Weekend Newsletter for July 11, 2004
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Read this report online in full color with graphs at
http://www.investmenthouse.com/weekend/071104.htm
1) MARKET SUMMARY
Low volume rebound accomplishes little.
– Oversold bounce helped along by GE earnings.
– Wholesale inventories rise, adding to debate about slowing economy even as GE sees happy days.
– Indexes split above and below support as techs breakdown while consumer, medical and industrial stocks hanging onto key levels.
– Early summer rally is over and now stocks have to finish the selling and regroup.
– 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).
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.
ERES (Eresearch Tech–$26.48; +0.36; optionable): Medical lab research enhancement
STATUS: Breakout test. ERES has split its stocks twice in 7 months, the last effective in late May. That has not slowed this leader down, however. After a quick test of the 50 day EMA (24.28) it surged to another breakout. During the market selling it has come back to test that move, tapping down at the 18 day EMA (26.24) Friday. It rallied to close above that level. Solid 4 to 2 accumulation (4 up price weeks on rising volume to 2 down price weeks on rising volume) in the 18 week base set up the current move. That shows us money has continued to work into the stock even as it based, setting up the breakout move. Looking for the stock to hold here and continue the breakout move on rising, above average volume.
Volume: 1.249M Avg Volume: 1.106M
BUY POINT: $26.97 Volume=1.7M Target=$32.48 Stop=$25.89
POSITION: UDB LY – Dec. $27.50c (51 delta) &/or Stock.
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3) Technical Play
ISSC (Innovative Solutions–$22.65; +0.51; no options): Flight information computers, large flat-panel displays.
STATUS: Breakout test. Exploded higher Wednesday on an upgrade, breaking it out of a 7 month base that most closely resembles a cup with handle. After that surge it has come back to test the move, but does not look as if it is going to make a full test, holding over the Thursday close as it moved higher Friday. Excellent 5 to 1 accumulation in the pattern set up the breakout. Relative strength broke out with the stock, a good corroboration of the breakout move. It may try to snug up more toward the 10 day EMA (20.99), but it looks strong and we want to be ready to move in as it resumes its breakout run on rising, above average volume. Earnings announced 7-29-04.
Volume: 268.757K Avg Volume: 226.675K
BUY POINT: $22.88 Volume=300K Target=$26.92 Stop=$21.78
POSITION: – Stock (no option chain).
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Learn more about our Technical Trader Report!
http://www.investmenthouse.com/1tech1.htm
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4) Covered Call Play
PHM – Pulte Corp. is currently trading at $50.06 The August $50 Calls (PHMHJ) are trading at $2.75. That provides a return of about 6% if PHM is above $50 on expiration Friday in August.
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http://www.investmenthouse.com/1coveredcalls1.htm
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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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