4/15/2007
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Weekend Newsletter for
April 15, 2007
Table Of Contents
1) MARKET SUMMARY
2) STOCK SPLIT PLAY
3) TECHNICAL PLAY
4) COVERED CALL PLAY
Stock Split Notices Investing Q & As Glossary
1) MARKET SUMMARY
> >From "The Daily" at InvestmentHouse.com
Basket of good news keeps stocks rising.
- Enough good news to keep stocks climbing right on through the Friday close.
- Mid-cycle slowdown getting some serious threats from inflation as Bush administration pursues its foolish weaker dollar policy.
- Core PPI shows some promise but the overall is suffering from high energy and high food. Getting hard to hide from inflation in this economy.
- Indices poised for a low volume rendezvous with February highs. We need to be ready when it gets there.
Market Summary (continued)
Thursday was a good answer to the Wednesday distribution, but it was not strong enough to completely quash the higher volume selling that rudely butted in following the low volume rally. Friday morning investors were again mulling whether they should bid stocks higher once more as futures were flat to modestly lower.
Then a stream of solid news began. First there were earnings. GE was good enough. MRK beat, raised guidance, and then got a bonus from a federal judge that ruled investor claims were time-barred. MCD fried up some more strong earnings and raised its guidance as well. It is hardly acting like the oldest fast food burger joint around. The Producers Price Index did not produce investor price angst as the core was flat, pulling the year/year into the Fed's comfort zone. Energy and food? That was another story, but it was not one investors wanted to deal with early Friday.
Even with that, however, stocks started flat to lower. Then the Michigan preliminary sentiment index came in at 85.3 versus the 87.5 expected (and 88.4 prior), and with that 8 month low (the last at the last market correction) the market pitched lower. Not that much lower, however. The indices easily held above the 10 day EMA and then rebounded, once more showing a steady climb higher. It was not the same as Thursday, however, in that the climb was rather anemic. Positive yes, but unable to make nearly any headway in what was a very lackluster session.
Read "The Daily" Entire Weekend Summary
Here's a trade from "The Daily" and insights into our trading strategy:
Chart by StockCharts.com
CX (Cemex SA--$34.79; -0.21; optionable): Cement
Company Profile
EARNINGS: Late April
STATUS: Double bottom w/handle. After a very nice run from January to February it needed a break and formed the current 7 week base to do just that. It rallied sharply to start last week, clearing the 'hump' in the double bottom. It faded back to form the handle, holding above the 50 day SMA (34.50) on lower volume. May take a couple more sessions to form up but solid action setting up another breakout and run higher.
Volume: 2.17M Avg Volume: 3.332M
BUY POINT: $35.65 Volume=5M Target=$40.99 Stop=$33.95
POSITION: CX GG - July $35c (55 delta) &/or Stock
Learn more about "The Daily" with Stock Picks! - Issued 5 Times Per Week
** SCOTTRADE **
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).
For post-splits, we can play them as we would pre-splits (very short term), but we prefer to stretch our horizons, playing the trend. When playing options, we look further out, 2 or more months at least. We let the trend carry us along if there is one, but we will also take profits if the technical pattern degenerates, e.g., breaks a trendline. The main difference between post-splits and pre-splits plays is that we really have to like the pattern. Pre-splits can run right before their splits even with poor technical indicators. For post-splits, we are looking at the stocks from more of a longer term "would I buy this stock at this juncture?" position. Now there are times when a hot stock splits and investors pile in to get in while the stock is 'cheaper.' We play those, but with more of a short-term, pre-splits mentality in that we will be ready to get out fast if the momentum fades.
Remember, everything we do has to pass muster with the market that day ... don't fight the market on these plays.
Listen to Stock Split Report Editor Jon Johnson's
stock split interview on CNBC-TV [ Broadband | Dial-up ]
Here's a post-split play and our current analysis.
Chart by StockCharts.com
ROCM (Rochester Medical Corp.)
Company Profile
When the market gets choppy as it did during the late February and early March selling, we often look toward the healthcare sector to see how they are setting up for upside moves. ROCM was on our radar for a few reasons. It was a post-split play, it was showing some strong upside volume in early February, and it had set up a classic double bottom base in the market selling. When we saw strong volume off the second bottom in the double bottom we put it on the report (3-10-07). The next session (3-12-07) it broke sharply higher on very strong trade and we moved in, buying some stock positions at $17.45 (no options on this stock so we did not buy those as we often do on these breakouts). ROCM added $1.27 that first day of the breakout and another $1.50 over the next two sessions. After that initial run we anticipated a test (that is very typical after the initial breakout and pop higher), and it faded modestly the next two sessions as the 10 day EMA rose to meet it. When it got there it sent ROCM right back up the next session with a $2.24 gain. The next session ROM was up again, but it reversed intraday. After this sharp run we decided to take some of the gain off the table, and sold some positions for $21.03 for a nice 22% gain in just 7 sessions.
ROCM was not done. With such solid upside volume we anticipated it would give us more and that is why we kept half of the position alive. It rallied from $20.54 to $23.42 over the next 5 sessions. We thought about taking some gain but decided to let it stretch the move. Well, it worked laterally and then tested sharply lower intraday to start April. We sat tight and sure enough it rebounded just as hard. It took a bit of a breather to end last week, closing at $23.59. We are up 35% on those positions in a month. If it breaks higher from here we will let it run. It showed two distribution sessions thus far this month, however, so any further weakness here and we will look at locking in the 35% on the rest of the positions.
ROCM is rather unheralded, but our screens seek out quality stocks in good position to breakout and run, and it doesn't discriminate between well known stocks and those with not quite household names. The result is that we often find some real gems at very nice prices.
Learn more about our Stock Split Report and how we have made gains of 321% with our powerful stock split plays!
Details Here.
Chart by StockCharts.com
3) TECHNICAL PLAY
AUY (Yamana Gold--$15.06; +0.34; optionable): Gold
Company Profile
EARNINGS: Announced 3-20-07
STATUS: Ascending triangle. Strong volume Friday as AUY approaches the top of its 7 week base formed making higher lows above the 50 day EMA (14.08). This is the third base since the rally got underway in earnest in late 2005 as AUY came off of the bottom of its long base. Good pause to catch its breath after November to February run, and it is now regrouped and ready to move higher with the continuing push in gold prices as inflation shows more signs of setting in.
Volume: 6.797M Avg Volume: 7.01M
BUY POINT: $15.32 Volume=10M Target=$18.55 Stop=$13.38
POSITION: AUY GC - July $15c (58 delta) &/or Stock
Learn more about our Technical Traders Report - Issued 5 Times Per Week
Chart by StockCharts.com
4) COVERED CALL PLAY
BUCY - Bucyrus International, Inc. is currently trading at $55.59. The May $55 Calls (HBUEK) are trading at $3.40. That provides a return of about 5% if BUCY is above $55 on expiration Friday in May.
Company Profile
Learn more about our Covered Call Tables - 8 Tables Updated 5 Times Per Week
PREMIUM SERVICES
IH Alerts: InvestmentHouse.com's Best of The Best Plays!
Stock Split Report: Forbes.com Best of the Web
Covered Calls: 8 Tables with nightly updates - energize your portfolio!
Tech Traders: Breakouts, wedges, etc...focusing on stocks ready to move now!
The Daily: "The Daily" is a must read for all investors!
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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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