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.

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 1, 2001

Callaway Golf drives for more gains on Thursday and scores a new 52-week high. More impressive was the fact that the breakout unfolded without the assistance of a news release. This is a good indication that momentum players are keeping a close watch on the stock and are buying on the breakouts. The intra-day chart confirms this possibility, as a large volume spike occurred just as ELY shares broke above the previous high ($25). What’s more, we’re impressed with good technical readings in both the MACD and OBV indicators, which support the present uptrend. All of these factors make the daily chart quite compelling and lead us to believe that a run to $30 is possible. On the other hand, should the stock retrace to lower levels before heading higher, expect to see support at the recent high of $25, and just below at the 5-dma of $24.40. Consider adding to positions if ELY bounces off support on volume exceeding 250,000 shares traded by mid-day or move through today's intra-day high of $25.41. We’ll hold stops at $20 to protect our backside.

Picked on February 25th @ $23.99
Change since picked +1.31
Stop Loss @ $20.00

February 27, 2001

Callaway is charging ahead in all facets of its game, which has clearly pulled its stock above par. Revenues for the company are expected to climb to $900 million for 2001, while profit margins are expected to rise from 40% to 50%. ELY is also projecting its earnings to come in at $1.55 a share, a 35% improvement over 2000. Shares of ELY rallied to a new 52-week high of $25 on Tuesday, but were met with formidable selling at this peak. Descending to lower levels after this high, ELY recovered from an intraday low of $23.61 to close at $23.95, down 3.30%. Volume came in at 1,089,500 shares traded, which was more than double the three-three month average. This could send up a red flag if ELY begins to trend lower. Still, the bigger trend still shows healthy readings in both the MACD and OBV indicators. This gives us confidence that ELY has yet to finish its run. So, as it now stands, we’ll look for the initial test to come at today’s high of $25. A closing above this level could clear the stock for a run to $30. Entry points should come when AYE shares moves through resistance on 300,000 shares traded by noon EST or on a reversal from support at the 10-dma of $23.09. We’ll keep our stops firm at $20.00.

Picked on February 25th @ $23.99
Change since picked –0.04
Stop Loss @ $20.00