Weekend Newsletter for March 20, 2005
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Weekend Newsletter for
March 20, 2005
Table Of Contents 1) MARKET SUMMARY 2) PRE-ANNOUNCEMENT 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 > >From “The Daily” at InvestmentHouse.com
Modest losses, huge volume close out a rough week.
– Modest losses to close a down week as volume surges on expiration and SP500 float rebalance.
– Michigan sentiment fades as gas prices rise.
– FOMC ready to hike rates again even as oil prices start to impact economy.
– After two weeks of losses, poised for a rebound.
– Fed, PPI, CPI this week give more insight to oil, interest rate impact.
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The market spent Friday moving lower once more, finding no reason to rebound from a week that showed a resumption of higher volume selling. Given the heavy selling Tuesday and Wednesday, Friday’s losses were modest. NASDAQ, NASDAQ 100, SP600 and SP400 simply put the finishing touches on their test of next support. NASDAQ and NDX fell all the way to the 200 day SMA while the small and mid-caps found support at the 50 day EMA. Not a bad place to land after two weeks of selling. SP500 and DJ30 were not so neat in their finish, closing below the 50 day EMA, but holding some interim support nonetheless.
Another week of rising oil prices and speculation about running out of black gold with a rate hiking Fed background took precedence over some continued solid economic data. Stocks spent their second week of decline, with the large cap indices breaking important support levels in the process. Volume saw a return on the selling as the stocks purchased on the breakout were sold. Oil was the dominant factor in the headlines, but the Fed’s continued activity beyond 2004 is the other element adding to the troubles.
While the economic data was solid overall, Friday’s action was not helped when Michigan sentiment fell unexpectedly. After the selling and before the FOMC meeting Tuesday there was not much impetus to step in on the buy side, and the Michigan data tossed cold water on any desire to buy. Volume was massive, starting strong, easing some midday, and then exploding late as the SP500 ‘float’ rebalance was implemented. Strong volume was pushed to huge volume on NYSE as buy on close orders hit the tape. On top of the rebalance it was expiration Friday, and that makes analysis of the session somewhat pointless other than noting where the market closed and the prior action that lead the market to that close.
Well, not entirely. There was a late rebound that cut the losses as shorts covered ahead of the weekend after the second week of hard selling. Maybe some buyers were coming in to pick up some values, but overall it was short covering before a weekend ahead of an FOMC meeting, two down weeks, NASDAQ and NASDAQ 100 closing over the 200 day SMA, and the small and mid-caps closing over the 50 day EMA. The shorts wanted to get out of positions ahead of Monday, short covering is how rallies always start. Given the other factors noted, stocks are in position to bounce, and shorts were not taking chances after a strong downside run. Stocks are indeed in good position to post a more significant relief move this week as the sellers back off to let stocks recover some ground before trying to move back in.
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/upssm.gif” width=”360″ height=”208″ border=”1″>
http://investmenthouse.com/quote/stkquote.php3?smbl=
UPS”>
UPS (United Parcel Service)
http://finance.yahoo.com/q/pr?s=ups”>Company Profile
The market was under pressure last week and we were looking for solid downside plays to take advantage of during the weakness. We like to play downside moves from weak stocks that are set up to continue their declines. UPS was in serious trouble to start the week, testing its break below its 200 day SMA and then rolling lower on rising trade. We liked the renewed downside momentum, and on 3-16-05 we moved into put positions as UPS continues its move lower after breaching that key support. We bought some April $75 put options for $1.60; not bad for at the money given the stock was selling hard. Thursday UPS tried to rebound a bit, bouncing back to the 10 day EMA on the high. Volume was low, however, so we were not about to panic out of the position. By the close it faded back to near flat. Friday UPS was under pressure again, diving lower early. We watched the action and determined it was getting ready to rebound. We had the move we wanted so took the gain, a nice 80% profit in less than three sessions. We love playing trend and letting it work for us.
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 SPLITSPlaying 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.
Pre-announcements are where we put in the long hours of research, chase down leads and rumors, and pump our contacts for information in order to determine if a split is in the works and to pinpoint an announcement date. Pinpointing the date is our primary goal as this allows us many more options in how we play a split. As we primarily focus on leadership stocks in good technical patterns, if we see the stock make the breakout we will get in earlier and ride the wave of speculation up to or through the announcement. Pinpointing a date and time also allows us to open positions immediately prior to an announcement, minimizing our exposure time to the market whims. We employ this strategy regularly in a number of situations. When we have ridden a stock for a few days, a week, a few weeks, up to the forecast announcement, we often have a lot of profit built in. After all, these are leaders and they attract attention moving into earnings, shareholder meetings, etc. We often sell some positions (all or a partial), lock in the profit, and take positions with higher strike call options near the current stock price at a cheaper cost if the stock is not overextended, i.e., has done all of its running before the forecast announcement. This way we bank some profit from the early run, and take some of that profit to play the actual split. Even if the board pulls a fast one on us and does not announce, we still have profit in the bank. This method also works well when the market is choppy, and we do not want to hold positions long. We can often buy right before the announcement and then sell when we feel the split announcement has run its course and the stock starts to pull back. Narrowing the predicted date and time of the split gives us these options.
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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 pre-announcement play to watch and our current analysis.
http://investmenthouse.com/quote/stkquote.php3?smbl=
NMGA”>
NMGA (Neiman Marcus Group)
http://finance.yahoo.com/q/pr?s=nmga”>Company Profile
Neiman Marcus had never announced a split in its history, but it was in that $75 range that the high end retailers like as a split range. A market leader sporting a solid 12 week cup with handle base; you have to love it when a leader sets up a good pattern as a breakout is almost certain to follow. NMG.A had moved back to test the 18 day EMA as it completed its base, and when it started to move higher off that level on stronger volume, that was our entry point. We moved into the position on March 15 with stock positions and July $75 strike call options. The options cost us $4.50, kind of high for at the money options, but the August expiration gave us plenty of time to enjoy any breakout move Neiman gave us. Well, we did not have to wait long. The next morning NMGA announced it was looking for strategic alternatives and the stock exploded higher for an $11 gain. On the high it was up $14, and we timed our option sales pretty well, getting out near the peak price for the day. A nice 188% gain on the options in a day is decent. We took some stock gain as well, but decided to see if we could get some more out of those. We can always sell some call options on those positions, ride the test of the breakout, and then buy them back when the test ends and the stock starts to rebound.
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/cmcsasm.gif” width=”360″ height=”208″ border=”1″>
3) TECHNICAL PLAYhttp://investmenthouse.com/quote/stkquote.php3?smbl=
CMCSA”>
CMCSA (Comcast–$33.83; +0.34; optionable): Cable TV
http://finance.yahoo.com/q/pr?s=cmcsa”>Company Profile
After Hours: $33.90
STATUS: Cup w/handle. Volume shot higher Friday as CMCSA continued the move off the 18 day EMA (33.29) after tapping that level on the Thursday low and rebounding. Looks ready. To recap: CMCSA has formed a big 14 month base, one that is very easy to pick out with its smooth cup and 10 week handle formed over the 50 day EMA (32.65). A stronger volume push through the top of the handle (the lateral move where the last sellers get frustrated and exit) is where we step in. Strong 17 to 9 accumulation in the base shows plenty of net buyers.
Volume: 15.286M Avg Volume: 8.008M
BUY POINT: New: $34.11 (orig. $33.72) Volume=10M Target=$38 Stop=$32.48
POSITION: CCQ GZ – July $32.50c (68 delta).
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=
CLF”>
CLF – Cleveland-Cliffs, Inc. is currently trading at $76.06. The April $75 Calls (CLFDO) are trading at $4.40. That provides a return of about 5% if CLF is above $75 on expiration Friday in April.
http://finance.yahoo.com/q/pr?s=clf”>Company Profile
http://www.investmenthouse.com/1coveredcalls1.htm”>Learn more about our Covered Call Tables – 8 Tables Updated 5 Times Per Week
* * * SCOTTRADE * * *
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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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