php3?smbl=
RECN”>
RECN (RSCS Connection–$49.89; -0.26; optionable): Management services. Splits 2:1 on 3/2/05.
http://finance.yahoo.com/q/pr?s=recn”>Company Profile
After Hours: $49.90
STATUS: Test 50 day EMA. Volume was up Friday but RECN could go nowhere as it continues to hover just over the 50 day EMA (48.93). To recap: Big gap up in late December out of a 7 month cup with handle base. It has now come back to test that break higher, filling the gap. It is moving laterally along the 50 day EMA on very low, below average volume. Being patient and letting it show us the break higher on volume.
Volume: 265.287K Avg Volume: 501.181K
BUY POINT: New: 50.32 (orig. $50.12) Volume=525K Target=$55.25 Stop=$48.78
POSITION: JJJ EJ – May $50c (50 delta).
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
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3) TECHNICAL PLAYhttp://investmenthouse.com/quote/stkquote.php3?smbl=
CHT”>
CHT (Chunghwa Telecom–$22.13; +0.31; optionable): Chinese wireless telecom.
http://finance.yahoo.com/q/pr?s=cht”>Company Profile
STATUS: Ascending base. CHT is moving to another new high (a new issue in 2003) as it forms a 7 week ascending base. It is using the 50 day EMA (21.15) as support, showing continued institutional support of this stock. Accumulation is a strong 3 to 0 during this recent more or less lateral move. Volume started to swell toward the end of the week and then exploded higher Friday as it moves toward that all-time high.
Volume: 682.5K Avg Volume: 310.09K
BUY POINT: $22.32 Volume=400K Target=$26.75 Stop=$21.55
POSITION: CHT FX – June $22.50c (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
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4) COVERED CALL PLAYhttp://investmenthouse.com/quote/stkquote.php3?smbl=
CMC”>
CMC – Commercial Metals Co. is currently trading at $35.25. The April $35 Calls (CMCDG) are trading at $2.00. That provides a return of about 5% if CMC is above $35 on expiration Friday in April.
http://finance.yahoo.com/q/pr?s=cmc”>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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