Weekend Newsletter for January 18, 2004
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1) MARKET SUMMARY
Earnings trigger surge out of short lateral consolidation.
– Stocks not to be denied as more money pours in on solid earnings news.
– Dollar rebounding, sentiment surging. On the cusp of a breakout?
– Market continues its run, daring you to sit it out, daring you to get in.
– Subscriber Questions.
http://www.investmenthouse.com/1weekendmarketsummary.htm?123 “> Click here or on link for our full Weekend Market Summary
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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.
WGO (Winnebago–$71.9; +2; optionable): Motor homes. Splits 2:1 on 3-8-04
STATUS: Flying plateau. WGO surged from the 50 day MVA (63.26) in mid-November to end the year at 70. The past three weeks it has moved laterally in a very tight range, consolidating that move. When a stock holds its gains in such a manner as it takes a breather, that is a sign of its strength. That strength shows up in the accumulation during that lateral move: 3 to 0 (3 up weeks on rising volume to 0 down weeks on rising volume). Wednesday after the close it announced its split, and in a delayed reaction it started higher Friday on much stronger, above average volume, starting the breakout from its pattern. Very strong and looking to move in on a continued move. We are playing options on this one given the price.
Volume: 398.6K Avg Volume: 270.405K
BUY POINT: $72.06 Volume=325K Target=$79 Stop=$69.72
POSITION: WGO DN – Apr. $70c (60 delta).
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3) Technical Play
MKTY (Mechanical Technology–$6.46; +0.05; no options): Scientific & technical instruments
STATUS: Cup w/handle. We have been watching MKTY form up, impressed by the excellent 5 to 0 accumulation in the 10 week base. We felt it was going to form a handle, and it is starting to do that. Thursday it fell back rather sharply, but volume was much lower. Friday it showed a very tight doji over the 10 day MVA (6.26) as trade fell to average. A nice looking base that formed along the 50 day MVA (5.60); that along with the stellar accumulation shows institutional support. Money flow is excellent. Now we wait for the pullback to end and the stock to break higher on strong trade.
Volume: 103.742K Avg Volume: 110.744K
BUY POINT: $6.68 Volume=175K Target=$8.12 Stop=$6.21
POSITION: – Stock (no option chain).
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4) Covered Call Play
FRED – Fred’s, Inc. is currently trading at $30.52. The February $30 Calls (FMUBF) are trading at $1.70. That provides a return of about 4% if FRED is above $30 on expiration Friday in February.
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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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