From the Sunday Option Investor newsletter:
(the following is an editorial from Jim Brown, OIN founder)
"I personally believe the market, that
is the Nasdaq, will rally after the Fed meeting. While
it will not go straight up it should rally into the July
earnings. Normally this rally does not start until late
May or early June but after the beating we have taken I
don't believe there is much downside. Sure we could still
see another retest of the recent lows but with every higher
low that possibility diminishes. The low volume that the
talking heads on CNBC are so quick to point out as the
beginning of the summer doldrums is not in my opinion
summer doldrums. It is simply Fed dread and will go away
after the meeting. Sure we may not have the 2.8 bln share
days from the last real rally but it should be over 2 bln
again. Returning volume and a close over 4000 should be
your sign to open long call positions. We have had two
closes over 3800 and four higher lows. Support is building.
I looked at several hundred charts on Nasdaq stocks Friday
and better than 80% of them had a two or three level stair
step up trend showing progressively higher support. As
stocks go, so goes the market. I repeat, this does not mean
we can't fall back on bad news. Bad news could rock the
market back to 3600 without much effort. Getting below 3600
would require some really bad news and a total buyers strike."
The following is the OIN strategy for trading SDLI, which may be of particular interest to Tom K.:
"You've gotta love the fiber optic stocks. But you could probably
do without the wide intra-day swings of 20 points or more. The
volatility is good for traders but unhealthy for long-term
investors. SDLI has one of the highest EPS and relative strength
rankings in its industry. If you don't mind the volatility, it's
probably a pretty good stock to hold for the next 3 - 4 years.
SDLI competitor JDSU announced earnings in late April. The
company told analysts to expect 75% growth in the coming year.
If you're looking for growth, and don't mind paying a high price,
you'll find it in the in the fiber optic area, and SDLI is worth
considering.
In the near-term, there are several events that could carry SDLI
higher. The company will hold its Annual Shareholder Meeting on
May 18th. Investors are expected to approve a proposal to double
the number of authorized shares. If the market stabilizes,
executives may announce a stock split. The last time SDLI split
was back in December of 1999 when the stock was trading at $174.
Also worth noting, rumors have been circulating trading desks that
consolidation is coming to the optical networking sector. Though
just rumors, the talk could carry SDLI higher.
SDLI formed a solid double-bottom in April and has rallied on
healthy volume since. The stock is trending upwards forming a
bullish wedge pattern. SDLI needs to clear resistance at $200
before retesting its highs from early March. The announcement of
a stock split could be just the catalyst to lift the stock above
resistance. I'd like to point out the natural reaction that
occurred last week. This is normal for a stock that has rallied
so swiftly. Notice the low volume during the decline, indicating
profit takers were locking in their gains. The pullback is usually
a good entry point if the stock remains in an up-trend." |
