Weekend Newsletter for May 1, 2005
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Weekend Newsletter for
May 1, 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
Several factors lead to rally to close week.
– End of month brings back buying, and yes, on higher volume.
– Michigan sentiment lower while regional manufacturing remains strong.
– PCE remains low, Employment Cost Index low suggest lower inflation to some.
– Personal spending and income remain solid thanks to rising prices.
– Yield curve flattens further as talk of just one more rate cut spreads.
– SP500 holds recent lows for small double bottom & oil closes below $50/bbl, sending shorts running to cover, but not enough to turn the character yet.
– FOMC meeting is focus this week as stocks try to provide a follow through.
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Another day, another higher volume session that reversed the prior action. The last four sessions of the week flip-flopped in price and volume, each session posting higher volume. As noted earlier in the week, this action is more common at the end of a selling round than the middle. Once more stocks showed signs of recovering, but they were just signs; the downtrends remain in place and stocks will have to show next week they are interested in a serious rally with a strong follow through session.
Stocks showed the Dr. Jekyll and Hyde routine again with futures running higher pre-market. Economic data was looking better with consumer income and spending higher than anticipated, MSFT providing a surprisingly upbeat view of 2005 and 2006, and other earnings looking decent. As usual, however, the stronger open led to selling. Sellers used the early bounce to sell into. The move was fueled by Michigan sentiment coming lower than expected and oil prices that started higher. Chicago manufacturing was solid, but it was overlooked in the early going. Stocks looked weak again, giving back all of the early gain and turning negative mid-morning.
NASDAQ undercut the recent lows at 1904 and 1900, and techs were looking grim. Then several events merged and stocks turned. SP500 tested the recent lows and held them as well as the August 2003/August 2004 trendline. Oil started to reverse its gains, and it picked up speed as the afternoon wore on. Indeed, after a test of the initial bounce off the session lows, oil started to drop. The market started to rise again. When oil closed below $50/bbl stocks really started to rally higher as shorts were covering. They kept the pace into the close, finishing at session highs.
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
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http://investmenthouse.com/quote/stkquote.php3?smbl=
QLGC”>
QLGC (QLogic Corp.)
http://finance.yahoo.com/q/pr?s=qlgc”>Company Profile
In a weak market you have to take what it is giving. While there are upside plays in this market, there have been many easy downside plays. We saw QLGC break below the 50 day EMA two weeks into the month and then bounce off its 200 day SMA. It made it up to the 10 day EMA on the rebound, but volume was very low. It tapped at that level for three sessions but could not get through. That told us to get ready for the fall once more. When we saw it tap the 10 day EMA on April 26 but then roll over with the market we moved in. We bought some June $37.50 strike put options for $3.10. We like them because there were plenty of open interests (easier to get in and out) and the -55 delta would give us some good movement as the stock fell. Well, QLGC gapped lower Wednesday. It gapped lower again Thursday, reaching all the way down to 32 on the low. We closed out the position for a nice 54% gain. It may fall further, but with these downside moves the action often happens quickly once the selling starts. It can also bounce just as rapidly so you never want to get too greedy. 54% in less than three sessions is good enough.
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. 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”>
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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/utxsm.gif” width=”360″ height=”208″ border=”1″>
http://investmenthouse.com/quote/stkquote.php3?smbl=
UTX”>
UTX (United Technologies–$101.72; +1.88; optionable): Elevators and other building system and aerospace products. Splits 2:1 on 6-13-05.
http://finance.yahoo.com/q/pr?s=utx”>Company Profile
STATUS: Flat base. UTX sold off three weeks back when the market dumped lower, but it held the 200 day SMA (97.62) and rebounded easily back into its 18 week flat base that has formed mostly around the 50 day EMA (100.90). Solid 4 to 2 accumulation (4 up price weeks on rising volume to 2 down price weeks on rising volume) shows net buying as this leader has moved laterally to set up its next move higher. Made a higher low off 100 this past week. Looking for a strong volume break above the recent highs hit last week to initiate a position.
Volume: 2.102M Avg Volume: 2.04M
BUY POINT: $102.57 Volume=3.1M Target=$107.45 Stop=$100.75
POSITION: UTX HT – Aug. $100c (74 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/hntsm.gif” width=”360″ height=”208″ border=”1″>
3) TECHNICAL PLAYhttp://investmenthouse.com/quote/stkquote.php3?smbl=
HNT”>
HNT (Healthnet–$34.03; +0.82; optionable): Health care plans.
http://finance.yahoo.com/q/pr?s=hnt”>Company Profile
STATUS: Earnings May 3. Test 50 day EMA . Volume was up Wednesday and Friday as HNT tested and held the 50 day EMA (32.29) and started to rally. This is the test of the early April breakout from a big 2 year base; a long time to set up, but finally making the move higher. Good 2 to 0 accumulation (2 up price weeks on rising volume to 0 down price weeks on rising volume) even in this short pullback to test the breakout. Solid money flow has held up during the pullback and relative strength has held up well, ready to breakout. Ready to move in as it continues higher on volume this week.
Volume: 849.6K Avg Volume: 796.316K
BUY POINT: $34.15 Volume=1M Target=$39 Stop=$33.05
POSITION: HNT JZ – Oct. $32.50c (85 delta, low OI) &/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=
SHFL”>
SHFL – Shuffle Master, Inc. is currently trading at $25.19. The June $25 Calls (SFQFE) are trading at $1.70. That provides a return of about 6% if SHFL is above $25 on expiration Friday in June.
http://finance.yahoo.com/q/pr?s=shfl”>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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