Stocks Market Summary (continued)
Friday the market bounced, but it was a bounce that did not change anything. Indeed, Wednesday through Friday the market bounced and it did not change anything either. The prior Thursday SP500 tried to break through its January peak. It did, but then it failed and rolled over. Since then, the market sold off back to next support level and mid-week it tried to bounce. That bounce did not change the market character or our outlook on what will happen next.
There was not a whole lot of news Friday. RIMM announced its earnings on Thursday night and they were a bit disappointing, but as usual they impacted RIMM the most - the rest of the market was relatively immune. AAPL, its main competitor, actually enjoyed a good day as it released its next generation of faster iPhones.
Iran said no to the vote. It put its foot down and said the vote is going to stand as it is, and we will see what happens in the streets. Early on that news helped bump oil higher, but by the end of the day, even with Nigerian rebels attacking once more, oil closed down below $70 after hitting over $72 during the week. Oil closed at $69.64, down $1.73. It was expiration Friday and there was some volatility on the session, and certainly volume was up just as you would expect on a good, solid, quadruple expiration day. All in all, an ordinary expiration session.
POT (Potash Corp.)
Company Profile
After showing us a great upside setup making us a lot of money on the upside on its May breakout and run higher (336% on our options, 40% on our stock), POT started showing classic signs of topping. In late May it peaked and gapped lower. It recovered, but after clearing the high on some very low volume it reversed intraday and then gave up the high with another gap lower. A low volume high, a reversal, an inability to hold the high. With that set up we were looking to enter on any further weakness.
We put it on the report, and as POT weakened again at $114 we moved in with some July $115 strike put options at $10.60. Pricey, but POT had surged and with this classic toppy pattern we were looking at a pretty big drop.
Well, POT did not drop right away. Instead of just a double top it held the 18 day EMA and bounced once more. It did not clear the prior second peak in this pattern, however, and thus we let the position work for us. Our mistake in the play was not buying MORE puts when POT showed a doji below the second peak, a triple top.
On 6-15 POT did make the break, gapping lower for the third time in the topping pattern. This time it did not recover at the 18 day EMA and the bottom of the lateral move. It sold $4.16 on to $107. It gapped massively lower the next session, falling $11.50 to close at $95.59. The decision at that point was whether to take gain, to take all the gain, or take part of the gain. A stock that gaps sharply lower tends to continue that move. You have to look, however, whether it gaps THROUGH key support. If so, it is going to continue in the direction of the gap. If not it could find support and bounce.
POT did not gap through key support. Indeed it gapped lower to the early May consolidation range after breaking out from a 3 month base. That is pretty good support. Given that, we decided to sell half our option position. We sold the options for $19.40, banking $8.80 per option or 83%. We moved our stop because with the support at this level we had to watch to see if it was going to bounce on us. The next session it showed a doji, an indication it might try to bounce, but it still closed a bit lower. Friday POT gapped higher but rolled over to lose $2.30 and close at $92.72. A bit closer to the tops in the February to April base. Lowered the stops again, but not so close that IF POT does not rebound sharply but breaks below those peaks we are still in our position and able to make some really impressive gains. That is why we keep part of our positions working for us after taking initial profits; that is where the really big money is made, not just the 'fast money' that often gets people into trouble as they don't let their profits run.
STOCK SPLIT PLAY
Playing best 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.
MD (Mednax Inc.--$41.05; -0.66; optionable): Neonatal, pediatric, etc. services
Company Profile
After Hours: $41.05
EARNINGS: 05/07/2009
STATUS: Double bottom w/handle. A pair of low lows, one in November and one in March set the foundation for this 10 month base. Rallied into May and then shot higher on its earnings. It is now testing, coming back to bottom this week at the 50 day EMA (38.87), bouncing Thursday and Friday though it could not hold the Friday move. Nice test, setting up a good opportunity for us this week if MD can hold and turn back up.
Volume: 764.034K Avg Volume: 348.803K
BUY POINT: $41.56 Volume=523K Target=$49.95 Stop=$38.65
POSITION: MD KH - Nov. $40c (52 delta, wide spread) &/or Stock
ARAY (Accuray Inc.--$7.51; -0.13; optionable): Medical appliances
Company Profile
After Hours: $7.50
EARNINGS: 05/05/2009
STATUS: Flag. Medical appliances and equipment are where some serious money is heading. ARAY surged higher to start June, breaking out from a 4 month ascending base. Nice strong first surge then a nice easy test last week, coming back to the 10 day EMA (7.39) and holding nicely. Hitting on all cylinders with surging money flow and excellent upside volume. May take a couple more days to test, but when it starts higher we will be ready to step in.
Volume: 443.698K Avg Volume: 324.374K
BUY POINT: $7.69 Volume=487K Target=$9.95 Stop=$7.15
POSITION: QVY IU - Sept. $7.50c (52 delta) &/or Stock
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