Weekend Newsletter for May 15, 2005
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Weekend Newsletter for
May 15, 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
A weaker than it looked Friday caps a mixed week.
– Techs trying to take over the lead, but no one is following.
– Economic data looks good but markets are not forecasting same.
– Import prices rise more than expected but way down from March. Not importing much inflation.
– Business inventories rise, but sales rise more.
– SP500 makes a lower high as test of April lows is on.
– Techs set up to breakout, SP500 ready to test the low.
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Market Summary (continued)
The techs continued to show relative strength, but as noted Thursday, the way the market turned the last few sessions, showing relative strength is similar to winning an ugly contest. NASDAQ and SOX did post decent gains on rising volume, typically a good indication. It was no sharp stick in the eye, but it was primarily driven by Dell’s earnings that frankly were the result of its ability to pirate more of the same-sized pie. Nonetheless it sparked some buying (short covering) in some large cap techs and in the semiconductors, and it was enough to hold NASDAQ in its handle, something the NYSE indices were unable to do.
SP500 and SP600 broke back below the necklines of their head and shoulders bases and the 200 day SMA. That brought in some short covering as is typical when an index undercuts the 200 day. They rebounded from the lows to close, but remained below key resistance levels. While not collapsing, the two have just about given up any vestige of the rebound and follow through off the April lows. Both have suffered three distribution sessions this week as well. They have not broken the April lows, but they are in the process of making a test of that level. That could actually be a positive if the test is successful, but this was an awfully short rebound to be setting any kind of significant bottom. We wanted more time to pass before they fell back as that tends to weed out the market a bit better. At the same time you always have to remain flexible; as we have often said, if you wait for perfection in the market, you are always waiting.
At the same time you have NASDAQ holding up in its handle to the late April double bottom. It is short and that makes it questionable as well, but it is hanging in there. There is a lot of resistance yet to clear and NASDAQ is still in its downtrend, but if it can take its recent strength and break higher it could turn into a leader just as SP500 tests its lows. If that test is successful, then it bounces higher as well, supporting the NASDAQ move. Perhaps. With the recent action that smacks of hope. Hope has about as much place in the market as waiting for absolute perfection. With the indices still in downtrends, unable to react to good news, the Fed still on the hiking warpath, and the NYSE indices undergoing distribution once more, what looked to be doable to start the week is now a tall order.
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=
BLL”>
BLL (Ball Corp.)
http://finance.yahoo.com/q/pr?s=bll”>Company Profile
When the market is throwing lemons you make lemonade. We call that taking what the market gives. That keeps us looking at downside opportunity as well; a complete investor has to be able to take advantage of upside and downside. BLL was struggling in a downtrend after peaking in March. It broke the 200 day SMA in April, sold off, and then made a lower volume rebound to test the breach of that important support level. That was what we were looking for to take advantage of the next drop: a low volume rebound shows few serious buyers and sets it up for further downside when resistance is hit. On April 26 BLL rolled over after that tap of the 200 day SMA. Volume was up as it sold, and that was our signal to enter the downside play. With the stock trading right at $40, we bought some June $40 strike put options for $1.95. With a -40 delta they would give us plenty of movement as BLL ran toward our target near 37. We had calculated a gain in the 40% range on a move to that point. BLL took another week to decide it was serious about moving downside, but since it was still selling more than rising and was not breaking back through the 18 day EMA (near term resistance in downtrending stocks), we stayed with the play. Last week the bottom fell out and BLL made the move we wanted. With the big drop Thursday we locked in a 46% gain on our puts and closed the position. We could have hung around longer to squeeze some more gain, but with June options and a big dump lower we didn’t want to be greedy. Big downside moves are followed by rebounds, and we were very happy with a solid gain in relatively short order.
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/swnsm.gif” width=”360″ height=”208″ border=”1″>
http://investmenthouse.com/quote/stkquote.php3?smbl=
SWN”>
SWN (Southwestern Energy–$64.32; -0.07; optionable): Gas utilities. Splits 2:1 on 6-6-05.
http://finance.yahoo.com/q/pr?s=swn”>Company Profile
STATUS: Breakout test. SWN exploded out of a 9 week cup base to start May, rallying to 69 on that move. A nice base sporting solid 3 to 1 accumulation (3 up price weeks on rising volume to 1 down price weeks on rising volume) shows net buyers. After a thud lower Thursday, SWN showed a nice tight doji at the 18 day EMA (64.06). Solid action and looking for a rebound on rising, above average volume to move into new positions.
Volume: 646.1K Avg Volume: 622.772K
BUY POINT: $65.44 Volume=900K Target=$69.85 Stop=$63.92
POSITION: SWN IM – Sept. $65c (53 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/ugism.gif” width=”360″ height=”208″ border=”1″>
3) Technical Playhttp://investmenthouse.com/quote/stkquote.php3?smbl=
UGI”>
UGI (UGI Corp.)
http://finance.yahoo.com/q/pr?s=ugi”>Company Profile
Despite a weak overall market, there are always certain sectors performing well. Utilities are one such sector, and UGI is a leader in that sector and the market as well. It has formed a series of short bases followed by breakouts, and it was doing the same thing in March and April. We were watching closely, waiting for it to complete the short 4 week pattern over the 50 day EMA. After a quick test down to the 50 day EMA that acted as a shakeout, i.e. the final dip to remove the last sellers, UGI shot higher on 4-19-05. Volume jumped higher with that break higher; that was the move we were looking for. We moved in with some stock positions and some July $45 strike call options. With the stock at $47.87 those options sported a strong 75 delta, giving us some very good movement. The option cost $3.70, not bad for being $2.87 in the money; lots of intrinsic or ‘in the money’ value. UGI is not a race horse, but it is steady. It proceeded on a 14 session climb, culminating in a gap higher on Monday. That was our target point and we locked in some solid 11% stock gain and a very nice 121% option gain. Now it is making a low volume test of the 10 day EMA. After such a strong run it will need a breather, but we are watching for it to hold the 18 day EMA on this pullback and continue the run from there.
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 $25.82. The June $25 Calls (SFQFE) are trading at $1.95. That provides a return of about 5% 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
* * * 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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