Weekend Newsletter for May 9, 2004
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Read this report online in full color with graphs at
http://www.investmenthouse.com/weekend/050904.htm
1) MARKET SUMMARY
Stocks still selling on good news in fear of rate hikes.
– Strong jobs report tries to rally stocks but fear of rate hikes still controls for now.
– Sizzling jobs report continues string of strong economic data as expansion beats expectations
– Market still discounting interest rate hikes as large cap indexes head toward 200 day SMA.
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).
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.
SSP (E.W. Scripps–$103.01; -0.10; optionable): Newspapers. Splits 2:1 on a date yet to be announced.
STATUS: 50 day EMA test. Broke from a short 6 week flat base in early April and rallied to 109. It has come back with a good test, pulling back to the 50 day EMA (102.35) on lower, below average volume as the rest of the market sold on higher trade. Friday SSP showed a nice, tight hammer doji over the 50 day and above additional price support at 102.50. Looking for a strong volume bounce from here to move in and capture the next move. Strong stocks use the 50 day EMA as the terminus of a pullback, and institutions owning the stock often ‘stock up’ on it at this point. Thus we are looking for high volume on a bounce higher as a sign that big money is moving back in.
Volume: 86.7K Avg Volume: 182.759K
BUY POINT: $104.78 Volume=225K Target=$112 Stop=$103.72
POSITION: SSP IA – Sept. $105c (43 delta).
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3) Technical Play
PSYS (Psychiatric Solutions–$22.67; +0.35; no options): Specialized health services
STATUS: Cup w/handle. PSYS has formed a nice 8 week base, consolidating a strong March to March run. Good price/volume action in the pattern with volume drying up at the bottom of the pattern and then swelling as it rallied to form the right side of the base. Excellent money flow and relative strength is ready to make the breakout. Friday PSYS was trying to make the run on stronger, above average volume, but gave much of the move back. An ‘A’ rated stock as far as earnings and sales. Just waiting for it to show us the strong breakout.
Volume: 340.82K Avg Volume: 158.089K
BUY POINT: $23.85 Volume=300K Target=$28 Stop=$22.18
POSITION: Stock (no option chain).
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4) Covered Call Play
MCHP – Microchip Technology, Inc. is currently trading at $30.67. The June $30 Calls (QMTFF) are trading at $2.05. That provides a return of about 5% if MCHP is above $30 on expiration Friday in June.
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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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