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All,
Another interesting week and another lesson in "Follow the
system, Stupid". When SMOD jumped up to the top of it's up trend
channel over a week ago, I sold covered calls to hedge the position.
My system is to either close a long position at the top of the channel
or sell covered calls to protect against a pull back. If I sell
covered calls, I'm supposed to hold on to them until I have at least a
50% profit on the calls or I'm called out of the position at a good
overall profit. Instead, I made a judgement call and closed my
covered calls Tuesday at a slight loss after SMOD made a sideways move
to mid channel. MY thought was that SMOD was getting ready for
another up move. If I had kept the covered calls, I could have closed
them yesterday at about a 90% profit and offset most of SMOD's drop.
That's the way the system is supposed to work, now if I can only
follow it in the future <G>. Anyway, my overall portfolio was up
slightly for the week, so it wasn't a total loss. I did add to my
SMOD position yesterday. My stop is 28 3/4.
On a happier note, Pfizer is less then a point from my target and
my PFE LEAP calls are showing a good profit. I'm going to go ahead
and replace my PFE LEAP call position Monday. My candidate for this
is Compaq Computer (CPQ). The story here is that CPQ already leads
the computer industry in sales and with the DEC merger they will now
have the service personnel they need to dominate corporate sales.
Corporations want someone they can call in to fix their system when
servers or LANs go down. I also think that the bond market isn't as
good of a hedge as it was with the yield curve being so flat, so I'm
going to close half of my bond position and sell DHIYX at a small
profit. I want to put some of that money back to work with some
smaller, more speculative stocks. My candidate for this week is
Informix (IFMX). The story here is a potential turn around situation.
They hit the skids over a year ago when their accounting practices
were questioned. Seven month's ago, the board cleaned house and
brought in Bob Finocchio, the former President of 3Com, as CEO. He
laid off staff, straightened out their accounting, and fought the
resulting law suits. Then he surprised the market last week by
reporting a 5 cent per share profit when the street was expecting a 15
cent loss. They aren't out of the woods yet, but their chart looks
like a bottom may have formed in late December. This is still pretty
speculative and I'm only going to take a 1/2 size initial position
Monday.
CPQ at 34.062 is in a Short Term Up Trend Channel (STUTC) with
the top at 39 1/2 and the bottom at 31 1/2. It peaked at 39.78 in Sep
97 and fell from there to a low of 25 in late Dec 97. It rose from
there breaking out of short and intermediate term down trend channels
in early Jan and Feb 98, respectively. It hit a high of 34.968 in
early Feb and then pulled back to its present position in the bottom
half of its STUTC and near the top of the old Intermediate Term Down
Trend Channel (ITDTC). This looks like a classic breakout pattern
with CPQ now gathering strength for an assault on last years high.
CPQ gave a MetaStock Triple ma buy signal way back in mid 96 and
hasn't given a sell since then. The trick with this one has been to
find good entry points and I think this is one. The fundamentals are
good with the Price/Sales at 2.14, Current Ratio at 2.19, Debt/Equity
at 0.01, 18% insider ownership, 23% annual revenue growth and 64%
annual earnings growth. I'm going to open a position in Jan2000 40
LEAP calls (LKPAH - Bid 7.375, asked 7.875) Monday. I'll set my
initial target just under the 97 high at 39. I'll set my stop just
under the STUTC at 30 3/4.
IFMX at 8.062 is in a STUTC with the top at 10 3/8 and the bottom
at 6 1/2. It hit an all time high of 36.75 in Feb 96. From there it
went into a two year tail spin to a low of 4 in Dec 97. It then rose
and broke out of its ITDTC on high volume on Feb 12, 98. Then it
moved sideways and down to its current position just above the old
ITDTC. There is still a long term down trend channel with the top at
14 1/4, but it looks like it will assault that next. I got a MS
Coppock Curve buy signal in early February. The fundamentals are
so-so with a Price/Sales at 1.79 (good), Current ratio at 0.55 (bad),
12% insider ownership, annual revenue growth at 31% (good), and
negative annual earnings growth (bad). As I said, this is a more
speculative, turn around, bottom fishing expedition <G>. I'm going to
open a 1/2 size initial position Monday. I'll set the initial target
at 36, just under the 96 high. I'll set the stop under the STUTC at 5
3/4.
I'll send charts in gif format to everyone on the chart list.
If you aren't on the list and want on, just yell.
Jim
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