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Maybe No Rally to Year End (Weekend Newsletter)
Sun, December 13, 2009 10:06:11 AMFrom: InvestmentHouse.com
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Weekend Newsletter for
December 13, 2009
Read our Weekend Report online.
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
Market actually starting to act like a market anticipating economic growth.
- Rotation and stocks rising with a rising dollar: two new themes.
- Retail sales post second month of gains.
- Import prices are rising.
- Jobs are growing . . . in the federal government (along with salaries).
- Commodities dipping, small and mid-caps under accumulation.
- Maybe no rally to year end, but small caps look to be setting up for a good January effect.
Market Summary (continued)
This week epitomized the changes taking place in the market, even though they may have just solidified this week. It behooves us as investors to take note of what is happening in the stock market and the markets surrounding it. One of the main changes I discussed on Thursday was rotation. There has been a move out of commodities. Gold had a rough week ($1,115.10, -10.00) after hitting $1,226 just over a week ago. There is a current rotation out of gold, but we have a play on the GLD because it could be trying to bottom and could make a knifepoint turn.
Oil was down sharply ($69.66, -0.88). It may be in a position to bounce as it is reaching important EMAs, but the rotation has been out of these and into medical, business services, and semiconductors. A lot of these are in small cap areas, and the small caps have been consolidating with perhaps some accumulation ready to break them higher for the January effect.
There is a second change in the market that started showing itself on Friday: the dollar is rising. It was just consolidating on Thursday along the 50 day EMA, and now it has broken sharply higher. At the same time, the stock market rose slightly and the small caps gained a bit of ground. The Dow industrials gained ground, and SP500 gained as well. There were no breakouts of the range, but the dollar was up, stocks were up, and bonds were down. The 10 year treasury was strong (3.55%). It surged back up and broke through a key level at 3.5%. Whether it will hold the move remains to be seen, but stocks and the dollar are higher, and the bonds are lower. They are acting as they "should" act if the economy is trying to improve.
Read "The Daily" Entire Weekend Summary
Watch Market Summary Video
Here's a trade from "The Daily" and insights into our trading strategy:
Chart by StockCharts.com
FLR (Fluor Corp.)
Company Profile
With the rotation out of some industrials even as other parts of the market continued to rally, we naturally looked for downside plays to take advantage of what the market was giving. FLR was trending lower as of September, and thus when it set up a descending triangle, a typically bearish pattern, in November, we were ready to take some downside gain when the stock showed us it was ready.
FLR went onto the report on 11/24 as it tested the bottom of its three week triangle. It then tried to mess up our plans with a gap lower on 11/27 that took it out of the downside of its triangle. A gap through a support level often leads to a test so we did not drop the play but tried to practice a bit of patience. Sure enough on 12/01 FLR rallied to test the gap lower, moving back up into the pattern intraday but then rolling over to trade back below the pattern late in the session.
That failure to recover the pattern was our cue to enter. We bought some January $45 strike put options at $3.60. After the test and failure it looked as if FLR was ready to sell further and continue the downtrend. FLR did start to sell, but it was not an immediate dump lower. FLR tried to hold $42 for the next four sessions, showing some stickiness there. Then on Tuesday 12/08 it finally broke lower, dropping 3.25%. It paused Wednesday but then kept the selling pressure up on Thursday and again Friday. That took FLR to our initial target at some support from April. Sticking with our plan we sold some of our puts for $5.40, a 50% gain. As FLR closed at the session low we left some positions to work for us; FLR can break down into the current support range and test $37.50, really ramping up our gains. We will be happy to let it work for us as we take what the market gives us.
Learn more about "The Daily" with Stock Picks! - Issued 5 Times Per Week
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2) STOCK SPLIT PLAY
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
JASO (JA Solar Holdings--$4.57; +0.04; optionable): Solar
Company Profile
After Hours: $4.57
EARNINGS: 11/10/2009
STATUS: Flag. JASO is trading in a seven month base, now using the 200 day SMA as support. Strong break higher to start December and then an easy, low volume test the past week, holding the 10 day EMA as well as prior support in the base. JASO has consolidated as other stocks rallied, and now that there is the rotation ongoing it is setting up for a move.
CHART VIDEO
Volume: 3.888M Avg Volume: 5.298M
BUY POINT: $4.69 Volume=8M Target=$5.78 Stop=$4.36
POSITION: QJP CA - Mar. $5c (45 delta) &/or Stock
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
CP (Canadian Pacific Railway--$53.42; -0.49; optionable): Railroads
Company Profile
After Hours: $53.45
EARNINGS: 10/27/2009
STATUS: Put test. CP is not in bad shape at all, and indeed it has broken out of a 4 month base, making a nice surge higher. It is that surge up past the 127% Fibonacci extension in one big surge that has made this play possible. We are going to play the move back to test the breakout point as we have done on other plays such as BHP. A move to the target lands a 35%ish gain.
CHART VIDEO
Volume: 636.216K Avg Volume: 747.542K
BUY POINT: $53.31 Volume=800K Target=$50.25 Stop=$54.48
POSITION: CP OK - Mar. $55p (-55 delta)
Learn more about our Technical Traders Report - Issued 5 Times Per Week
Chart by StockCharts.com
4) COVERED CALL PLAY
TS - Tenaris SA is currently trading at $40.10. The January $40.00 Calls (TSWAH) are trading at $1.90. That provides a return of about 5% if TS is above $40.00 on expiration Friday in January.
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!
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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