Weekly technical analysis.
Market comments:
The S&P 500, OEX, and DJIA all appear to be in trading ranges. I'm neither expecting a big collapse nor a big rally. Presently the S&P 500 (1108.73) is in the middle of it's trading range between 1086 and 1130; the OEX (538.45) is in the middle of it's trading range between 525 and 548; and the DJIA (9096) is in the middle of it's trading range between 8860 and 9260. I think this is a great environment for traders but not a very good one for long term investors. In my opinion, there is too much bearish sentiment right now and long term bond rates are too low to send the markets into a major correction. However, I think we are likely to test support levels and consolidate in a range for some time. While intraday volatility may remain, I think the averages will likely be range bound for a while and longer term volatility will probably decrease.
I think it's going to be harder to make money for a while and stock selection will be more important than it has been in the past few months. I would stay away from stocks that are highly speculative and have spiked such as some Internet stocks. Some of these will be long term winners, but in the type of market that I'm expecting, extremely high PE ratios and frothiness will come out of many of these stocks. There are much better stocks to trade based on risk to reward than many of these companies.
GWRX
Bought 8000 sh. 5/8 @ 4 3/4
Close 5/15 @ 5
Support @ 4 3/4 (daily), 4 1/2 (weekly)
Resistance @ 5 3/8 (daily), 6 5/8 (weekly)
Notes: GWRX ran into resistance near the middle daily bollinger band last week and pulled back a little. The money flow the past two weeks has been very good and the daily momentum indicators are still pointing up. I would view a close over 5 3/8 as particularly bullish.
Target: 6 1/4 to 6 5/8
Personal position: Long at an average price of 4 3/4
IRF
Bought 2000 sh. 3/17 @ 12 1/2; bought 2000 sh. 3/31 @ 11 5/8
Close 5/15 @ 10 13/16
Support @ 10 1/2
Resistance @ 12 5/8 and 14
Notes: IRF met resistance at the upper daily bollinger band on 5/4 and again pulled back to support on the daily chart. It looks like the stock is stuck in a trading range between 10 1/2 and 12 3/4 for the time being. On the positive side, it is trading near a price that has provided support many times over the past few years. On the negative side, semiconductor stocks in general are under pressure at this time. These two forces are likely keeping the stock stuck in it's trading range but I think the odds favor an upside breakout over a collapse from here. IRF is my largest personal holding at this time and I think it offers a very good risk to reward.
Target: 12 1/2 to 12 3/4, might be raised depending on how it trades
Personal position: Long at an average price of 11 3/4
LNET
Bought 2500 sh. 12/31 @ 11
Close 5/15 @ 11 1/2
Support @ 10 1/2 (daily and weekly)
Resistance @ 12 1/2 (daily and weekly)
Notes: LNET is stuck in a trading range between 10 1/2 and 12 1/2 but I'm reluctant to trade it because I think it will eventually break out above resistance. Nobody can tell when that will happen, but the chart looks good to me so I am patiently holding it. The stock recently rallied to 13 1/2 and then pulled back inside of the trading range the next day. The daily on-balance-volume is rising indicating that the stock is under accumulation. This is a long term bullish indicator although it doesn't give good short term signals. The stock made a good move on 5/15 so hopefully this is the start of another run to the upper end of the trading range. (PS to Ron: I know you don't like the word hopefully, but I think it's ok when used in this context gg)
Personal position: Long at an average price of 11 3/8
PAUH
Bought 3000 sh. 1/6 @ 10
Close 5/15 @ 15 1/2
Support @ 14 and 12 1/2
Resistance @ 16
Notes: The Z's stock was called at 12 « since we were short May 12.5 calls that expired on 5/15. The covered call position obviously didn't work this time. I also did a buy-write in my personal account but sold my stock at 15 1/16 leaving me with a naked short position in the May 12.5 calls. I didn't cover the calls at expiration and I am now short PAUH. There are several reasons why I decided to hold my short calls and allow them to be exercised. The stock is over-bought, has resistance at 16, is up 100% in the past three months, and failed to rally last week on earnings that were 50% above the consensus estimate. Additionally, I think stocks such as PAUH are much more likely to get hit than stocks that are trading near support if the broader market continues to decline to support levels. I was ready to cover my short last week but held off when it failed to rally on the earnings. This demonstrates that the earnings were already discounted and I think it is very bearish when a stock doesn't rally on earnings that are 50% above estimates.
Personal position: Short at 15 1/16
T
Bought 800 sh. 4/20 @ 64 5/8
Close 5/15 @ 57
Support @ 57 (daily), 56 (weekly)
Resistance @ 63 1/2 (daily), 68 (weekly)
Notes: I didn't play this stock right for the Z's account although I had success with it in my personal account. I think that it's too late to sell the stock because it is oversold and trading right at support on the daily chart and only $1 from support on the weekly chart. Additionally, the money flow has been very good throughout the recent decline and I think the stock will move back up. The risk to reward is very good now for anybody who is looking to buy the stock. I'd like to average down our position and will do so next week depending on how it trades and whether anybody expresses an opposition to this.
Personal position: None, sold for a profit two weeks ago
VLSI
Bought 3000 sh. 5/8 @ 20 3/8
Close 5/15 @ 19 1/4
Support @ 18 1/2 (daily), 17 (weekly)
Resistance @ 21 3/4 (daily), 24 (weekly)
Notes: I went back into VLSI last week because the stock had support at 20 but unfortunately it didn't hold and it tested 18 again. On the positive side, VLSI is over-sold and has good money flow. I believe that it will hold up better than most semiconductor stocks if they continue to correct although I wouldn't be surprised if it tests the 17 to 18 area again. I would buy the stock on weakness to support. From a fundamental perspective, VLSI isn't in the same category as INTC or AMD (microprocessors), MU (memory), and not much of their business goes to computer makers such as CPQ, DELL, GTW. The company's primary business is Application Specific Integrated Circuits (ASICs) and they have a leading position in the cellular telephone market as a supplier to Ericsson. I attribute last week's weakness to four factors: 1) An unsubstantiated rumor that the CEO would resign at the annual meeting last week (he didn't); 2) Merrill Lynch analyst Thomas Kurlak made bearish remarks about the personal computer and microprocessor market (primarily hurts companies like INTC, AMD, GTW, CPQ, DELL); 3) the stock broke support at 20 and quickly traded down to the low 18 area; 4) options expiration. While I don't like to mix fundamental and technical analysis, I think that VLSI is likely to hold the 17 to 18 area because it is only trading at 14 x trailing earnings and 15 x next year's earnings estimate. Given the growth in the cellular area, I think the stock is very reasonably priced and is one of the few bargains in semiconductors (IRF is also in that category). If 17 is tested and doesn't hold, then something is wrong at the company and I would bail. For now, my plan is to phase into the stock down to 17 if it goes that low.
Personal position: Long at 20 3/8
IOM
The Z doesn't have a position in IOM but I have some in my personal account. The stock is nearing the upwards sloping lower daily bollinger band and is oversold. The stock looks great for a trade if you can get it between 7 3/16 and 7 5/16. I'm planning to buy IOM for the Z next week.
Best of trades to all,
Dan |
