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ELY - Callaway Golf CompanyWeek Ended: 3/17/01
Price 22.80 P/E Ratio 22.97 52 Week High 27.18
Last Week + 1.51 Earnings Date 04/23/01 52 Week Low 11.00
Picked At 23.99 Date Picked 2/24/01 Sector Consumer Cyclical
Current 22.80 Open 23.90 Change -1.38
Low 22.70 High 23.91 Volume 553,900

Company Description

Callaway Golf Company designs, manufactures and markets high quality, innovative golf clubs and golf balls. ELY products include metal woods, irons, woods, and putters. For the FY ended 12/31/00, net sales rose 17% to $840.4M. Net income rose 50% to $83M. Revenues reflect increased sales from the launching of the new Rule 35(TM) golf ball. Net income reflects a reduction in employee benefits and depreciation expenses.

Play Description

February 25, 2001

Callaway Golf (ELY) is a leading designer and manufacturer of high quality, premium priced, golf clubs. The company’s golf clubs have been favorably received by both professional and weekend golfers on the basis of performance and ease of use. In addition to a strong product line, greater efficiencies in golf-club manufacturing have kept ELY’s profit margins on the upswing. These efficiencies are expected to translate into a 40% increase in earnings this year. In turn, this has created plenty of upside momentum for the stock. Clearly the stock is a momentum play now that higher levels are being confirmed by an expansion in volume. Friday, ELY soared to a new 52-week high of $24 on excellent volume of 701,300 shares. A move above this level in the upcoming week could be a good signal for momentum traders to resume their buying. That said, we’ll look for potential entry points to arise when ELY pushes though $24 on good daily volume above the 3-month average of 480,000 shares. Also, be aware that the $25 mark often presents a formidable challenge. Support will reside at $22.50, propped by recent highs and the 10-dma of 22.41. ELY’s strong uptrend is bolstered by good readings in the MACD and OBV indicators, which suggests that a continued sustainable move is likely. We’ll set our stops at $20 for downside protection.

Picked on February 25th @ $23.99
Change since picked 0.00
Stop Loss @ $20.00


March 13, 2001

It looks like ELY may have encountered a near-term top with its recent rally to the $27 mark. Starting with a slow pullback from this level, shares picked up momentum on Tuesday and hit our stop of $25.50. We were, however, able to lock in a gain of 6% on our play. This is encouraging, given the significant market sell-off.

Picked on February 25th @ $23.99
Profit/Loss = +1.51 (+6%) (Stopped Tuesday @ $25.50)
Best Profit = +3.19 (+13%)

March 11, 2001

Callaway’s late day rally, which lifted shares into positive territory on Friday, may have been spurred by an upbeat news release from the company. In the last hour of trading, ELY announced that after merely nine weeks since its introduction in Europe, the ERC II has been the #1 brand of driver in each of the last seven events on the PGA European Tour. “This extensive usage in Europe by such an impressive number of the very best players, especially so quickly after its introduction, is a great validation of our product,” said Ely Callaway, Founder, Chairman and CEO of Callaway Golf. Despite a gap down at the open, ELY shares reached higher ground by Friday’s closing bell, finishing up 7 cents to $26.51. Volume surpassed the 3-month average, as 867,200 shares crossed the tape. Much of this volume came as the stock recovered from its lows in the last 2 hours of trading, which sets us up for some follow through on Monday. In addition, we want to point out that the bigger picture remains in tact for our play, as the stock continues to ascend sharply higher, without breaking the upward trendline. The MACD and On-Balance Volume indicators also remain strong. So, should shares continue to reach higher levels in the upcoming week, we’ll look for further resistance to occur at the $27.18 mark (52-week high), followed by a tougher challenge at $30. Support will come at the 5-dma of $26.26. Look to time entries when ELY shares bounce off of support or break above $27.18 on volume of at least 400,000 by midday.

Picked on February 25th @ $23.99
Change since picked +2.52
Stop Loss @ $25.50


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