Weekend Newsletter for March 27, 2005
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Weekend Newsletter for
March 27, 2005
Table Of Contents 1) MARKET SUMMARY 2) PRE-SPLIT PLAY 3) TECHNICAL PLAY 4) COVERED CALL PLAY
http://ichart.yahoo.com/v?s=^ixic”> http://ichart.yahoo.com/v?s=^dji”>
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
Decent bounce bleeds away in the afternoon.
– Stocks bounce in relief, waffle on low volume, give the move back.
– New home sales surge in February, reversing big January decline.
– Durable goods ex-transportation fall, but early 2005 still strong.
– GE raises estimates and many view it as a positive. Isn’t it?
– Inability to bounce leaves stocks in near term downtrend, but many leaders were starting to move Thursday.
– Many reasons to say economy to remain strong and this is just a temporary blip for market and not start of another downtrend. As always, market has to prove it.
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Stocks made a second attempt at a rebound Friday, and they suffered their second straight failure. Neither move had much salt, however, so it was not too difficult for it to fritter away the gains late in the session. At the end of the shortened week the market found itself at the bottom of the week’s range, a familiar place after three consecutive weeks of downside.
Oil prices remained high even though they backed off from the top of their recent price spike. The week’s focus, however, was on interest rates and the prospect of bigger rate hikes sooner after the Fed continued its ‘measured pace’ language but completely undermined it at once. Clever fellows. They set the stage for a 50 basis point hike at the next meeting without having to remove the safety net language from the prior statement. After the oil spike the prior few weeks, the prospect of faster and still open ended rate hikes on top of higher energy costs brought in more sellers. The selling abated at the end of the week, but even with fewer sellers stocks could not mount any significant bounce.
There was some decent news early Thursday that helped spark the bounce attempt. GE raised the lower end of its guidance range and said it would return to double digit growth. YHOO announced a share buyback, always good for a dusting of excitement. The news from the BP plant in Texas City was 95% operational capacity despite the sad death of 15 workers. That was enough, along with three weeks of prior selling, to get stocks up off the mat.
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/ususm.gif” width=”360″ height=”208″ border=”1″>
http://investmenthouse.com/quote/stkquote.php3?smbl=
USU”>
USU (USEC, Inc.)
http://finance.yahoo.com/q/pr?s=usu”>Company Profile
When choosing upside positions in any market and particularly a market making a mediocre upside move, it is important to stay with the sectors and the stocks within those sectors that are under accumulation and showing the stronger moves. You are not fighting the tape, but instead letting it work for you. We spotted USU in January as it worked on the finishing touches to a 3.5 month base that formed using the 50 day EMA as support; that is a key support level where the big money steps into support their stocks, accumulating shares. We put it on the report 1-20-05 as it set up for the breakout, and 3 days later it made the breakout, surging on strong volume. We moved in with some stock positions, and to leverage our gain even better, some in the money April $10 strike calls. Excellent delta (80) and the price was not bad at $1.45 as they were over $1 in the money when we bought. The stock made the breakout and then did what strong stocks do: rallied up the 10 day EMA, bouncing up off of that level 4 times over the next month and one-half. We took a partial interim option gain on 2-11-05 when it hit our target, racking up a nice 134% gain on our options, letting the rest of the stock and options ride. The stock continued its move and we let it run, having already banked a nice gain. After a big surge to end February it fell rather abruptly to the 10 day. When it bounced back to start March we took the rest of the option gain, a nice 217% gain. They were April, it was March, and we did not want to let the time decay start working on them. We let the stock run. It broke higher in last week and surged for the fifth time off the 10 day EMA; that is often the last move it makes before needing a breather. At that point we locked in a 49% gain on our stock positions as well. Now we will let it make a deeper test, reload, and see if we can play the next move.
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 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. 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’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-split play to watch and our current analysis.
Chart by http://www.stockcharts.com”>StockCharts.com
http://www.investmenthouse.com/cc/hrssm.gif” width=”360″ height=”208″ border=”1″>
http://investmenthouse.com/quote/stkquote.php3?smbl=
HRS”>
HRS (Harris Corp.–$67.39; +0.17; optionable): Telecom equipment. Splits 2:1 on 3-31-05.
http://finance.yahoo.com/q/pr?s=hrs”>Company Profile
STATUS: Cup w/handle. Showing a couple of dojis to end last week, HRS is poised for the breakout from its 18 week pattern. It formed the handle over the 50 day EMA (65.40), an excellent support level. Solid money flow is leading and relative strength is ready to make the breakout as well. With the split this week HRS is ready to make its run into the split.
Volume: 248.8K Avg Volume: 495.363K
BUY POINT: $68.22 Volume=500K Target=$72.75 Stop=$67.22
POSITION: HRS EM – May $65c (70 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
http://www.investmenthouse.com/cc/cfcsm.gif” width=”360″ height=”208″ border=”1″>
3) TECHNICAL PLAYhttp://investmenthouse.com/quote/stkquote.php3?smbl=
CFC”>
CFC (Countrywide Financial Corp.)
http://finance.yahoo.com/q/pr?s=cfc”>Company Profile
With the Fed on a rate hiking round that already has 175 basis points under its belt and speculation running high about inflation and the Fed becoming more aggressive, we were looking for downside plays in the interest sensitive stocks. CFC, a mortgage investment company, fit the bill. It made a lower high in January, a big, broad top that broke through key support at the 200 day SMA to start March. After that first tank lower it rebounded up to the 10 day EMA; weak stocks recover to this level and then fail, continuing their move lower. Well, CFC showed a doji on the candlestick chart on 3-15-05, a sign that the modest bounce to that resistance was over. We wrote up the play that night. The next session it started to fall again and we moved in with some April $35 strike put options. They had a delta of -60 and a price of $2.15; enough to make us a nice gain with just a short $1.50 drop. We don’t want to get greedy on these downside plays as they fall fast but can rebound fast. Well this week the Fed met and even though it kept the ‘measured pace’ language it pretty much undercut it at the same time. Interest sensitive stocks fall hard with CFC hitting our target. We could have waited around a bit more, but after a hard intraday fall it was trying to stabilize. We sold the puts for $3.20, a nice 48% gain in 5 sessions. CFC remains weak, and when it gives us the next bounce to test resistance we will look at it again to ride this continuing downtrend another time.
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
http://www.investmenthouse.com/cc/stldsm.gif” width=”360″ height=”208″ border=”1″>
4) COVERED CALL PLAYhttp://investmenthouse.com/quote/stkquote.php3?smbl=
STLD”>
STLD – Steel Dynamics, Inc. is currently trading at $36.88. The May $35 Calls (RQLEG) are trading at $3.90. That provides a return of about 6% if STLD is above $35 on expiration Friday in May.
http://finance.yahoo.com/q/pr?s=stld”>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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