1) MARKET SUMMARY
> >From "The Daily" at InvestmentHouse.com Market rallies in the face of jobs report, 3-day weekend.
- Jobs are not great, but market continues the rebound nonetheless.
- Some short covering yes, but some strong moves also.
- Indices rebound, knocking on the door of recovery.
- Another round of early week selling. Coincidence or something brewing?
- Revisions, hours worked show recovery is just not strong enough yet to produce jobs.
- Market still in its overall uptrend but still having near term issues.
Market Summary (continued)
Friday was about two things: jobs and a three-day Labor Day weekend. Jobs were important; every month people look to see if the economy is improving, and there has been some improvement over the past week with some regional manufacturing reports and the national manufacturing report. The ISM did not make 50, but there has been an improvement, and people always start looking for jobs to improve. We are just at the beginning of a recovery, thus jobs are not going to be there until the personnel departments think it is safe to bring people on again. The other factors involved in the numbers are not there right now. We all have the long three-day weekend, and what often happens ahead of that is that the shorts have to worry about that "X factor" that might lead to the stock market rallying. They do not want to be in a lot of short positions, so they reduce their exposure, they cover, and that can cause stocks to rise. We may have gotten some of that on Friday.
The market stumbled earlier in the week and was able to make a comeback later, as we saw three weeks ago. It did not make it positive on the week, but there were good recoveries by the indices that put them at or right above the early August highs. That is a key point to note; indeed, SP500 moved over the November 2008 peak so there was some progress made at the end of the week after a pretty weak start.
On Friday, there was news out ahead of the jobs report in the US. China was up and was once again the early morning topic. We saw commodities and industrials and those related to growth around the world moving higher and, as with steel, they held up quite well during the entire session. Indeed, a lot of stocks were up by the end of the day, but it just took a while to get there. Canada was out with its jobs report, and it showed its first gain in 4 months. It would be nice if we could say the same, but unfortunately we have to turn the calendar back over a year to get there. We have a lot of catching up to do. Maybe we can look at it as a "glass half full" scenario while Europe, Canada and other countries are already pulling out of the recession. We are trying and are not there yet, but catching up can be fun, right?
Read "The Daily" Entire Weekend Summary
Here's a trade from "The Daily" and insights into our trading strategy:
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Company Profile
Sometimes all that glitters is gold. We have been biding our time, telling people to watch gold as it was setting up this time to make a breakout past that 1000 level and ultimately move onto 1,500. We were watching the setup over the past three months, a nice 3 month ascending triangle that we are seeing in a lot of metals, precious and industrial.
It was ripening nicely, making a higher low in August, bouncing higher to end that month, then pulling back modestly to test that move. That is when we put it on the report in anticipation of a breakout move. Well, maybe not gold itself, but GLD, the one-tenth price ETF that tracks gold prices.
As gold made that higher low we put it on the report on 9-1-09. Maybe we were a day late, maybe not. The next session gold gapped higher but on this gap we did not wait, instead moving in early, picking up some shares of GLD at $94.74 and some January $93 strike call options at $6.40. No doubt gold was ready to move back to 1,000; that session it surged, sending the GLD to $97.53 on the close. The next session it gapped again, rallying to near $98 on the move. Now our initial target for taking some gain, particularly the options, is right at $100. That was prior resistance (on up to $103ish), so a rally to that level that pauses is a good place to bank some gain.
Now GLD didn't quite make it to that level last week, and Friday it opened lower leading some to second guess if gold would make 1,000. It sold off early but then reversed dramatically to close basically flat. What we saw Wednesday through Friday was money more than willing to buy gold. The ferocity of the breakout shows real money at work. Volumes were huge, the biggest in 6 months. Moreover, on Friday when gold sold back the buyers swarmed back in.
Thus we are pretty confident that gold will break 1000, and we decided to leave all of our positions on the table to give it that chance. Indeed after it makes the breakout over that level we will bank part of our gain and then look for the test. If the test holds over 100 and gold starts to bounce once more we will again be buyers and add to our positions. Gold could rise by 50% and rally up to 1,500 before this move is over and that turns a nice near term gain into a huge winner for us. Of course until it happens it is all talk and pretty pictures, but gold (and thus GLD) is off to a roaring start, already building 40+% of gain into our options positions with this quick burst. If we are correct in our analysis, the 40% will be chicken feed. Nice chicken feed, but chicken feed nonetheless.
Learn more about "The Daily" with Stock Picks! - Issued 5 Times Per Week
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.
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Here's a post-split play and our current analysis.
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Company Profile
After Hours: $23.40
EARNINGS: 07/23/2009
STATUS: Ascending triangle. Setting up nicely, bouncing Wednesday off the Tuesday selloff, holding the 50 day EMA (22.56) and adding to gains Thursday and Friday. Volume was quite light so we want to see some better trade next week. It will likely come and that means we will be ready to move into FLIR as it continues this move. To Recap: Nice 8 week Ascending triangle starting in July after FLIR reversed the May to early July downtrend. Strong surge last Friday back up to the peaks in the triangle, fading back this week. May come back and test a bit further; the 10 day EMA (22.57) is rising to meet it after all. Looking for the test to hold and FLIR to resume the move and then we move in.
Volume: 975.353K Avg Volume: 2.296M
BUY POINT: $23.31 Volume=2.6M Target=$27.45 Stop=$22.24
POSITION: FFQ AX - Jan. $22.50c (58 delta) &/or Stock
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